In this day and age, there are many ways to come up with the money for a project. Crowdfunding real estate is an interesting investment. By pooling funds to reach the goal, investors can achieve financial goals and potentially make a profit. The website andersonadvisors.com provides a comprehensive overview of this.
What is real estate crowdfunding? People invest funds into a pool with other investors. Sometimes, this takes the form of relatives investing together to reach a goal. Investing like this is not a new thing. The more recent phenomena of crowdfunding differ from neighbors and families getting together to raise funds for a real estate transaction. In today’s market, this all can be done online and the internet can provide to help make these transactions happen.
There are online sites that ‘curate’ the projects available and help potential investors from having to do research into each individual project. Sites such as Realty Mogul review potential offerings, the market statistics, the track record of the investment company, and its record. In addition, they review the background, criminal records, and the credit of the real estate company.
As with any investment, there are pros and cons to crowdfunding investments. The pros include:
- A usually quick and easy way to enter the real estate market and get in on investments that might otherwise be out of reach
- There is great flexibility to crowdfunding opportunities. By bypassing the need for a traditional mortgage or loan, equity crowdfunding participants get a share in the property instead of receiving interest
- This investment vehicle is an alternative to investing in the stock market. Experts say that real estate is a more stable investment
- This type of investment can create sizable cash flow and dividends without having to manage a portfolio
As with any investment, there are also negatives to real estate crowdfunding. They include:
- There are fees and taxes when buying into a real estate pool
- Real estate is what is known as an illiquid asset; it cannot be gotten rid of as easily as stocks
- If the investor doesn’t go into an already vetted and accredited purchase, there can be a lot of work involved. It is easier to get a loan from one person than to round up a group.
- It can take longer to arrange this kind of group funding than a bridge loan from a bank
- Real estate can be a risky investment
Who should invest in crowdfunding?
The Wall Street Journal in an article on real estate crowdfunding shared a story of Dr. Ed Medley who had never before invested in real estate. Dr. Medley purchased shares along with hundreds of others in real estate deals funding by crowdfunding. Today, Dr. Medley of California has invested in over 15 properties, each with an investment of at least $5,000. He explains with such a low threshold for each property, it is his way to limit his exposure and risk. It is something that many investors have also come to understand and new websites are popping up constantly to help investors participate in these deals.
Crowdfunding can help investors get into the real estate market with smaller amounts of capital, connect with development people directly, and limit their risks. They can even pick and choose in which buildings they would like to invest. This opportunity can pay somewhere near 8-9% annually and when the building is sold, they receive a percentage of that as well. For a retired couple, this can bring in a steady form of income.
Why is crowdfunding a help to the community?
In many urban areas, there are buildings and even individual housing that are in need of development or redevelopment. These spaces would benefit greatly from a real estate crowdfunding campaign where people can pool their funds, do the necessary paperwork, and then rehabilitate the spaces. They would let people who have available funds to invest in part of a piece of real estate and people who need spaces to live to join together in an urban renewal project. If enough crowdsourcing projects can be put together, it can be possible to take an area that needs support and make it happen. This would make a major difference in the lives of those that live in many urban areas.
