What is real estate crowdfunding?
The rise of real estate crowdfunding has been nothing short of meteoric. In 2017, nearly $200 million was raised on sites like RealtyShares and AngelList to invest in residential real estate projects. A more in-depth definition of real estate crowdfunding includes offerings like FUNDRISE, REALTYMOGUL, and CROWDSTREET. These sites allow you to invest in residential real estate projects.
The difference between real estate crowdfunding and other forms of crowdfunding is that traditional crowdfunding involves the purchase of a physical item, such as a handbag, in exchange. On the other end of the spectrum, real estate crowdfunding involves the purchase of a property for the purpose of development or redevelopment.
Real Estate Crowdfunding Definition:
Crowdfunding (also known as Social Capital) is defined as “a funding method where small amounts are contributed from many individuals rather than large institutional investors”.
The term was first used in the context of real estate investing in 2006. In this case, the phrase “real estate crowdfunding” refers to online platforms that allow people to invest money directly into specific properties without having to visit any physical location.
In contrast to traditional methods of investing, crowdfunded real estate allows investors to fund projects that they feel passionate about, often based on their personal connections. This type of investment has become increasingly popular due to its ability to connect people who want to invest with those looking to raise capital.
A good example of crowdfunded real estate would be a platform like Fundrise or RealtyMogul. These companies provide investors with pre-screened opportunities to purchase residential properties at a profit.
What are the benefits of real estate crowdfunding?
As real estate crowdfunding has grown in popularity, so too have the benefits.
1. You can invest in projects you care about
While you can invest in projects in many different categories, you can only invest in real estate on sites like RealtyShares, RealtyMogul and AngelList. This allows you to invest in projects that you care about.
Real estate crowdfunding gives you the opportunity to invest in projects in a variety of sectors, including multifamily housing, commercial and industrial, farmland, single family, community development, and student housing.
2. The projects are vetted and accredited
Before you can invest, you must be pre-screened to make sure you fit the criteria for the property you are investing in.
On the other hand, a traditional crowdfunding campaign involves the purchase of a physical item, such as a handbag, in exchange for an investment. While in many cases, the product is of equal value, this is not always the case. This can lead to scams that prey on investors who are unfamiliar with the project or a company they are supporting.
3. You can get diversified returns
Traditional crowdfunding is all about making an investment in a single project. You are often investing in a project, which means the returns you receive will be limited.
Real estate crowdfunding is different. By investing in multiple projects, you can achieve greater diversification and see a greater return. You will also have the opportunity to invest in different sectors, which will give you a more diverse portfolio.
How to use real estate crowdfunding?
Unlike traditional crowdfunding sites, real estate crowdfunding is a relatively new concept.
To invest, you must meet the following qualifications:
- You must be a U.S. resident.
- You must be 18 years or older.
- You must have a minimum annual income of $100,000.
- You must have a valid credit score and no felony or history of bankruptcies.
Real estate crowdfunding is not for everyone.
While real estate crowdfunding is gaining popularity, it’s still a fairly new concept, so it’s not always the best option for everyone.
There are a few drawbacks to real estate crowdfunding, which include:
- You’re putting your money in someone else’s hands.
- You are risking your own money.
- You can’t sell your investment.
Real estate crowdfunding also isn’t for the faint of heart. You need to be willing to put up your own money and you need to be okay with the fact that you can’t sell your investment.
In addition, real estate crowdfunding isn’t always available. Projects that are seeking funding must have a minimum of $1,000. As with all crowdfunding campaigns, you will need to become familiar with the site and the offerings it has to offer before you invest.
Real estate crowdfunding has been around since 2013 and there are still many limitations. This is a relatively new area of investing and there are not many options, so if you are looking to invest in real estate, you should expect to do a bit of research.
Final thoughts
Real estate crowdfunding is a great option for those who want to invest in a project they care about. It can provide you with greater diversification, faster growth and it allows you to invest in projects in a variety of sectors.
Final tip: Real estate crowdfunding can be an especially great option for investors who want to invest in single-family homes, community development, and student housing.
Who knows, you might just find your next home or apartment in one of these projects!
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Disclaimer: This is a curated post.
