What Is Real Estate Crowdfunding?
Real estate investment is capital intensive. It’s one of the most significant barriers to getting involved. Based on this fact, a growing number of people and companies are creating unconventional access to capital for real estate investment. Crowdfunding is just one of them. Hence the term, real estate crowdfunding.
Assuming the concept is relatively new to you, spending some minutes on this post will prove beneficial in the end. Regardless of your interest or the position you are coming from, the benefits of real estate crowdfunding might be within your reach.
To make it easier for you and everyone else, let’s look at the basics first.
The Origin of Crowdfunding
At its core, crowdfunding is the process of raising varying amounts of money from a large group of people or crowds to fund a particular project.
Although the practice dates back to some centuries ago, modern-day crowdfunding now often happens mainly on the internet. Back in 1997, a British rock band funded their reunion tour through small donations made by fans. The band named Marillon inspired the birth of ArtistShare, the first crowdfunding platform.
How Real Estate Crowdfunding Works
Real estate crowdfunding is about raising different amounts of money from a large group of people to finance real estate projects and investments curated by reputable experts.
When the total project or investment capital is divided among a large group of real estate investors, the funding becomes easier for everyone. It becomes easier for the companies and experts raising the money as well as average individuals interested in real estate investments.
The exciting part is that most of the commercial real estate crowdfunding projects are usually initiated by experts with a proven and verifiable track record in the field.
By leveraging the connectivity power of the internet, online real estate crowdfunding platforms bring a large group of people together to fund great investment deals.
Can you now see how such platforms are breaking the barrier to entry in real estate market investments? For an average investor, this is proving to be a great alternative to bock and stock investments.
What Is a Real Estate Crowdfunding Platform?
It is an online platform dedicated to connecting investors to real estate deals in different locations at the same time.
Through these real estate crowdfunding sites, thousands of people with the same interests can be connected at the same time without leaving their homes or offices.
Given the advancement of modern-day technologies, you can be able to verify the credibility of companies or individuals involved in each project or deal before making any financial commitment.
From the developer’s perspective, you can gain access to a network of colleagues, friends, and families with the same background who are interested in curated real estate investments. That means you don’t have to rely on your limited network of contacts.
If you are an investor, you’ll also have some interesting gains to experience when you join some of the best real estate crowdfunding websites. Let’s explore some of these benefits below.
Benefits of Real Estate Crowdfunding
#1: Lower Investment Capital Requirement
Traditionally, real estate investment capital requires huge amounts of money to get started. Assuming you want to build or buy a home, you may need something like $300,000 and above, depending on the size of the home.
The other traditional option is to take on huge mortgage loans which require some substantial down payments as well.
Contrary to these options mentioned above, a group of investors can pull in smaller contributions like $5000 – $20,000 to take advantage of real estate investment opportunities spotted in any market.
Even though the potential profits will be proportionate to the invested amount, you don’t have to deal with any mortgage risks or responsibilities.
#2: Access To Curated Projects And Deals
Beyond what you can be able to discover within your capacity or limited network of contacts, real estate crowdfunding sites will help you gain unparallel access to curated projects and deals.
While you are busy doing other things, the experts working with these crowdfunding sites spend their daily working hours exploring, vetting, and curating new deals.
Without driving from one location to the other, spending your money and time, you can able to spot new deals within your investment budget.
#3: Portfolio Risk Diversification
Both within the real estate and stock markets, risk tolerance often varies from one investor to the other.
In that same way, real estate crowdfunding risks are rarely equal when you look at it from one context to the other. Based on these facts, crowdfunding sites allow users to create deals and projects and deals with different levels of investment risks.
From there, you’ll be able to explore and identify the opportunities that will match your level of risk tolerance. Moreover, you may consider getting started with low-risk, low reward deals to test the platforms. This form of testing will help you build the experience and credible contacts needed for high-profit earning deals that may have higher risks.
#4: Viable Source of Passive Income
Having you been asking questions on how to create new sources of passive income? Real estate crowdfunding platforms can help you put you on the right path.
As noted earlier, you don’t have to take any mortgage risks just to start putting your money to work.
The interesting thing about investing through these platforms is that the process, requirements, rules, and schedule for distributing profits or dividends are usually clarified upfront. By taking a deep look at such variations, you’ll be able to determine if the terms of the deals on offer are acceptable to you or not.
Based on the nature of such investments, you don’t have to do any active work to earn the income. That’s what makes it a viable source of passive income. And you don’t need a big amount of money to get started.
Crowdfunding is a concept proven to work well breaking financial barriers. Before the emergence of the internet, doing this in the real estate industry hasn’t been possible.
But now, the advancement of technology is lowering the barrier to entry for everyone. From developers to investors alike, the benefits of real estate crowdfunding aren’t some things you have to continue putting off.
The best part is that you can start building up real wealth with a small amount. No more waiting until you have a big amount of capital before you can begin to take advantage of real estate crowdfunding sites.