The real estate crowdfunding industry continues to boom and has grown into a multi-billion dollar industry since the passing of the Jumpstart Our Business Startups Act of 2012. By 2025, the World Bank predicts the crowdfunding industry as a whole will be worth $93 billion, and online real estate marketplaces are primed to capitalize on that explosive growth.
Crowdfunding for real estate makes it possible for millions of new investors to participate in the real estate industry, by allowing investors to have access to pre-vetted real estate investments that were historically unavailable outside of close-knit circles. With its arrival in the real estate sector, many investors have taken advantage of crowdfunding as an alternative way of funding their deals. In this article, we will explore the benefits of real estate crowdfunding and why millions of investors are getting involved.
5 Benefits of Real Estate Crowdfunding Investors Should Know
Real estate crowdfunding allows investors to diversify their portfolios by property type, geographies, and even operating partners. Individuals have the option to choose between debt and equity investments as well, which is why it has become an attractive investment option.
Proper diversification is proven to increase overall long-term returns on an investment portfolio while reducing the potential of significant losses from market cycles.
Technology has opened the doors to real estate investment in many new exciting ways. Investors can join online real estate crowdfunding platforms like CrowdEngine to launch their fundraising campaigns, saving them time and money, while allowing them to reach a larger audience without excessive effort.
Investors can access deal information, invest, and manage their investments on a user-friendly platform from anywhere with access to the internet. Also, investors who choose the route of real estate crowdfunding avoid the lengthy process of applying for loans and searching for investments through traditional financing institutions.
All types of investments come with risk, but crowdfunding options offer a much higher level of transparency. Deals being offered on crowdfunding sites have typically been previously vetted by the companies offering them, giving the investor greater confidence that they are sound. This helps to ensure that prospective investors have as much information as possible so they can make the most educated decision.
Crowdfunding allows for greater control over location and asset selection. For example, if you invest in a REIT, you won’t know anything about the specific properties. With real estate crowdfunding, you have the freedom to select the properties and markets that you’re comfortable investing in. You’ll also receive periodic updates on the property, something you won’t get with a REIT.
Low Minimum Investment
Historically, the ability to invest in real estate was only available to the wealthy elite, with minimum investment amounts of $100,000 or more.
Today, real estate crowdfunding campaigns do not require a large minimum investment. As a result, more people have the opportunity to invest in a real estate crowdfunding deal for as little as $5000, which allows investors to enjoy the benefits of real estate investing while limiting downside risk.
Real estate crowdfunding attracts many investors because the deals are often structured to deliver steady cash flow with dividends that are distributed to investors monthly, quarterly, or annually. The two types of real estate crowdfunding investments are equity investments and debt investments.
Equity investments are typically longer-term investments that offer higher returns. Equity investments give investors an equity stake in the commercial or residential property, effectively turning them into shareholders. Dividends generally consist of rental income of the property. Also, if/when the property is sold the investor will earn income as well.
Debt investments mean the investor is acting as a lender to the property owner. Investors receive a fixed rate of return that is based on the interest rate of the owner’s mortgage loan, as well as the amount you have invested. Payments are usually given every month or every quarter. Also, since you are in debt investing, you will have priority during property payout. There is no additional income if/when a property is sold and investors don’t own a proportional share of any property. No matter which type of investment deal you choose, investors are seeing consistent cash flow.
CrowdEngine offers highly customizable crowdfunding software that is built for real estate. It’s easy-to-use crowdfunding technology that offers a premium experience for investors. CrowdEngine comes with everything you need out-of-the-box, including CRM integrations, online escrow and payments, third-party accreditation, DocuSign, social media integrations, and much more. Our crowdfunding software helps you manage your investor portal and all your transactions with ease.
CrowdEngine is SEC, FINRA, & Broker-Dealer compliant for Reg A+, Reg D 506(b) & 506(c), Regulation Crowdfunding, US Intrastate, and International compatible. Rest easy knowing we have the experience of many FINRA reviews under our belt. We make it easy to launch a crowdfunding portal and raise capital if you’re considering crowdfunding for your next project!
Disclaimer: This information is provided to our clients and other friends for educational purposes only. CrowdEngine is not guaranteeing any information as reliable or accurate, and that it’s subject to change at any time. It should not be construed or relied upon as legal advice. Please contact your lawyer with respect to any of the matters discussed here.
This post was written by Lanli Pham on February 20, 2019