Real estate crowdfunding is a way to raise money online for real estate acquisitions from a large group of investors. Individuals and businesses can use crowdfunding to access capital from a large group of potential investors on internet platforms and social media sites. The idea behind crowdfunding is that many people may be willing to invest a small amount in such projects, and when they do, large sums of money can be raised pretty quickly.
How Real Estate Crowdfunding Works
Crowdfunding involves raising capital from investors by using the internet or social media sites to reach a large group of investors. Crowdfunding has been associated with donations for those in need and with equity transactions that enable small- and midsized entities to pool money and use the funds to put money into the company’s future, such as buying equipment or building a manufacturing plant.Â
Real estate crowdfunding is similar to the equity version of it in that an investor can buy into a property and become a shareholder. Investors don’t need to purchase entire properties, and they earn a part of the profits generated from the investment based on the amount they invest. For example, revenue generated from a rental property or the proceeds of a sale would be paid to investors. The best attractive point is to offer investors a low entry point. As such, you can participate starting at about € 1,000.
Advantages and Disadvantages of Real Estate Crowdfunding
Real estate crowdfunding can offer many benefits, such as wider access to property investments, but it’s important to understand the drawbacks before you commit.
Advantages
A major benefit of real estate crowdfunding is enabling individuals and businesses to solicit a large pool of investors for their projects. Investors stand to gain by getting a small cash stake in the property (or venture).
For investors, crowdfunding has much lower capital requirements than other ways of gaining a stake in real estate. Major property investments, like apartment buildings, offices, or hotels, can cost millions or tens of millions of dollars. Through crowdfunding, investors gain exposure to these investments without putting up a significant amount of capital, and often with minimums as low as € 1,000.
The Bottom Line
Real estate crowdfunding allows everyday investors to invest in substantial real estate ventures, like hotels and apartment or office buildings. However, this industry is still relatively young, making it difficult for investors to research crowdfunding companies and their track records. If you’re interested in real estate crowdfunding, don’t skimp on your due diligence and consider your investment’s potential risks and rewards.
