Real Estate Crowdfunding Investment

real estate crowdfunding

Ask a rich person how they got rich, and there’s a good chance they’ll say they invested in real estate. In fact, real estate is generally accepted as one of the most solid ways to build wealth. That’s why there’s no shortage of people who long to buy a home and watch its value rise over time. There are the landlords willing to manage years of tenants in exchange for an eventual return on their purchase. And then there are the folks you see on TV who buy houses to flip seeking a seemingly near-instant profit.

Even if buying a home doesn’t match up with your personal vision of the American Dream, you may still want to consider investing in real estate. And buying a piece of property outright is no longer your only option for investing. Real estate crowdfunding is yet another way you can diversify your investment portfolio, often for less of an up-front expenditure.

But with a boom in startups and platforms aiming to make real estate crowdfunding easy, it can be hard to tell if this method of investing is right for your portfolio. Here’s what you need to know before you get started.

What is real estate crowdfunding?

As the name implies, real estate crowdfunding allows you to contribute your money toward a larger real estate investment. “You get access to deals that wouldn’t have been available to individual investors,” said Jonathan Wasserstrum, founder and CEO of commercial real estate technology company SquareFoot. “It’s not only about access, but also the size of some of these transactions. The average consumer can’t buy a $10 million building, however they can take on a $100 share of it.”

How that contribution is used depends on the platform through which you choose to make your investment. Some real estate crowdfunding platforms buy and manage properties, while some take the pooled money and lend it to other real estate investors.

Likewise, the type of return you see on your investment depends on the platform you choose. “Some crowdfunding websites have pooled funds that offer the same returns to all investors,” Brian Davis, director of education at property management app SparkRental explained. “Fundrise operates this way, with a few different fund options to choose from. Other crowdfunding sites allow you to pick and choose the individual projects you want to invest in. GroundFloor is an example.” (Davis personally uses both Fundrise and GroundFloor.)

Why it’s popular right now

Fundrise. GroundFloor. PeerStreet. Realty Mogul. CrowdStreet. RealtyShares. RealCrowd. EquityMultiple. I could go on! There are plenty of options for people interested in real estate crowdfunding, and they all have very startup-y names.

Real estate crowdfunding has exploded in recent years due to the passage of the JOBS (Jumpstart Our Business Startups) Act of 2012. That legislation made updates to the way investment capital can be raised, and made it OK to advertise investing opportunities. The JOBS Act also loosened restrictions around who has to register the securities they’re selling with the SEC. As Investopedia puts it, “Essentially, Title II [of the JOBS Act] gives crowdfunding firms the green light to direct-market to a large pool of potential investors via social media and the Internet.”

As this method of investing evolves, you can expect to see more niche-specific options pop up. “It’s becoming more sophisticated with more choices for the consumer,” Wasserstrum said, citing the example of Fund That Flip, which invests in loans for house flippers. “As with a lot of things in real estate technology, we’re still in the earliest innings.”

How crowdfunding differs from REITs

The online crowdfunding aspect may be new, but investing your money toward larger real estate projects is far from novel. Real Estate Investment Trusts, or REITs, have been around since the 1960s. REITs allow investors to buy publicly traded real estate projects through a standard brokerage account, 401(K) or IRA. Each REIT focuses on a specific kind of real estate, from apartment complexes to storage units to hospitals or malls, Business Insider notes.

“They’ve been around for a long time, and are just as liquid as stocks or funds,” Davis said. “Although the problem is that they often move alongside the stock market since they’re traded on the same exchanges, which partially defeats the purpose of diversification.”

What it costs to make money with real estate investing

There are, as always, potential costs to consider. Crowdfunding platform fees vary, typically featuring lower fees in exchange for higher investments. For example, CrowdStreet requires a minimum investment of $10,000 for a minimum 36 months, but doesn’t charge account fees. Fundrise lets you get started with $500, but charges a fee of 1% per year, which is relatively steep compared to fees for roboadvisors, which tend to be around 0.25% to 0.60%. You can expect fees in the 1% range for an actively managed portfolio.

Be patient, because you won’t get rich quick

Traditional REITs are usually the long-term real-estate investment that performs best, with an average annual return of more than 9%. Meanwhile, Joseph Hogue of My Stock Market Basics examined average returns on real estate crowdfunding platforms: Open investments had a return of around 14.7%, with completed deals averaging 14.6%. The returns can be attractive, but consider the short, post-recession life span of real estate crowdfunding startups in comparison to traditional REITs and other investing vehicles. (Once they’ve had a longer shelf life on the. market, the returns may not be so consistently high.) The diversification potential and ease of crowdfunding are the best benefits of this type of investing, according to Hogue.

If you’re just getting started with real estate crowdfunding, you should be comfortable having your money tied up for a while. “Most investments are designed to last at least a year, sometimes five years or longer,” Davis said. “In some cases you can sell your investment [sooner], but usually with a penalty and not quickly.”

And while real estate crowdfunding is as passive as it gets, you don’t have as much control over how much money you can make on your investment, like you would if you bought a rental property and managed it.

If you’re not investing at all yet —meaning you don’t have a 401(K), Roth IRA, or brokerage account—you’re probably not ready for real estate investing. It’s best to start with the basics, and save most of your investing goals for after you’ve tackled debt and built an emergency fund. But if you’re comfortable with your current portfolio and want to mix things up, real estate crowdfunding can help you diversify.

“Start small at first, to build comfort,” Davis advised. “Nothing says you have to invest thousands right away.”

Source: Lifehacker

You May also Like this

Macroeconomic
Macroeconomic Issues in Real ...

Understanding macroeconomic risk is critical to a successful strategy. While this form...

illiquidity premium
What is Illiquidity Premium ...

Illiquidity premium is the excess return an investor stands to earn in...

renewal
The procedure for the renewal ...

According to Section 1 of the , the law vests the ownership of...

pandemic
Post COVID-19 pandemic and ...

Adapt. Innovate. Accelerate. This is the mantra for any business right now...

Real Estate Wholesaling
Real Estate Wholesaling Pros ...

wholesaling is a kind of arbitrage in which a party known as a wholesaler...

stamp duty
The new Stamp Duty ...

Taxes are one of the ways through which the Government generates revenue...

WFH
How Work From Home ...

Google has announced that it will continue with work from home (WFH)...

Investment Portfolio
Investment Portfolio Diversification in ...

Months after the onset of Covid-19, we continue to see its impact...

path of progress
What is path of ...

As a , you may have heard the term path of progress before. The...

Virtual Real Estate
Increase of Virtual Real ...

Prospective buyers getting their first glimpse of potential homes through smartphone cameras...

Property Managers
Operational Guidelines Property Managers ...

The pandemic crisis has thrown nearly all industries for a loop, and...

Commercial real estate
The Effect of the ...

The real estate industry is changing, a change that started before the...

Disruptive Real Estate
Disruptive Real Estate and ...

What do Google, Microsoft, Facebook, Twitter, Visa and American Express all have...

Post-Pandemic
Outlook of Post-Pandemic Commercial ...

The COVID-19 pandemic is having a transformative impact on (CRE) markets. The...

invest in real estate
Reasons you should Invest ...

Your current financial stability doesn’t guarantee that you’ll be free from financial...

Retirement
Real Estate Investments for ...

Real estate can be an incredible tool to help you prepare and...

Real Estate Industry
Tips to better understand ...

If you're looking to buy or sell property, it's important to have...

Real Estate Investment
Ways of getting involved ...

While many people get involved in real estate to generate a return...

value
How to assess the ...

If you’re investing in property, you’ll need accurate real estate valuations to...

Real Estate Investors
Guiding Principles for Real ...

While the national faces significant uncertainty right now, it's important to recognize...

Real Estate Investing
The largest benefits of ...

Real estate is one of the best possible ways to drive personal...

The Real Estate Market
How the Real Estate ...

If you're looking to buy or sell property, it's important to have...

Remote Working
Remote Working and its ...

Many ask if the remote working culture will be here to stay,...

buying and selling
Real Estate Buying and ...

EASTON — agents and their colleagues have adapted quickly to the new...

unstable market
Investing in Real Estate ...

The industry is filled with its share of ups and downs. In...

real estate investments
Real Estate Investments to ...

There are several types of real estate , but most fall into...

office space
Will the Pandemic make ...

A myriad of publications have already pronounced office space a trend of...

How the pandemic will affect Resident Demands in the future
How the pandemic will ...

The current pandemic and global response is a once-in-a-lifetime event that has...

real estate stock market
The effect of Real ...

Financial market commentators tend to focus on the price of bonds and...

digital asset
How Real Estate is ...

Yesterday, I had a call with one of my company’s larger customers....

Real Estate Agents
Ways Real Estate Agents ...

There is a reason companies like Tesla have such a loyal customer...

Commercial real estate investments
Commercial real estate investments ...

real estate investments will fare well in the face of the coronavirus, which...

Operational Real Estate
The importance of Operational ...

New York, NY—With the shift towards buying an experience over buying a...

Passive Income
Ways to Earn Passive ...

Passive income is an important factor in building wealth and achieving financial...

millennials
The Future of Real ...

We've all seen studies on millennials circulating around the internet. As the...

land
Things to consider before ...

Looking to buy land to build your dream home? Land is the...

Angel Investing
Angel Investing versus Real ...

I’m often asked what my preference is when comparing angel investing to...

Bitcoin Investment
The comparison of Real ...

Two popular avenues, real estate and bitcoin, have been making waves in...

mortgage
How to find the ...

If you’re looking to buy a home or in a single family...

Reserves
The importance of Reserves ...

Private real estate affords investors considerable control over their , from how...

attorney
The importance of an ...

Engaging the right attorney helps you avoid costly mistakes in deals. Especially...

bundle of rights
The comparison of bundle ...

What is “,” really? Most people might say it's the land and/or...

Lagos State Real Estate Law
Laws guiding the Use ...

The regulatory bodies in real estate include but are not restricted to the following;...

Commercial Real Estate Tech
2020 Top Commercial Real ...

Deloitte’s 2020 Commercial Real Estate Outlook surveyed 750 owners, operators and investors in 10...

Mortgage notes
Guide on investing in ...

Most new investors in active real estate start with a traditional method...

real estate rehab
Stages of Real Estate ...

If you play your cards right, rehabbing houses can be very rewarding...

Multifamily
Investing in Multifamily Real ...

Millions of Americans depend on cash flow generated by long-term investment portfolios,...

ways to invest in real estate
Ways to invest in ...

There is a common misconception that real estate investing requires property ownership....

rental properties
Pros and Cons of ...

Many investors understand why they should invest in real estate for the...

urban regeneration
Planners urge Lagos State ...

Planners have charged the Lagos state government to do more detailed master...

Commercial Real Estate Technologies
Trending Commercial Real Estate ...

The commercial real estate industry has entered a new phase of technology...

Real Estate Location as a franchisee
Tips to secure the ...

Real estate site selection has the power to make or break any...

Remote Workers
How Remote Workers affect ...

As more people are able to work from home, housing priorities have...

5G Technology
5G Technology REITs

There is a revolution going on. You’ve probably heard the term 5G...

buyers
Questions Home Buyers should ...

Buying a home is one of the most expensive decisions you'll ever...

remodeling
Mistakes to avoid when ...

Americans are spending less on home renovations than they were at this...

Real Estate Market
Reasons for investing in ...

Are you thinking about purchasing your first piece of real estate? Investing...

real estate funds and REITs
Differences between real estate ...

Are you ready to invest in real estate? Real estate funds and real...

Agents and Brokers
Differences between Real Estate ...

Real estate transactions often involve significant amounts of money. As a result,...

Investing Real Estate Market
Investing in the right ...

Investing in real estate is tremendously exciting, and can be very lucrative....

housing in Nigeria
FMBN to build 100 ...

Ahmed Dangiwa, Managing Director, Federal Mortgage Bank of Nigeria (FMBN), said the...

local real estate market trends
Factors that determine Local ...

Real estate markets trend between times of boom and bust, depending on a...

invest in real estate
Affordable ways to invest ...

Real estate can help diversify a portfolio. One way to grow your...

real estate digital finance
8 top concepts of ...

In all history there has never been a more profound era of...

appraisal services
Why you need appraisal ...

Real estate investing can be an excellent way to earn passive income....

Real Estate Investment
Determining your Real Estate ...

Malcolm Gladwell states that it takes 10,000 hours of practice to become...

real estate agent
12 Qualities in Selecting ...

Purchasing a home is a huge financial commitment, so finding the right...

National Urban Development Policy
Revision of the National ...

The long-awaited overhaul of the National Urban Development Policy (NUDP) has been...

Warehouse
Capitalizing on the Warehouse ...

Everyone knows that retail is evolving, and common thought says that retail...

Mixed-Use Real Estate
Benefits of Mixed-Use Real ...

In cities, mixed-use real estate is hidden everywhere. Someone likely lives above...

dead capital
Real Estate Dead Capital ...

PwC estimates that Nigeria holds at least $300 billion or as much...

Post your Comments

NAME *
EMAIL *
Website

error: Content is protected !!
%d bloggers like this: