Do you want to diversify your investment portfolio, or are you just looking for creative ways of investing in real estate?
You may think you don't have the funds required to begin real estate investing or are unsure where to start. Real estate crowdfunding platforms are relatively new and allow everyday people to be involved with a minimal amount of money.
The stability of real estate investing, combined with the possibility for lucrative returns, has made real estate crowdfunding a popular choice for those looking to secure their financial future.
We will share some of the ins and outs of crowdfunded real estate investing so you can decide if it is right for you. We are not financial advisors nor are we offering investment advice. We recommend that you seek a professional before starting any type of investing. With that out of the way, let's jump into the crowdfunding topic.
How Does Crowdfunding Work?
You may have contributed to a crowdfunding campaign on gofundme.com already. This is a website where you can ask for money from your friends and family to help pay for your honeymoon, new car, or pet snake.
Crowdfunding, also known as crowd financing or crowdsourcing, refers to raising financial resources typically via the internet. It's a way of raising money for a project or venture by appealing to a large number of people. The ease and accessibility of crowdfunding have led to its growth in popularity over the past few years.
Entrepreneurs can quickly and easily pitch their business plans or ideas to potential investors worldwide through online platforms.You might also be familiar with a website such as Kickstarter.com, a crowdfunding site where creative projects and assorted enterprises can solicit contributions from the public.
Anyone with an idea or project they want to bring to life can post their plans on Kickstarter. This allows anyone the opportunity to pledge money toward the project to help them meet their fundraising goal.
Crowdsourcing offers every day people the opportunity to invest in projects and businesses they believe in. Additionally, crowdfunding platforms provide a variety of perks and rewards to investors depending on the platform used. This makes crowdfunding an attractive option for those looking to invest money into new ventures.
Why Invest In Real Estate?
Real estate investing is popular because it's been proven to provide consistent returns over time.
Historically real estate prices have gone up over time, making real estate investments an excellent way to secure your financial future. By investing in different types of properties in various locations around the country, you can help spread out your risk and increase your chances of success.
You can even make commercial real estate deals investments to further diversify your portfolio. However, it can be difficult to buy real estate investments. It often requires a significant up-front down payment and financing routine expenses.
Real estate Investors must also regularly maintain investment property holdings, pay for repairs, and keep track of their finances. Another aspect that makes it difficult is its lack of liquidity, which means if you need to exit out of the property, you might have to wait a while for it to sell.
Real Estate Investment Trusts (REITs)
A publicly traded REIT is an entity that owns a portfolio of properties and leases them out. Houses, apartments, condos, retail space, malls, hotels, and offices can be contained within a REIT. Everyday people can invest in REITs by buying shares through stock market, ETFs, a real estate fund, or mutual funds.
Investors receive regular earnings (or dividends) from their real estate investment trust. REITs are considered stable investments. They offer diversification by investing in different types of residential or commercial real estate in different locations around the country.
What Is Crowdfunding In Real Estate?
Many would-be investors find these costs and logistics daunting and off-putting, which is why crowdfunded real estate investment platforms have become so popular in recent years.
A real estate crowdfunding investment platform allows real estate investors to pool their resources with other like-minded individuals and buy a property together. This removes the need for everyone to come up with a large sum of money at once and also spreads the burden of ongoing bills and maintenance costs among the group.
It also allows for more diversification of investment holdings, as participants can choose to invest in properties located all over the United States (or even the world). Some crowdfunding platforms are open to non-accredited investors while others may demand that contributors be accredited investors.
Difference Between Accredited Investor & Non-Accredited Investor
In an attempt to protect consumers, specific crowdfunding platforms only allow access to accredited investors. The belief is they better understand the risks involved when investing large sums of money into high-risk ventures. Let’s have a look at these two types of investors:
The Rise Of Fintech In Real Estate
Financial technology or fintech for short, is the use of technology to improve and automate the financial services sector. This can include everything from online banking and investing to payment processing and money transfers. Real estate crowdfunding platforms utilize fintech to make it easier for investors to pool their resources and buy property together.
The Popularity Of Real Estate Crowdfunding Platforms
Real estate crowdfunding platforms have rapidly become a popular way to invest. This is due to the fact that you may get access to unique private market property investments that would otherwise be inaccessible to the general public.
Crowdfunded real estate is more volatile than publicly-traded REITs, which means you'll have an opportunity for greater returns. However, before you invest in crowdfunded real estate projects, be sure to do your homework.
It is important to keep a balanced portfolio of financial assets and investments. While real estate crowdfunding can bring a lot of flexibility to the table, it should be used primarily as a method to increase and diversify your real estate portfolio.
Crowdfunded real estate investing has a low barrier to entry, a potential for passive income, and is an easier way to get access to the real estate marketplace. Some platforms allow you to invest as low as $5,000.
You will have more real estate investment options without owning, financing, or managing individual properties yourself. With some offering a lower minimum investment than REITs, you can access assets that would be unaffordable otherwise.And because this alternative investment offers a high-profit potential through distributions of a lump-sum return at the end, they're potentially a great way to grow your wealth. Plus, many platforms offer automatic investing so you can quickly get started.
Your funds may be tied up for at least three to five years, so you'll need to practice patience if you want to see a return on your investment.
Crowdfunding investments come with a higher risk than other types of equity investments. The fees associated with these platforms can really add up, so make sure you do your research before choosing an option. Some platforms only allow accredited investors.
The Popular Real Estate Crowdfunding Sites
Every site offers its own unique set of opportunities, promoting an expected return on investment (ROI), and how to monitor your investments. So, it's crucial to look at past client reviews and feedback before deciding which platform is right for you to start investing.
Fundrise gives people the opportunity to invest in commercial real estate projects and residential properties across the United States without requiring any accreditation.
To attract novice investors, Fundrise offers five account levels to choose from, each with its own investment strategy and potential returns. However, there may be associated fees, and it's not guaranteed that your shares will be redeemed for profit. The Fundrise mobile app is well-rated and easy to use.
PeerStreet is an online marketplace that allows accredited investors to invest in high-quality private real estate loans. They give lenders capital to lend to real estate borrowers. PeerStreet collects monthly payments from the borrowers. As one of the individual investors, you get a share of those monthly payments. They allow you to expand your investment portfolios by investing in various areas.
They offer debt investments, which some consider low risk because loans are a maximum of 36 months. Unfortunately, they're only open to accredited investors at the moment. But if you're looking for a higher-risk investment than some other crowdfunding options, consider PeerStreet.
All of their investments are made at CrowdStreet's accredited investor rates, so they're an option for those looking to diversify their portfolio. With detailed investment information and a helpful chatbot, you'll be able to make the most informed decisions about your financial future.
The institutional-quality offerings make this platform ideal for serious investors. Just be prepared to meet the steep investment minimums and commit for the long haul. There are no early withdrawals allowed on this platform.
Launched in 2013 and considered an established crowdfunding platform, RealtyMogul offers a diverse range of real estate investment opportunities. It's known for its strict due diligence procedures, including vetting every potential property and dealing with proprietary methods and models.
They only invest in well-leased properties or those with existing leases, partnering with experienced and proven real estate professionals. They offer a wide selection of REIT investments and offer monthly auto-investing services so you can easily get started. Just be prepared for some more extended hold periods than you might find elsewhere.
They offer investors access to alternative investments in commercial properties, marine projects, and art. Yieldstreet's investment minimum can start as low as $10,000. The company offers access to various investment opportunities, all backed by tangible assets.
This may offer you some comfort in the event they go under. However, these investments are highly illiquid and typically only open to accredited investors. So if you're looking to make money fast, this might not be the best option.
Is Real Estate Crowdfunding A Great Way To Make Money?
There's no one-size-fits-all answer to this question. The same can be said when one asks about the best real estate crowdfunding platform to choose.
The success of any real estate crowdfunding investment will depend on various factors:
The top real estate crowdfunding platforms promote annual returns as high as 20%. Consider setting your expectations to less than half that amount to be safe.
That said, many people see real estate crowdfunding as an intelligent way to invest money. With a potentially low minimum investment, they can generate higher returns than what's available from traditional investments like bonds or on the stock market.
4 Tips To Get Started On A Real Estate Crowdfunding Investment Platform
If you're excited to get started in real estate crowdfunding, here are a few tips to help you get started:
If you're not ready to tie up your money for up to several years, real estate crowdfunding might not be the right choice for you.
Final Thoughts: Ready To Invest In Crowdfunding Platforms?
Real estate crowdfunding platforms are an exciting and potentially profitable way to invest your money. They are a great way to get into the real estate market without shelling out a lot of money. No investment is without risk; always choose a platform you fully understand and seek professional advice when necessary.
If you're comfortable with taking on risk to earn a higher return, crowdfunded real estate investments could be right up your alley. Now go out there and start exploring crowdfunded real estate investments.