/ Uncategorized / By Alberto A
Crowdfunding is a way for a person or business to raise money from a group of investors, usually online. These investors can be family, friends, or anyone else that wants to pitch in. Crowdfunding can be used to help businesses get started or as a way to fund a business project. The capital from a crowdfund may also be used to help raise money for educational, emergency, or charitable purposes. An example of a successful crowdfunding website is GoFundMe.
How can crowdfunding be used to purchase real estate?
There are four types of crowdfunds:
Equity crowdfunding is usually the method used to fund real estate deals. This is because when participants invest in equity crowdfunds, they expect to receive shares in the business. In real estate crowdfunds, participants can invest in a property and become a shareholder.
What can investors expect?
If you want to fund a real estate property through crowdfunding, there are a few things you should consider:
Risk – As in any real estate investment, there are always going to be risks. It is never set in stone that a property is going to cash flow, meaning that investors should be wary of who they are investing with and perform due diligence on the deal.
Fees – Participants hoping to invest must also accept the fact that fees will come up. Whether they be for taxes, management, or any other management and crowdfunding fees. It is always important to do your research and consider any additional fees before deciding to invest.
Accreditation – Some sites or borrowers require that their investors be accredited, meaning that they are relatively wealthy. To learn more about what an accredited investor is, read “The Difference Between Rule 506(b) and 506(b)”.
Liquidation – Investors who don’t need their money in the immediate future may be attracted to REITs (real estate investment trusts) offered through crowdfunds. This is because it takes more time for illiquid assets to be converted to money. In general, most REITs offered through crowdfunds fall under this category.
Inexpensive – Through crowdfunds, some investments may only require you to pay a minimum of $500, with some sites claiming you can start with as little as $10. This is inexpensive compared to other REITs that normally expect investors to pay in the thousands.
Less hassle – Unlike a property owner or manager, investors do not have to deal with the typical concerns that they do. Such as dealing with tenants, the maintenance of the property, and collecting and setting rent.
Diversification – Because investing through crowdfunds is typically inexpensive compared to other REITs, it allows participants to invest in multiple projects. Meaning if one investment isn’t doing too well, the investor already has their money in other projects. This is an alternative to having a large sum of money invested in only one project.
Easy access – Because crowdfunding can be done from anywhere, it is easy to access. All you need is the internet to explore hundreds of possible deals. In addition, you don’t just have to stick to your area. Crowdfunding allows you to invest in any market you want in the country. This allows for you to hand pick which markets you find interesting, and invest there.
In conclusion, investing in real estate through crowdfunds is a way to start from anywhere, with a big or small investment. Although it mostly is for accredited investors, it can also allow for others who are not accredited, to diversify their portfolios. As with any investment, there are risks, but doing your research and calculating the costs will help decrease the chances of you picking a bad investment. When combining real estate and crowdfunding, you have the pleasure of investing in real estate properties, while also being able to do it from anywhere in the U.S and choosing which market you want to invest in. All in all, it comes down to what you are interested in and who you choose to work with. If you don’t find what you are looking for, another option is publicly traded REITs. But if you do, real estate investing through crowdfunds might be for you.