Crowdfunding is commonly used to raise money for social or personal causes. However, you might not realize that it is also possible to do real estate crowdfunding, which can help you secure a large sum of money to purchase a property.
This type of financing is typically facilitated through diverse online platforms, where social media and the internet play a crucial role in igniting interest from potential investors. By reaching a broad audience, you can attract individuals willing to invest cash with the hope of a future property investment payoff.
With real estate crowdfunding, your capital is sourced from a pool of investors who see the potential for profit in a specific property. These investors essentially become shareholders in the project, contributing funds that, when combined, can amount to a sizable investment.
The process of raising capital for property investment through crowdfunding is generally easier than traditional financing methods, making it an attractive option for real estate investors.
How Does Real Estate Crowdfunding Work?
The widespread use of the Internet or social media platforms has led to easy access to people looking to invest in a property and taking on the job of turning into a property shareholder through crowdfunding. In the past, companies gained stability through this method. They collect donations for vehicle or machinery purchases to regain company strength.
In compliance with the Jumpstart Our Business Startups Act (JOBS), crowdfunding has turned into an accessible alternative for small and midsized companies to try ventures. In 2012, this law stipulated that small companies meet lower reporting requirements.
The Securities and Exchange Commission (SEC) started to relax the policies for small businesses to participate and benefit from the opportunities available through crowdfunded investments.
What Are the Limitations of Crowdfunding?
Limits are imposed for crowdfunding investments and will depend on your earnings and net worth. In 2020, the SEC enacted the Regulation Crowdfunding (CF), allowing firms to participate in a “common owner CF” model when raising funds.
Similar to equity investment, investor participants of real estate crowdfunding can switch to being shareholders. Real estate crowdfunding remains an easier path since funds are pooled rather than seeking financing individually. Picking the right real estate lets you gain profits without bearing the weight of steep interest from loans.
Note that your profit will be based on the funds you invested and you can generate income when the property is sold or converted into a rental. What draws people to join real estate crowdfunding is you’re only required to invest a small amount. Some will start at $1,000, which is very manageable in contrast to investing a large capital for a property purchase.
Way back, when the JOBS Act was still not created, it was hard to access real estate investments even if you were interested. You could only invest your funds in real estate investment trusts (REITs). The main advantage of present times is that investors can now join crowdfunding, which has grown more popular for those who prefer affordable property investment.
What Are the Benefits and Drawbacks of Real Estate Crowdfunding?
No investment is purely made up of benefits only and this applies to real estate crowdfunding as well. You will encounter both benefits and risks.
Learn both before deciding to engage in real estate crowdfunding.
What Are the Benefits of Real Estate Crowdfunding?
With real estate crowdfunding, more individuals and small businesses can start investing in properties with minimum risk. A low initial investment amount with a high possible income when the property investment takes off is a great opportunity.
Starting with $1,000 is manageable for new investors who wish to diversify investments and purchase property with little capital. Previously, this option was unavailable and you have to apply for financing from banks and lending firms, which can be a challenge. Standards are strict before approval is given but real estate crowdfunding has paved the way to invest in real estate.
Even non-accredited investors can join crowdfunding activities when this was banned in the past. Accreditation used to be required and you needed to meet specific conditions such as income requirement and net worth. With the relaxation of rules, non-accredited investors can now opt for real estate crowdfunding and turn into shareholders.
What Are the Drawbacks of Real Estate Crowdfunding?
Although some may think that real estate investment is simple and you can just pick a property and pay the price, this is not true. Crowdfunding may lower the barriers to property investment but it can still be complicated to new investors who are unfamiliar with the real estate industry.
You still need to spend time researching this investment method and the risks involved. Be aware that fees can be high since the real estate is managed. Additionally, it can be difficult to predict profits accurately given that historical performance data is limited.
Can You Obtain Consistent Income from Crowdsourced Real Estate Investment?
Renting out rental space can lead to more steady income earnings when you invest in a property. For a crowdsourcing platform, income can be received according to the proportion of your share.
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But keep in mind that the income you will receive will be based on your invested amount and the occupancy of the rental space. As long as vacancies are kept at bay, you can gain an excellent return on investment through the rental.
Bottom Line
Even with limited access to traditional real estate investments, you can still capitalize on real estate crowdfunding strategies. This approach allows you to invest in large-scale projects, such as commercial buildings, apartment complexes, and office high-rises, by pooling resources with other investors, making these high-value ventures accessible.
However, it’s crucial to carefully evaluate each opportunity, as assessing a company’s previous performance can be challenging. Be sure to conduct thorough research and due diligence before committing. For expert assistance in managing your real estate investments and maximizing returns, contact KRS Holdings today.
Let our professional property management services help you achieve success in your investment journey.