What is Real Estate Crowdfunding?

What is Real Estate Crowdfunding?


Real-estate crowdfunding is a way of raising money for real estate investment by reaching out to a pool of investors to contribute a small amount of money towards a project. Simply put, it is a form of raising funds that allow small real estate investors to fund big projects.

Real estate crowdfunding is also referred to us real estate peer-to-peer lending or financing of real estate projects. The process of raising money is conducted via an online crowdfunding platform. One party (the borrower) joins a platform with the aim of getting funds to start or improve a real estate project. Another party (the investor/lender) joins a platform to invest capital in exchange for high returns on the investment.


Why people use it?

A viable option for raising money amongst real estate investors is real estate crowdfunding, which involves raising money to buy properties for selling or renting. The approach has become a feasible alternative to traditional ways of raising funds for investments. It pools small amounts of finances from various investors (lenders) to finance a real estate asset or a portfolio of properties. As an investor, you get to invest your funds either through equity (you own a stake of the real estate asset) or debt (you lend money as a loan) in return for a proportional stake of the project returns (sales value increase or rental income).

The major attractive point of peer-to-peer lending in real estate investing is that it gives small investors the opportunity to participate in high income and highly sophisticated real estate projects. For large real estate developers, they use crowdfunding platforms as a mean of soliciting investments from investors in groups.  On the other hand, small real estate business owners launch crowdfunding campaigns to raise money for smaller investment deals.

Whatever the purpose, peer-to-peer lending is increasingly becoming a viable option for raising money for real estate investing projects. The industry has seen an increasing number of investors allocating their portfolio into crowdfunding.



Benefits

Locking down the finances needed for real estate investments is usually a big challenge to both beginners and seasoned investors. Property crowdfunding can be an excellent alternative for raising funds. It also attracts other notable benefits for both borrowers and investors/lenders that include the following.

For Borrowers:

- Real estate crowdfunding increases the sources of funding while you grow your investor network

- Peer-to-peer lending allows real estate companies in the early stages to start operations more quickly

- Successful projects from a peer-to-peer lending platform result in positive word of mouth and eventual clients’ loyalty

- Crowdfunding involves direct marketing that helps in promoting your real estate business

- Your business can access valuable feedback from your online crowdfunding community allowing you to address possible business flaws

- You can save money and time by using a user-friendly investment platform

For investors:

- You gain access to low-levels of investments with some projects being offered for as little as nothing.

- You can make short-term investments, some ranging between 2 and 48 months

- Crowdfunding has the benefit of transactions transparency as members know exactly where their funds will be invested

- Crowdfunding offers an opportunity to diversify your investment to various asset classes and countries



Who should invest in it?

Crowdfunding is right for real estate investors who want a passive income from projects that they would not access or could not afford on their own. It is also a feasible option for investors who want to increase their debt exposure. Some of the people that can benefit from this form on investment include:

- Investors who are interested in investing in the real estate market but lack enough capital to outrightly purchase a property

- Investors who want to avoid being a landlord or working by themselves

- Individuals who are looking for an alternative to investment in the stock market since this option allows them to own property that would be otherwise unattainable

- Individuals who are interested in investing in real estate projects outside their locality, but lack the logistics or means to do so.

While peer-to-peer lending can be a viable option for people interested in real estate investment, it is not the right option for individuals wishing to own the asset outrightly. It is also not the right options for those who want to be hands-on investors and in charge of budgeting, deadlines, choosing the finishes, and managing contractors. This form of investment is best suited to real estate investors who are interested in a more passive source of income.

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