For some people, certain real estate crowdfunding platforms are crucial because those platforms allow them to tap into the perks of real estate investment.
There are people who even think (and believe) that real estate crowdfunding is one of the most popular (new) ways to help them diversify their financial portfolio. Not to mention that it can be done for investors with different interest and ages.
If you are looking for a way to diversify your assets within real estate investment, then it can be a lucrative option. But you need to remember that it’s not for everyone. Some people are okay with it, allowing them to build immense wealth and financial growth, but some may not get any luck or profit with such a method.
What Is Real Estate Crowdfunding?
Crowdfunding refers to the action of raising money (usually for business). It’s considered an easier and simpler way for investors to access ventures. Crowdfunding makes use of certain channels, such as social media outlets and the internet, like LinkedIn, Twitter, and Facebook, to reach out to the potential investors.
Crowdfunding is utilizing an idea and concept that many people can invest in a certain project with only a small amount of money. As a result, big sums (of money) can be quickly raised through crowdfunding method.
Basically, companies can access the capital for their business through crowdfunding – a way that they may not possible achieve through the regular investment scheme. Through crowdfunding, investors are able to be shareholders in a real estate property.
Real Estate Crowdfunding vs REIT
Before you learn about what real estate crowdfunding platforms that you can possibly look into, you should know that people tend to mistake (real estate) crowdfunding with REIT (Real Estate Investment Trust).
REIT refers to a corporation having or managing (or even both) commercial real estate that can generate income. REIT is coming in various types and it mostly focuses on certain type of product, like senior living facilities, hospitality, multifamily housing, etc).
When you are interested in doing a real estate investment in REIT, it’s like buying a bond or stock. When you buy the share, you basically buy the company’s share. The company is the one that has and manages the property.
You aren’t actually investing in the real property; you are investing in the share. Imagine this: When you buy the share of Samsung stock, you buy the OWNERSHIP stake within Samsung. You don’t buy the Samsung’s specific products. This what happens when you invest in REIT.
REIT generally has its own (well defined) investment parameters. REITs are generally required to provide dividends to their investors; returning the 90% of the profits to them. REITs are liquid assets and tradable, the value can hike up and go down all through the day.
And REIT isn’t the same as the traditional real estate as many of them are traded publicly on the stock exchange. When they are listed on those exchanges, they can be directly bought. You can also use ETF (Exchange Traded Fund) or REIT mutual fund to buy REIT shares.
Because of the nature, real estate crowdfunding is quite different from the REIT. An LLC or real estate corporation would be the project sponsor that ‘creates’ a project. They would then pool (or collect) capital from many investors who are interested in investing in their project.
Because of this, many (real estate) crowdfunding platforms are emerging, such as Fundrise, RealtyMogul, Crowdstreet, and RealCrowd are just some examples of the available platforms dealing with crowdfunding projects.
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Unlike REIT that has clearer business structure, crowdfunding projects come with many regulations and rules. A (project) sponsor will have to decide which regulations they want to create the crowdfunding project under. For instance, do they want to create a crowdfunding project that allows general solicitations with accredited investors or the project that allows the non accredited investors? This is crucial because it will affect how the campaign would be structured and then marketed (to the public).
Once the campaign has been planned out, the sponsor will post the project on the real estate crowdfunding platforms to expose the project to investors; possibly global investors. It’s also possible that the project may directly post from their site to investors, provided they have the website.
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The information should include investment horizon, projected returns, the deal, and also CTA (Call to Action) that would encourage people to invest. There would be a certain minimum thresholds that should be met. Equity crowdfunding may be included in it, but we’re not going to discuss about it now.
Final Words
There are many different ways to invest in real estate. Whether you decide to invest in REIT or you want to take part in the crowdfunding projects, it’s up to you. But in the event you decide to take part in the crowdfunding projects, be sure to choose only trusted real estate crowdfunding platforms.
