July 4, 2018
Real Estate is often considered to be one of the best asset classes to make an investment in. The numerous benefits that come along with investing in real estate make it attractive to those who are able to afford it. However, some of the downsides are too big for many investors to overcome. Traditionally, it costs a significant amount of money up front to invest in real estate. This can be a huge deterrent for potential investors. However, there is a new trend in the investment world that provides investors with access to the real estate market using much smaller amounts of money. It’s a revolutionary concept that has gained a lot of momentum in recent years. Let’s talk about real estate crowdfunding and why this investment opportunity is a great option to explore.
To understand how real estate crowdfunding works, it’s important to understand the basic concept of crowdfunding. Crowdfunding is essentially raising money through the collective effort of friends, family, acquaintances, customers, and investors. It’s putting together capital from a large pool of individuals and using their networks to grow the cause. Typically, social media and online campaigns drive the success of a crowdfunding campaign. We are living in a digital world, and this has created countless new opportunities in entrepreneurship and business.
Historically, access to investing in high-quality alternatives to the public stock market such as multi-million dollar private market real estate has been limited to super-wealthy investors who get the attention of wall street or large developers. But real estate crowdfunding has changed things in a big way. With the passage of the JOBS Act, accredited and non-accredited investors now have a new way to gain entry to this asset class.
Crowdfunding and real estate is a match made in heaven. There are lots of opportunities for investors to make lucrative financial returns with real estate crowdfunding. As mentioned earlier, one of the major benefits related to real estate crowdfunding is that more investors are able to gain access to real estate market investments with smaller amounts of money. Real estate crowdfunding platforms act as online peer-to-peer marketplaces that match investors with borrowers, often under better financial terms than what they can get through traditional lending institutions, such as banks.
There are two basic ways to invest in crowdfunding property deals:
Equity investments – with equity investments, Investors make investments in commercial or residential properties and In exchange, the investor receives an equity stake in the property. Returns are realized in the form of a share of the rental income the property generates, less any service fees paid to the crowdfunding platform. Investors may also be paid out a share of any appreciation value if the property is sold.
Debt investments- this means investing in a mortgage loan associated with a particular property. As the loan is repaid, the investor receives a share of the interest. The loan is secured by the property itself and investors receive a fixed rate of return that’s determined by the interest rate on the loan and how much they have invested.
So, you find yourself intrigued by the concept of real estate crowdfunding. It’s a truly unique opportunity to invest in real estate on your own terms. However, there are a few things to keep in mind in order to achieve success with real estate crowdfunding. Doing your due diligence is absolutely crucial with any real estate investment, and crowdfunding is no different.
There are many real estate crowdfunding sites to choose from. But many suffer from poor investor protections, inadequate volume and/or hidden fees. So how do you find the best platform for you, and avoid making an expensive mistake?
Finding the best real estate crowdfunding platform for you can be a challenge, particularly if you are a new investor.
When looking at your options, take a look at the founders and the senior management of the crowdfunding firm or platform. Compare and contrast a few different real estate crowdfunding companies before making any decisions. You want to make sure you are working with an established, well-capitalized company that will survive over the long term. Seek out crowdfunding platforms that clearly acknowledge the risks of investing with them. When in doubt, go with your gut and invest with someone you trust.
DiversyFund is only vertically integrated real estate crowdfunding platform, which means that we own all of the assets and properties that are being developed. Unlike other online platforms that function as a broker, matching investors with different third-party projects, we offer real estate investments where we are the developer and sponsor, and we manage each investment on our platform. So with DiversyFund, you get an investment partner with skin in the game. Say goodbye to brokers and middleman fees.
Crowdfunding allows us to aggregate dollars to purchase real estate, we develop it manage it, receive the cash flow, and then divide the profits. Everything is done online, so we cut out the middlemen and unnecessary costs like bank fees, document prep fees, storage, and additional operational salaries that are usually passed on to investors.