Investors: To Diversify or Not to Diversify?
Why is the option to diversify in Real Estate so attractive?
Since the passing of JOBS (Jumpstart our Business Startups) Act in 2013, Real Estate Crowdfunding has shook-up the real estate industry. Nowadays, anyone can invest in real estate and has the ability to do so online. After we learned some of the most disrupting factors in the way people invest in real estate, a big change had to happen. Transparent ways of investing are now available to everyone. The option to diversify is becoming more attractive to all investors since it lowers the risks and increases chances of success.
What is new?
In an industry previously transacted entirely offline, it is expected that many investors refuse to change their ways. As the saying goes, “If it ain’t broke, don’t fix it.” Although it may not be necessarily “broken,” something needed to change. The accessibility to investments, the ability to streamline investment transparency, and portfolio management were simply non-existent to the average person investing in real estate. These tools are available now and DiversyFund offers you a platform that you can trust.
Factors such as the majority interest and control over the investment create concerns to real estate investors. However, having this new access when a particular investment goes sideways, the investor has more control through crowd investing in that same project.
What are investors saying about these new platforms?
Some investors argue that the priority lies in having the majority interest in the deal. Other investors prefer to diversify with crowdfunding investments to spread capital across multiple investments lowering the risks. This way you avoid the option of coddling a deal where all of your money is housed in one place (no pun intended).
By choosing to invest $25,000 in one project and $50,000 in another, you are increasing your investment portfolio because you have chosen to diversify. As a result, you spread risk, and you are benefiting from a potentially higher and stable returns. In a worst case scenario, if an investment goes into default, you would still have the other investments that are performing to offset potential losses.
What can you expect in the future?
We are barely reaching year 3 since Regulation D 506 (b) and (c) amendments. This is why it will be interesting to see if seasoned investors adopt this new way of real estate investing. Especially since Regulation A+ (Reg A+) was put into practice as of June 19, 2015, and the potential of Title III passing, both of which added unaccredited investors to the mix. It continues to be an exciting time for anyone involved in the real estate industry’s development.
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