With the explosion of the crowdfunding real estate market, there have emerged various types of marketplaces. They all work in very similar ways to connect investors with new and exciting opportunities. The differences between these real estate crowdfunding websites lies in the fees associated with joining, the yields, risks and growth potential.
While each method has its pros and cons, all are great ways to start investing in real estate. With it being such an exciting time to invest in these types of opportunities, the hardest part really should just be finding the right platform to start investing with.
An indirect investing model allows investors to participate by using a Special Purpose Vehicle or SPV, which the crowdfunding firm creates. An SPV helps to isolate potential financial risk. The firm figures out how much money they can contribute to the developer’s funds. After this, they call upon investors to fill in the difference.
While this model makes things simpler for real estate developers in terms of getting their funding, a trade off is that they can not make personal connections with investors. Since firms don’t know individual, a direct relationship does not form. This means that developers miss out on the opportunity to expand their networks to leverage in future opportunities.
In this model, the risk lays on the shoulders of the crowdfunding agency. The crowdfunding platform pays cash distributions and returns, not the real estate firm. Since this is the case, there could be a risk associated with this type of investment. This is especially true if the crowdfunding company fall upon hard times.
In such an event, an investor’s capital could be lost or their returns diminished even if the real estate asset still performs well. Overall, the health of the crowdfunding platform and the performance of the real estate asset directly impact the investor’s ROI.
Direct investing crowdfunding allows investors to directly invest with real estate firms. The crowdfunding platform becomes the middleman to facilitate raising funds from investors.
Through this method, investors are able to invest right alongside real estate firms. However, there is a risk on the behalf of the real estate firm. They’re the ones who have to fulfill the business plan for the specific project or property. For the real estate firms, there are many benefits to outweigh the risks. Not only are these firms able to raise more capital, but they can also expand their networks and make new connections to investors.
After the crowdfunding firm has successfully sponsored a deal, investors are able to directly interact with the developers. This opens up opportunities for both parties in the future, who may wish to invest in other opportunities together. Additionally, since this model eliminates the need for brokers, there are some fees that are irrelevant.
Real Estate Crowdfunding Software
The final crowdfunding option that developers could choose is to integrate a Software-as-a-Service or SaaS platform within their existing websites. This real estate crowdfunding software allows them to begin raising funds under their existing brand. Developers can also manage investors and communicate with an existing network of private investors, as well as advertise to the public.
This model is beneficial for developers because it allows them to leverage their own investment network while expanding their brand’s reach to new investors. With this software, it’s easy for developers to create their own direct investing platforms and offer more value to current investors. Using this method, developers can also provide advantages to their private investor networks by offering investment opportunities to them first. They still typically offer them to the public later if the project still requires funds to get off the ground.
Why Work With DiversyFund?
DiversyFund is a real estate crowdfunding website that connects accredited investors to borrowers with in-house vetted real estate investments. The platform provides the ease of browsing, investing, and managing investments online from anywhere at anytime. DiversyFund is your gateway to exclusive real estate investing. We simplify the process of crowdfunding real estate investments. Our team of dynamic real estate professionals is committed to providing you with the best investment opportunities. Additionally, we have combined our extensive knowledge of real estate with our experience in asset management, consulting, investment banking and technology to revolutionize the real estate industry by making the investment process simple and accessible for you.