Commercial real estate investing is typically associated with high barriers of entry. To benefit from commercial property investing you are supposed to have a thorough knowledge of the local market and a huge amount of capital. Traditionally, the industry is defined as offline business with high transaction costs, transparency issues, and lengthy investments, which take months or years to sell. The key question is how to disrupt the property investment market with technology to allow the general public to benefit from property investing? The answer is the property crowdfunding model.
In general, property crowdfunding is facilitated through an online platform. Imagine a marketplace that connects pool of individual investors with a property project. The major benefit for an investor is the opportunity to invest with relatively small funds into big scale property projects. Everything works online, which reduces costs of expensive physical intermediaries and unnecessary paperwork.
Let’s describe the investment process on our example user - John:
- John is a young professional who is looking for a safe investment. He budgeted 2000 EUR to invest.
- He would like to invest into properties but his funds are not sufficient to buy an entire property. His friend, a financial advisor, suggests to him to invest into a traditional property fund. John is not very interested as yields are low, he does not know what he invests into, and it means lot of paperwork.
- John searches the web and finds the property crowdfunding alternative and a specific investment platform, which he likes.
- John registers and gets the access to various property investment opportunities and decides to invest into three deals on this platform.
- After the fundraising is completed, John receives a regular income and at the maturity of the investment, he gets his money back.
The story of John illustrates how the ideal investment process flows. However, the real case scenario is much more complicated and it is rather difficult to make the right decision. In the upcoming article series we will break down the property investment process into a number steps, which investors like John are taking:
1. How to find the right online property investment platform
2. How to choose the right deal
3. What are the key risks and issue of liquidity
4. How to diversify and what is the investment asset