The importance of personal finance is nothing new, but it’s only been recently that modern technology has caught up to our needs. Directly investing in real estate has its own perks, to be sure, like the potential of significant earnings and possible tax breaks should the property lose value.
Realistically, however, direct investments like this have a very high barrier to entry, are more prone to fluctuation, require a significant amount of maintenance and monitoring, etc.
That’s why back in 1960, US President Dwight D. Eisenhower signed Public Law 86-779, which allowed for the investment of resources into real estate in the form of income-producing diversified portfolios, much in the same way one would invest in other asset classes. This meant that investments made in real estate could now be treated like liquid securities - a significant upgrade and a brand new opportunity.
This is what’s known as a real estate investment trust (REIT), and it has since been adopted by dozens of other countries.
Europe, in particular, has been seeing increasing adoption. In Italy, they’re known as SIIQ (Società di Investimento Immobiliare Quotate), in Spain as SOCIMI (Sociedad Cotizada de Inversión en el Mercado Inmobiliario), in France as SIIC (Sociétés d'Investissement Immobilier Cotées), and more.
Learn more about real estate crowdfunding terms with our glossary!
On November 10th, 2020, the Regulation on European Crowdfunding Service Providers (ECSP) came into force, making RECs significantly easier to implement and use and adhering to a universal standard across EU member states.
This standardized and approachable way to invest in real estate is just one of the many benefits that REC platforms like BrikkApp offer over traditional REITs, but there’s more that might not be immediately apparent.
Control & Transparency
For one, your investment doesn’t mean the same thing when you invest in a REIT or a crowdfunding platform. When you invest in a platform like BrikkApp, you’re essentially investing your money into real estate directly, albeit through digital means. On the other hand, investing in a REIT means that you’re investing in a portfolio that might include multiple estates.
This might seem like a small distinction to make, but it has implications.
You have significantly more control and transparency over exactly where your money is invested. A REIT will distribute your investment amongst a pool of different properties, whereas with Crowdfunding, you know exactly where your money’s going. Whether or not that’s positive or negative is up to you to decide, but crowdfunding offers a more independent, granular approach to investing in real estate.
There’s also the matter of volatility - REITs, while poised to be their own thing, have historically been mostly correlated to the larger market, so while they do provide some level of diversification, it’s not by much.
With Crowdsourcing, you’re the one taking ownership of your decisions, and it’s easier to diversify, making for an overall potentially less volatile endeavor.
Initial Investment and Other Key Differences
There’s also the matter of the minimum initial investment, which is one of the obvious advantages of crowdsourcing.
Minimum initial investments for REITs are usually $1,000 - $2,500, and that’s just for public REITs. Private ones can get to five figures. This doesn’t even take into account the higher management costs that also negatively impact potential returns.
With crowdfunding, investments can be as low as €100, making it not only easier to enter, but also to diversify.
Previously, being part of a crowdfunding campaign for real estate could have been a much more involved process, but nowadays, almost anyone can invest on several different platforms, in projects all across the world, as long as you have access to a computer or a phone.
With all that said, there are a few things in which REITs still lead, and that’s higher liquidity, meaning that in an emergency, you’ll be able to get your money back faster, and better management - there is, after all, a dedicated team managing your funds.
Again, whether or not that’s something you need or even necessarily want is up to you, but it is something to keep in mind before investing. REITs are, in essence, more passive, whereas crowdfunding is more hands-on.
Real estate has traditionally been the preferred way to invest in a stable, physical asset - something that is comparatively realistic to see grow - but it was an option only for the wealthy or those that had already accrued a significant amount of wealth.
REITs were a way to democratize investment in real estate, but RECs really take it a step further.
Now, real estate crowdfunding is doing the same for REITs as it once did for direct property investments. While not strictly identical, crowdfunding is the more modern and complete of these choices, allowing for more transparency, control, and potential returns.
Lastly, crowdfunding is a young industry, just now starting to enter the mainstream, which means that very shortly there’s likely to be solutions to most of these shortcomings as the industry continues to grow and adapt.
At the end of the day, it’s up to you how you spend your money - crowdfunding might require a bit more learning on your part. But if you’re reading this, then you’re already well on your way.
Platforms like BrikkApp allow their users the option to enter the real estate market in a scalable, cost-effective, and comparatively low-risk manner. That being said, it’s up to the individual to decide where and how much to invest. But considering the uncertain times we live in, and the stock exchange’s volatility over the last decade, real estate crowdfunding is proving to be a force that has the potential to empower investors to earn better.
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