Real estate crowdfunding combines one of the newest and one of the oldest methods of investment options; real estate and crowdfunding. Investing in real estate has been one of the most popular wealth-creation options for large-scale investors for years. Given that it is a less volatile and safer option compared to investing in the stock market, high net worth (HNW) individuals tend to choose real estate investments to increase their fortune. However, the market has left out the majority of society for a very long time. Until rather recently, investing in real estate wasn't accessible to ordinary investors, as it was too expensive for them.
Real estate crowdfunding has solved this problem by allowing individuals to pool their money together and divide the costs of investing in property. Real estate crowdfunding was legalized in 2012 with the establishment of the JOBS (Jumpstart Our Business Startups) Act. At first, it was available only for accredited HNW investors. Since 2016, non-accredited investors are also allowed to invest in properties online. Since then, many real estate crowdfunding investment websites have been established all around the world.
How does real estate crowdfunding work?
Many online crowdfunding platforms around the world offer various real estate deals to choose from. Usually, every deal includes information such as the type of project, its projected return, and the duration of the project. There is generally no accepted annual return or project duration expected from the project owner, and they often change from deal to deal.
For example, the duration of a project can be from just a few months to as long as 11 years, while the projected return can be as low as 6% to as high as 300%. After finding the best deal for themselves, the individual investors sign a contract and invest their money in a project with other investors. Then investors receive their payments monthly, quarterly, or yearly, depending on their agreement, if the deal is successful.
How to choose the best platforms and investment deals?
It takes some time to find out what can be the best option for you. It is a process of researching the most reliable available platforms and then deciding which deal(s) to invest in, especially when there are plenty of options to choose from. You can use our crowdscanner tool to find and compare investment opportunities worldwide and decide what are the best options for you.
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Is real estate crowdfunding a good investment?
Property crowdfunding is one of the best investments you can make today. It has not only made investing in real estate more affordable, but it also made it much safer. It offers both high returns and a diversified portfolio to investors. Real estate crowdfunding enables investors to diversify their portfolios, investing in many different properties in different countries around the world. Therefore, it possesses a significantly smaller risk compared to other investment options. Also, investing through well-established online platforms, investors are not required to be involved in complicated property management work.
Of course, like every other investment method, real estate crowdfunding can be risky if not dealt with carefully. If the project turns out to be unsuccessful or the investor was the victim of fraud, she/he can lose some or all of their money. However, there are several ways to raise profitability, avoiding the default risk that starts with researching a lot and diversifying your investment portfolio.
Below you can find some of the primary reasons why it's worth your time to begin investing in real estate crowdfunding: