Real estate crowdfunding is a combination of one of the oldest and one of the newest investment options: real estate and crowdfunding. Real estate has long been one of the most popular investment choices but has primarily been accessible only to the wealthiest among us. 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, due to the large capital requirements to invest in real estate, the vast majority of people have been unable to access these assets.
Real estate crowdfunding has solved this problem by allowing individuals to pool their money together and “crowdfund” the costs of investing in property.
Real estate crowdfunding began in 2012 with the establishment of the JOBS (Jumpstart Our Business Startups) Act in the United States. One outcome of the legislation was that it allowed online platforms to offer alternative finance projects to investors, and market innovation led to this methodology being used towards real estate investing. At first, it was available only for accredited or high-net-worth investors. Since 2016, non-accredited investors are also allowed to invest in properties online.
In Europe, alternative finance has long had lower regulatory requirements, which has allowed this industry to flourish. Our data shows that some platforms have been offering real estate crowdfunding products to investors since 2009 - a full 3 years before the United States even allowed it! BrikkApp has researched and analyzed almost 200 European real estate crowdfunding platforms and the industry continues to grow globally.
How does real estate crowdfunding work?
In simple terms, real estate crowdfunding is a group of investors combining their capital in order to fund a real estate project, organised by an online platform. For example, a developer wants to build a new apartment building at a cost of €10 million. A bank might provide the developer with a loan for only €6 million. The remaining €4 million is where private investors are able to participate.
Traditionally, this remaining investment would be available to only a handful of investors, usually accredited or institutions such as family offices or insurance companies. With real estate crowdfunding, this €4 million is available as an investment to a larger group of investors, with a lower minimum amount to invest - sometimes as low as €100! This is usually done through an online real estate crowdfunding investment platform, which typically acts as the intermediary between investors and developers.
Unsure about the different types of investors? Learn more about these classifications here.
Many online crowdfunding platforms around the world offer various real estate deals to choose from. Usually, each project includes information such as the required amount of funding from investors, the type of property, its projected return, and the duration of the investment. There is no standardised real estate crowdfunding project format; project length, the type of investment and its payment schedule, the use of funds, etc., can all vary from project to project and platform to platform.
For example, the duration of a project can be from just a few months to as long as 10 years, while the projected return can be as low as 4% to as high as 300%. Investors are able to fund real estate projects in a variety of ways and it is important to understand how a developer will use the money and how compensation is returned before making an investment. After investing money into a project, no other decisions need to be made which is one of the advantages of real estate crowdfunding over traditional real estate investment. The platform and developers take care of the rest, while the investor simply enjoys their returns.
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. BrikkApp has made this process easier than ever before, with our unique and first-in-class Crowdscanner, which allows you to browse the entire real estate crowdfunding market by location, platform, investment type, and more!
To learn more about real estate crowdfunding, download your free eBook today and receive the tips, insights, and market trends that can help you make the most out of your investments.
Is real estate crowdfunding a good investment?
Investing in real estate has always been a worthwhile investment, and real estate crowdfunding is no different. It has not only made investing in real estate more accessible to more people, but it has also made it easier to do than ever before. Real estate crowdfunding enables everyday investors to diversify their portfolios into multiple properties, across multiple countries. Investors can create a well-diversified property portfolio with little effort.
Learn more about real estate crowdfunding terms with our glossary!
Of course, like every investment, real estate crowdfunding carries a degree of risk and no returns are truly guaranteed. If the project turns out to be unsuccessful or some other issue with the project arises, investors can lose some or all of their money. However, there are several ways to reduce risk. Investors ought to research the platform they choose to invest with, can invest among several platforms, could invest small amounts in multiple projects, and use other common diversification and due diligence strategies in order to protect their money and reduce as much risk as possible.
Real estate crowdfunding is an exciting industry with still untapped potential. As alternative finance grows and more and more investors become educated in these markets, real estate crowdfunding will become a more mainstream investment choice. Real estate crowdfunding is truly a great and accessible way to access the world of real estate investment!
Below you can find some of the primary reasons why it's worth your time to begin investing in real estate crowdfunding: