Have you heard of the new crowdfunding trend in real estate?
While it may be a relatively new idea, real estate crowdfunding is gaining traction in the United States, and more and more real estate investors are taking advantage of its benefits. And it makes sense, considering the combined market is estimated to be $11 trillion dollars!
Not sure what real estate crowdfunding is or how it works? In this article, we’ll cover everything you need to know about this new trend, so you can decide if it’s the right business decision for you.
What is Crowdfunding?
Crowdfunding is the practice of funding a project by collecting small amounts of money from many people.
This practice is usually done via the Internet and offers small businesses or entrepreneurs to finance projects they would normally not have the capital to complete.
Instead of traditional investors, most of the projects are funded by the general public; in fact, 25-40% of revenue comes from sources like friends, family, work acquaintances, and even second- and third-degree connections.
There are many different types of crowd-funding, including rewards-based crowdfunding, peer-to-peer lending, equity crowdfunding, donation-based crowdfunding, and now real-estate crowdfunding.
What is Real Estate Crowdfunding?
It involves multiple investors pooling together their funds for a real estate project. Investors can make investments in commercial or residential properties in exchange for an equity stake in the property and a portion of the rental income the property generates.
They can also get involved in debt investments, which means they invest in a mortgage loan related to a specific property, and receive interest as the loan is repaid.
What are the Benefits of Real Estate Crowdfunding?
Real estate crowdfunding offers many advantages that traditional real investment ventures do not. Here are a few of the biggest advantages:
Greater Accessibility :
In the past, people would have to invest thousands of dollars to be part of the investment process.
With crowdfunding, the financial cost is much lower so more people can participate. In some cases, you can become an investor by contributing a minimum of only $5,000.
Diversification and Tax Benefits :
With the two types of investment opportunities, crowdfunding provides investors with exposure to a new asset class.
This platform also allows investors to enjoy certain tax breaks like depreciation, which are normally reserved only for people who actually own an investment property.
Tips for Crowdfunding :
Want the crowdfunding process to go as smoothly as possible? Here are some major tips.
Choose Your Platform Carefully :
With so many crowdfunding platforms available, some are bound to be better than others. Research the different platforms before you invest to identify their pros and cons.
If you want to start reviewing pros and cons, check out equitymultiple review for an overview of one of the leading real estate crowdfunding sites.
Review Your Investments :
Not all crowdfunding platforms vet deals before they offer to investors. Make sure to talk about the specifics of any investment opportunity with a financial adviser or fiduciary so you know of any possible issues.
Final Thoughts on Crowdfunding for Real Estate :
Are you looking to diversify your holdings and make some exciting new investments? If so, check out real estate crowdfunding and see how you can get involved.
By keeping these tips and best practices in mind, you’ll be able to get involved in the crowdfunding process in no time.
Still have questions about crowdfunding or real estate? Let us know in the comments!
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