Real Estate Crowdfunding: What It Is & How It Works

Almost all the time, companies are looking for investors, and the latter is looking for an opportunity to multiply their funds. Usually, large corporations turn to banks or investment companies, but crowdfunding allows investors with a small portfolio to make investments.

More and more companies are starting to invest in crowdfunding real estate development to help both parties find favorable terms of cooperation. Companies like help with this. With this guide, you can better understand what crowdfunding is and how it works.

Real Estate Crowdfunding

What Is Real Estate Crowdfunding?

Real estate crowdfunding is an innovative way for both Businesses and individual investors to gain access to financial capital. It uses the Internet and popular social media outlets, such as Facebook, Twitter, and LinkedIn, to reach potential investors.

By pooling small investments from large numbers of people, quick sums of money can be raised easily. This provides companies with access to capital that otherwise may have been out of reach for them.

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In addition, crowd funders have the unique opportunity of becoming shareholders in a company or property. For those looking for a new way to invest their money, real estate crowdfunding could provide returns that they never knew existed!

How does Real Estate Crowdfunding work?

Real estate crowdfunding is a relatively new form of fundraising that benefits all three parties involved in the deal: the investor, the issuer, and the platform.

To better understand the features of the work, it is worth considering real estate crowdfunding platforms from the point of view of each side.

  • Sponsor or Project Owner. Serving as the Host of the campaign, Sponsors are usually real estate professionals or property developers. They are responsible for finding the right property, negotiating an agreeable purchase price, and overseeing any necessary work to be done before either renting it out or selling it. They must also offer a substantial amount of capital, effort, and time in order to ensure that their interests align with those of the investors. Depending on what is stated in the investment thesis, Sponsors may receive additional payment for their services rendered. It is imperative that Sponsors remain diligent in completing each step following established best practices to ensure a successful outcome for all parties involved.
  • Investors. Not only do investors have the potential to make one-time payments from property sales, but in many cases, they are also entitled to ongoing payments from rental income. If a property is leased out, this could result in residual income for the investor over time. People who invest in property need to carefully consider the structure of their deal and take into account any associated risks before committing capital to the project. Ultimately though, it can be a powerful source of capital that can lead to substantial financial rewards if done correctly.

Real Estate Crowdfunding

  • Platform. As a mediator, the platform plays an important role in bringing sponsors and investors together. It facilitates the exchange of funds and ownership while ensuring high standards of safety and security, confirming that regulatory guidelines are met at all times. Moreover, it is responsible for verifying the identities of both parties involved and collecting funds from investors. This money is then safely kept with a reputable financial institution by the platform so that each investor can rest assured their assets are protected. Additionally, it also advertises available deals to the ‘crowd’, displaying investment opportunities of value and quality. The platform is therefore essential in providing a safe atmosphere for successful transactions of shares between those needing capital and capable backers to make it happen.

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Benefits of Real Estate Crowdfunding

Investing in rental properties has a lot to offer and can provide an investor with many benefits. 

  • It can generate a stable stream of income as long as the property is properly managed. Potential for higher than expected returns is also a possibility, such as from area development or from the increasing appeal of the property itself over time. 
  • The value of tangible assets is relatively stable, which means investors don’t have to worry about severe price changes disrupting their investments. 
  • Public securities may be correlated but this gives investors the opportunity to diversify their portfolio further by investing in both public securities and rental properties alike. 
  • Rental properties also offer many conveniences that otherwise unattainable investments like high-rise buildings or large-scale developments cannot, such as not having to manage the property themselves or having expert professionals.
  • Access to any type of real estate. With a small investment portfolio, investors cannot access investing in large properties, corporate buildings, etc. With crowdfunding, you can enter almost any area with $25,000 to invest. In many industries, the minimum entry threshold is $5,000.