“To Invest in Real Estate” is always an hot topic in business talks. There is a reason for this; historically, investors with roughly 20% allocated to real estate have outperformed those who only own stocks and bonds. However, the best opportunities require minimums of $100,000 or more, making them inaccessible unless you’re very wealthy. The other option is to go through unnecessary middlemen who charge high fees, negatively impacting returns.
Now there is another option to go through; crowdfunding. Let me try to explain you what is crowdfunding:
While crowdfunding and real estate may sound like two completely different venues, this unusual pairing permits investors to leverage profits in the US real estate market. Currently, real estate crowdfunding is about a $10 trillion market. Therefore, you can find plenty of opportunities in this venue.
During one recent real estate conference in 2014, the JOBS (Jumpstart Our Business Startups) Act of 2012 was discussed. The new guidelines permit affluent investors, or people with a net worth of at least $1 million, to access the real estate market through crowdfunding. While the Securities and Exchange Commission in the US tries to find ways to let all kinds of investors access real estate online, the wealthier individuals tend to migrate to crowdfunding sites.
Expanding the Investor Pool
Definitively, crowdfunding should work in easily with one’s real estate investment goals. The practice makes good use of various networks through social media sites, such as Twitter, LinkedIn, and Facebook, to convey the message about new business opportunities. Crowdfunding can expand the base of entrepreneurs by enlarging the investor pool of non-traditional financiers.
So, what are the pros and cons for practicing crowdfunding? According to research, both investors and real estate developers must bear some risk. You just have to consider how much of that risk you want to absorb online. In any event, using crowdfunding can reap notable financial returns as well as spread out the risks for anyone working with this investment tool.
Plenty of Investment Choices
What is positive about crowdfunding platforms is that they allow you to gain access to the real estate market with small sums of money. You can also collaborate directly with real estate developers and have a say in the whole process. Investors can select the projects where they wish to invest their funds. Plus, you have access to a variety of projects. Therefore, options or selections are not an issue.
However, that being said, you also have the same issues that every other investor experiences. If the market takes a dip, you, no doubt, will lose money. Also, the risk of investment default (from developers) is more pervasive for crowdfunding than it is when you directly invest in real estate, or choose peer-to-peer funding solutions.
What are Important Points to Invest in Real Estate Online
Choose a Firm that Is Well-Capitalized
Because of a lack of liquidity, you cannot sell your investments all that easy. Therefore, to invest in real estate online, and through a crowdfunding company, you need to choose a firm that is well-capitalized. In other words, you do not want to go with a company that has just been established by a couple of recent college grads who are not capitalized.
Not All Sites Are Created Equal
When funding real estate online then, doing your due diligence is essential to your financial and investment health. Therefore, make sure you carefully research the crowdfunding platforms as not all sites are created equal. Plus, a number of business plans are currently being tested in order to capitalize crowdfunding companies today.
Testing Out the Platforms – Making a Choice
When researching the platforms, you want to make sure the owner or founder has a keen understanding of finance, technology, and real estate. Investors should look at sites that deliver exceptional customer service, both during the fundraising stages and afterwards. Although, you can find a variety of crowdfunding platforms online, only a few have emerged as leaders in this discipline. Therefore, investors should research several platforms first and then choose the top three sites, based on their user experience and investment objectives.
When selecting a platform, look for sites that acknowledge the risks of investing. They should also offer an educational approach to the management of risk. Most of the real estate crowdfunding sites only allow investors to join who are accredited themselves.
You Need to Be Informed
If you do not understand how the money is being directed or the risk factors of a real estate investment, you need to turn your inquiries over to a real estate investment professional. By consulting with a professional, you can also better understand how a crowdfunding site can give you the return you desire. Because many investment opportunities in real estate are available, don’t feel pressured about making a quick decision. You need to be informed.
A professional and reliable crowdfunding site should provide investors plenty in the way of opportunity to discuss a real estate offering. It should also introduce an investor directly to a property listing’s sponsor. Fortunately, today, you can browse, review, and make well-informed decisions online on your real estate investments. This type of innovative real estate opportunity is a kind of revolution in the world or real estate and technology. That is why it is drawing interest from serious investors in the real estate market and community.
You Can Also Invest in REITs
In addition to crowdfunding, you might also consider investing in a “Real Estate Investment Trust“, or a REIT. Doing so entails purchasing shares of a portfolio of properties. Therefore, it actually is more like purchasing into a mutual fund or buying stock. Investing in a REIT is a completely different process than buying and directly owning real estate.
When you invest in a REIT, you experience three tiers of worth:
- the real estate,
- the cash flow that funds the trust,
- and the fund that is based on the trust.
Because most of us cannot afford to buy a one percent interest in a skyscraper, a REIT can be quite appealing.
Include a REIT in Your Investment Portfolio
Including a REIT in your real estate and financial portfolio can complement your bond and stock fund accounts. REIT performance is based on the gains and cash from properties when they sell. That type of result is vastly different than following the financial performances of bond or stock funds.
One Final Cautionary Note
Regardless of how you choose to invest, you need to perform research and make sure you are dealing with a solid investment company, especially if you plan to do business online. Investing online is convenient. However, you don’t want that convenience to turn out to be too easy – so easy, in fact, that you lose instead of make money.