What is Real Estate Crowdfunding?
Real estate crowdfunding is similar to other types of crowdfunding where a group of investors come together and pool their money to fund a project or investment in the hopes of generating a future profit. Instead of asking a single investor for a large investment for a real estate endeavor, crowdfunding includes smaller investments from a large pool of investors. Unlike traditional methods of securing money through a bank loan, traditional lender, or a private investor, most real estate crowdfunding occurs online.
Crowdfunding makes investment in real estate more accessible by having a much lower entry threshold compared to a private investor. Some real estate crowdfunding websites will even let individuals invest as little as $500. Are you ready to invest with real estate crowdfunding? Follow along as Price Commercial Properties walks you through what you need to know.
How to Invest in Crowdfunding
If you’re interested in investing with real estate crowdfunding, it’s relatively simple for you to start — although it may take you some time to get comfortable knowing what types of projects to invest in. When dipping your toes into real estate crowdfunding, make sure you consider these points:
- Websites – Not all crowdfunding websites are going to be the same. Do your research to understand the differences between platforms and the services they offer, their fee structures, investment opportunities, and their terms and conditions. You don’t want to go all-in on an investment only to realize you could’ve had a better opportunity on another platform.
- Budget – Deciding to dive into real estate crowdfunding is an exciting time! Easy access to multiple ventures can be overwhelming. Before you start investing, sit down and get a clear understanding of how much you can comfortably invest so you don’t overextend yourself.
- ROI – Do you have a specific goal in mind for your investments? Determine what return on investment you’re hoping to achieve with your investments. Doing so will allow you to make stronger decisions.
- Investment Type – Real estate is a large industry. Are you looking to invest in commercial real estate or residential real estate? Do you want to invest in multifamily properties or commercial office space? Determine the type of real estate that you’d prefer to invest in.
- Tax Forms – To get started, crowdfunding websites will require proof of your accredited investor status – make sure you have these documents ready to go when getting started so you don’t get held up and miss out on the desired opportunity.
- Tax Preparation – If this is your first time investing in real estate, schedule an appointment with your accountant to talk through the tax implications crowdfunding can have.
How Real Estate Crowdfunding Works
Investing in commercial real estate is an effective way to grow your worth. However, breaking into the market can prove to be difficult if you don’t have a large chunk of change to comfortably throw at a property as a down payment. Plus, alongside your down payment, you can expect to pay for maintenance, utilities, property taxes, and more. It can add up and eat into any return you may be hoping for!
As an alternative, real estate crowdfunding allows those interested in investing in real estate to pool their money together via an online platform and invest it into a property with the hopes of turning a one-time or ongoing profit. In most cases, an individual only needs a few hundred dollars to get started — a big difference from the down payment required on the property if investing in it yourself! Crowdfunded real estate ventures can come in all shapes and sizes and include properties such as houses, apartments, condos, warehouses, retail space, malls, hotels, offices, and more.
Keep in mind that while some crowdfunding websites are open to all types of investors, others may require the individual to qualify as an accredited investor, meaning they must have an annual income of more than $200,000 or a net worth of over $1 million to participate.
The Difference Between Real Estate Crowdfunding and REITs
Real estate investment trusts, also known as REITs, are companies that allow investors to pool their money and invest in real estate assets. They operate similarly to mutual funds, where hundreds or thousands of investors contribute money to a pool. REITs then invest this pooled money in real estate across a range of property sectors.
The purpose of REITs is to allow everyday investors the opportunity to invest in a market they wouldn’t normally be able to, such as real estate. When an individual buys a REIT share, they are purchasing a share of the company that owns and manages the real estate property — unlike crowdfunding, the individual is not investing their money into a particular property.
On the other hand, real estate crowdfunding offers investors access to exclusive private market property investments that may otherwise be unavailable to standard investors. In many cases, crowdfunded real estate will offer a higher return than REITs, because they have a higher degree of risk. For those investing in crowdfunding, it usually isn’t the primary way to generate wealth for the investor. Instead, investors use it as a supplemental tool to diversify their financial portfolio that also includes stocks, bonds, and other equity holdings.
Both crowdfunding and REITs open up real estate investment opportunities to everyone. However, while both investment opportunities may seem attractive, they both involve some risk. The greater the risk typically results in greater rewards — so you need to determine how much you’re willing to risk with your investments when deciding if REITs or crowdfunding is the best choice for you.
Is Real Estate Crowdfunding Worth It?
Now that we’ve covered what real estate crowdfunding is and how to get started, you may be wondering if it’s worth it. Ultimately, it comes down to what your investment goals are and what crowdfunding platform you decide to use. If you are looking to diversify your investment portfolio and have some extra money lying around, crowdfunding could be a great opportunity to grow your worth. If you don’t want to be as hands-on with your real estate investments, publicly traded REITs may be a better option.
How a Commercial Real Estate Firm Can Assist with the Investing Process
Price Commercial Properties is one of the fastest-growing commercial real estate firms in the Piedmont Triad. Why? We simply and effectively do the hard work for you.
If you are interested in learning more about investing in commercial real estate, we’d love to help! We support investors of all sizes, and we are here to support you through this process. We know and interact with city leaders, developers, lenders, business owners, and even other brokerage firms to plot our moves based on intelligent market research. Ready to get the inside edge on investing? Contact us today!
