Can you use crowdfunding for real estate investing?
Many new investors or investors wanting to enter the property investment market but are on a smaller budget are looking to real estate crowdfunding as a way to increase their investment portfolios.
The concept of crowdfunding is straightforward.
Using a crowdfunding platform, investors can browse and select an investment and pool their money together to fund a project.
There are two types of crowdfunding investments: debt investments and equity investments.
With debt investments, individuals are essentially lenders that are providing the capital, which are paid back in instalments with interest.
In equity investments the person is buying in as a part owner.
Crowdfunding is a viable option for investing in real estate as well as raising the capital needed to make a project happen.
As with all types of investing, crowdfunding has its own Pros and Cons.
Pros of Real Estate Crowdfunding
1. Easier Access
Real estate crowdfunding opens up a world of investment opportunities for people who are interested in adding real estate to their portfolio. Investments are done online, often with very low initial investments.
2. Due Diligence
Most real estate crowdfunding platforms do all due diligence and crunch all numbers for you as well as providing you with all documents and reports they used to approve this project.
3. Investment Selection
Instead of being limited to investment opportunities in your area, you now have the ability to invest in opportunities throughout the UK. The investment could be a smaller property in a neighborhood or a luxury high-rise apartment complex. The possibilities are endless and help to diversify your portfolio.
4. Real Estate Investment Without the Management
Most small investors avoid the commercial real estate game because they don’t want the management that comes with it. Crowdfunding gives you the opportunity to be a silent partner who can reap the rewards without having to deal with the day-to-day operations.
See the rest of the 7 Step Property Freedom Formula videos here.
Cons of Real Estate Crowdfunding
1. Limit on Investment
Non-accredited investor you can usually only invest up to a certain amount per project. Accredited investors can fund up to 25% of the project giving them a distinct advantage over a new investor.
2. Investments Aren’t Liquid yet.
If you get strapped for cash, liquidating your crowdfunding investment may be difficult. You may have to wait until the property is sold, which could put some investors in a bind.