Are you ready to expand your investing portfolio? Real estate crowdfunding is a fantastic approach to do this. To get started, here’s everything you need to know. While acquiring the necessary funds for a real estate project might be challenging, there is a new alternative that many people are turning to make the process go more smoothly. Real estate crowdfunding is gaining popularity, despite the fact that it is still a relatively new concept.
It’s understandable to be unsure about this form of crowdfunding and to wonder whether it’s right for you. That’s why we’ve put together this guide to address your concerns and give you the confidence you’ll need if you decide to give it a shot.
What is Real Estate Crowdfunding, and how does it work?
Crowdfunding real estate works similarly to other crowdfunding endeavors in that investors combine their capital to start a project that they feel will be profitable. Simply, crowdfunding is a method for entrepreneurs to raise capital. They don’t ask one investor for a large sum of money to achieve their aim; instead, they approach multiple investors who can each give a tiny amount of money. The platform is a fundamental distinction between crowdfunding and other fundraising approaches. Crowdfunding, unlike more traditional approaches, is generally done online. The majority of real estate crowdfunding platforms route contributions into real estate investment trusts. Real estate crowdfunding, like making a down payment, has a high professional barrier. However, as time goes on, certain platforms are lowering the investment requirement to the point where users may spend as little as $500.
Crowdfunding has become a popular alternative to more traditional real estate investment methods. Larger investors utilize the site to raise cash from groups of certified investors, while small company owners frequently start crowdfunding campaigns to support their projects.
It is also advised by real estate experts to invest through real estate crowdfunding platforms such as Assetmonk because of the following reasons.
i. Investment Requirement
An investor may invest as little as Rs. 10-25 lakhs in Commercial grade properties with Assetmonk and get premium returns.
ii. Deals for the short and long term
Various investment plans are available, based on the needs and requirements of each investor. Investors may choose from our growth, growth plus, and yield alternatives according to their financial situation and immediate/long-term needs.
iii. Capital appreciation and internal rate of return
Platforms such as Assetmonk promise clients consistent returns and capital appreciation, allowing them to watch their money grow while earning a passive income.
iv. Customer-first policy and real-time investment tracking
Platforms like Assetmonk have an interactive dashboard that allows investors to access all relevant information at any time, and the company adheres to a strong investor-first approach.
v. Simple Investing
Investing through platforms such as Assetmonk will help you as they will investigate potential consumers for new companies and also give full-time asset management support to our clients to make their investment as simple as possible.
Since they don’t have to bother about managing the properties, crowdfunding real estate is a terrific concept for investors looking to develop passive streams of income. It’s also perfect for investors who don’t have enough money to buy a home but want to invest in real estate anyhow. Furthermore, this option permits non-landlords to invest in real estate.
Benefits of Real Estate Crowdfunding
The concept is simple: allow normal investors to profit from real estate’s above-average returns.
i. Exceptional dividends
Investors gain from most crowdfunded real estate sites since they function through REITs. REITs, both publicly listed and privately held, are required by law to pay investors 90% of their taxable income. As a result, many REITs have a long track record of dividend payments.
Adding real estate assets to your portfolio might assist to enhance and diversify it. The profits you receive may still be subject to taxation (unless you put those dividends into a tax-advantaged retirement account).
iii. Minimum investment amounts are low
The investment minimums on several of these sites are rather modest. This barrier may appear high, but it’s lower than the thousands-of-dollar minimums often required by privately held REITs while still allowing investor’s access to privately held assets.
iv. There are no issues with the landlord
One of the main benefits of real estate crowdfunding is that you don’t have to deal with the difficulties that come with regular real estate ownership. It’s great to be able to invest in large properties and never have to worry about freezing plumbing or difficult tenants (though you can also avoid this by investing in publicly traded REITs).
v. A simple investment experience
The fact that these businesses are new doesn’t imply they don’t value accessibility. Some crowdfunded real estate companies include applications that allow consumers to invest fast and conveniently from anywhere.
Drawbacks of Real Estate Crowdfunding
Before you get too enthusiastic about being a digital landlord, consider the following disadvantages.
Annual fees of 1% to 2.5 percent (or greater) of your managed assets may apply depending on the platform you pick. Whether the platform names them management fees, advisory fees, or individual fund costs, they all pile up. While the fees are reasonable when compared to other management fees for similar services, 1% may still be too much for you. Before you invest in any asset, make sure you read the tiny print.
ii. Assets that aren’t liquid
Illiquid assets cannot be sold at any time. They take longer to convert to cash than more liquid investments like most equities and publicly traded REITs. The bulk of crowdfunded real estate investing platforms’ REITs are illiquid and have long investment horizons. This is fantastic for investors who are convinced they won’t need the money they’ve put into their accounts anytime soon, but it’s not so ideal for those who may want or need to sell their assets soon.
iii. Implications for taxes
It’s fantastic to get a dividend check, but keep in mind that you may owe taxes on the dividends. The majority of crowdfunded real estate platforms will provide its investors with a tax form outlining how much they owe on normal dividends, qualified dividends, and capital returns, which are all taxed at different rates.
iv. Platforms that have never been used before
Although the websites are attractive and persuasive, it’s important to remember that these investing platforms are still in their infancy. The SEC does not need crowdfunded real estate platforms to register. Some financial experts are wary of these products for additional reasons.
Accreditation was one of the biggest barriers that kept investors out of real estate prior to crowdfunding. Accredited investors have a net worth of over $1 million (excluding the value of their home) or an annual income of $200,000 or more.
Type of crowdfunding investments
i. An equity-based approach
Returns on equity investments are higher than those on debt ones. You get profit returns based on the rental revenue of the property in this sort of crowdfunding. Investors earn profits on a quarterly basis and a portion of the property’s appreciating value when it is sold. One big worry that investors should be aware of is that if the property’s value drops, they may lose money.
ii. Based on Lending
Because lending-based investments are an easier method to invest, they attract more people. This sort of investment allows investors to lend money to a property owner at a predetermined rate of interest. The interest rate is determined by the amount invested as well as the loan amount.
Is Crowdfunding the Best Real Estate Investing Option?
In recent years, real estate investing as a whole has grown more accessible. This implies that if you want to invest in real estate, you have a lot of choices. No matter what form of real estate investing you choose to pursue, it’s critical that you recognize that not all investments are the same and that there are distinct advantages and downsides to consider.
When comparing crowdfunding to property ownership, traditional direct investment, and even public REITs, make sure to take into account a few important considerations. It is suggested that you look into diversification ease, stock market correlation, investor freeloads, liquidity, minimum investment, and day-to-day management responsibilities. Crowdfunding can be a good option depending on how hands-on you want to be with your investment and how much you’re prepared to commit.
If you have questions regarding your personal investment and whether or not crowdsourcing is good for you, it’s recommended that you speak with your financial adviser, who will be able to look at your entire financial picture and steer you in the proper way.