An Investors Guide to Real Estate Crowdfunding

In the United States, there are 50 million renter-occupied homes. That’s a lot of people who are paying someone else to live on someone else’s property. 

Do you have a dream of getting involved in real estate investing? You might think buying rental properties sounds like a great money-making idea, yet don’t quite know how to get the capital to get started. 

You need to learn more about real estate crowdfunding. It’s an interesting way to get started investing in real estate. There are even many crowdfunding platforms to use for investing. 

Read on to learn more about real estate crowdfunding. 

What Is Real Estate Crowdfunding?

Crowdfunding is not a new idea and has been used for a variety of other ventures in the public domain. 

The idea is pretty simple. Individuals put money into a communal source. The combined money helps to fund the venture. 

Real estate investing can be a more challenging investment to enter because it requires a larger chunk of money to buy a property. 

Yet, with crowdfunding, you get the advantage of other people’s money to get into the investment. 

Real estate crowdfunding means you take your money, pool it with other investors’ money, then make the real estate investment. 

Typically, this is done through real estate crowdfunding platforms that then manage the properties. Each platform has different requirements for investing.

How Does Real Estate Crowdfunding Work?

The idea is pretty simple for real estate crowdfunding. You may not have enough capital to buy a property on your own. Yet, you have some capital and want to get started.

Crowdfunding works on the premise that a site has a piece of real estate and they offer the opportunity to buy into the investment with other investors. 

The returns on many crowdfunding sites have shown to be lucrative over a longer period of time. They might be even better returns than many real estate investment trusts. 

Real estate investment trusts or REITs are often compared with real estate crowdfunding for potential investors. 

Who Can Participate in Real Estate Crowdfunding?

The beauty of crowdfunding is that it makes real estate investing more accessible for the average investor. 

The average investor might not be able to secure a down payment for an investment property of say $40,000 or $50,000. But they can secure a smaller amount that would allow them into real estate investing through crowdfunding.

Different crowdfunding sites have different criteria for buying in. It’s up to you as an investor to research the platform that works best for you.

Buying Into Real Estate Crowdfunding

You might be excited at the prospect of getting started with this option for real estate investing. And there are great opportunities out there for you. 

Yet, like any type of investment or time when you’re giving your money to someone else, you need to do your due diligence.

Any time you start investing, you need to do your research. There are plenty of real estate crowdfunding sites that will be anxious to use your money. 

They are not created equal, so understanding their agreements and fees is key to your crowdfunding success. 

Here are some tips to consider:

• Take the time to compare crowdfunding sites, their terms, investments, and fees
• Do your research related to how the site handles their crowdfunding real estate investing
• Make sure your own financial house is in order and know what you can comfortably afford to invest
• Use calculators to consider your potential returns and compare that to the fees you’ll pay
• Consider the type of real estate or property holding you hope to invest in
• Get your financial documents in order in case you want to seek accredited investor status with a platform
• Research what other investors are saying about being a part of the platform
• Research your personal tax implications for this type of investment

Remember, like many types of investments, the road to growing your money is leaving it alone for a while.

This might mean your money stays tied up and you don’t have access to it. You want to be comfortable with the idea that you can have easy access to those funds.

Pros Of Real Estate Crowdfunding

If you’re excited about the idea of real estate crowdfunding, there are some real benefits. 

Many investors consider these positives to this type of investing:

• You can expand and diversify your financial portfolio
• Gets you into real estate opportunities and investments
• You don’t have to be a direct landlord or handle the hassles of direct property ownership
• More minimal capital outlay than buying into other real estate options 

With the right kind of research, real estate crowdfunding can pay larger dividends than some other real estate investment options.

Cons Of Real Estate Crowdfunding

Any type of investment comes with potential risks and downsides you should be aware of. 

Here are some potential negatives to real estate crowdfunding to be aware of:

• Advisory fees or management fees from the platform
• Not a liquid asset
• Dividends from the platforms are usually taxable
• Some platforms require investors to become accredited investors to participate in the platform

With all investing, as you research, it’s smart to look at the long-term track record for success. Many real estate crowdfunding sites are relatively new and lack this long-term track record to evaluate.

Real Estate Crowdfunding Platforms

As you consider real estate crowdfunding, you want to look online for possible platforms for investing. 

Here are the most well-known platforms for investors:

• Fundrise
• CrowdStreet
• PeerStreet
• RealtyMogul
• EquityMultiple
• DiversyFund
• Yieldstreet

It makes sense, if you have an interest in real estate crowdfunding, to start by researching and comparing these sites. 

What You Need To Know About Real Estate Crowdfunding

There’s a reason crowdfunding has caught on and gets people excited at sharing their funds.

Real estate crowdfunding has been the same for investors. You might be an investor who doesn’t want to be a direct landlord or may lack the significant funds to do it. Real estate crowdfunding offers you another option.

If you own property and need help managing it, we can help. Contact us today about our management services in North Carolina, South Carolina, Virginia, and Washington D.C.