Real estate crowdfunding

Real estate crowdfunding is a popular term (used most often in the United States) for platforms that allow investors to partake in real estate by contributing just a portion of the total purchase price. In return, investors receive a portion of ownership in the asset, a portion of the returns and a portion of the risk.

These funds target a range of investments, from residential to commercial premises. And the good ones will outline their strategy—such as whether the investment is targeting yield, capital gain or a combination of both.

Of course, real estate crowdfunding is not without its flaws. Before we get to them, let’s start with why you might consider joining such a platform.

Benefits of real estate crowdfunding

Very small minimum investment amount

With only $10,000, you’re typically able to join a real estate crowdfund, making you a portion owner of a physical asset. That’s pretty exciting. For investors who are new to property or unable to yet buy their own real estate asset, this is a huge benefit.

Easy to cash out

A lot of real estate crowdfunding platforms will let you exit your investment at any time, perhaps charging a fee for the right to do so. This makes your investment “liquid”. If you need your capital back—fast—then you have the luxury to have it returned to you. Ensure you check the terms and conditions of the investment first.

Suits a variety of investment appetites

Every investor is different, and so is every investment fund.

If you’re seeking cash flow to bolster your passive income, then a fund targeting a robust yield might be ideal for you. On the other hand, real estate crowdfunding funds that aim for capital growth will likely carry a little more risk for investors, but might satisfy those who want to seriously increase their initial investment.

Cons of real estate crowdfunding

You’re just a number

Don’t expect to get any decision makers on the phone if you disagree with the investment strategy. And in saying that, don’t expect to understand the investment strategy at all, if you invest on a real estate crowdfunding platform.

Transparency is not necessarily the name of the game with these funds. They are bound by compliance laws and regulations, and prominent platforms will abide by such rules—but it doesn’t mean they need to share everything with every investor. You’re there to make up space, not to be involved in a shared journey. (That, by the way, is what we provide our investors at Properties & Pathways.)

Varying results

The key selling point of crowdfunding platforms is that you’re able to own real estate with only a small investment. That can be so mouthwatering to investors that they’re sometimes willing to forego the excellent returns they may receive elsewhere.

Potential higher risk from investors pulling out funds

Easier liquidation comes with a cost. Should the bulk of investors rip their money out of the investment, the crowdfunding investment may be forced to divest at a time that’s unsuitable, maybe even causing a loss.

As we’ve said before, illiquidity is actually a strength in real estate investment.

Fees

Investment management and establishment fees can cut into your returns. And if you’re looking for a strong yield on a small investment, then every dollar counts. You’ll want to ensure the fees are fair and within market expectations.

Alternatives to crowdfunding

Investing alone

Of course, you didn’t Google Real Estate Crowdfunding because you wanted to invest on your own. But doing so is of course an option. You may just need to revise your investment goals (by, of course, discussing them with your financial advisor or accountant).

Investing in a property syndicate (or Unlisted Property Trust)

This is our preference.

Real estate syndicates, also known as unlisted property trusts or funds, are becoming extremely popular across the globe. Investors pool their funds with a prominent investment group or business, who acquire high-quality real estate assets (both in residential and commercial property markets). They’ll likely have a bricks and mortar building, not relying solely on a digital platform to facilitate transactions.

Look for property syndicators who are extremely transparent, providing excellent communication to their family of investors. And ensure their track record is polished and visible for review.

Feel free to contact us for more information on how we ensure our investors feel like owners—and reap the rewards as such.

Every investment comes with risk. Ensure you speak to your accountant or financial advisor before making any major financial or investment commitments with an investment platform or group.