All You Need to Know About Real Estate Crowdfunding as a New Investor

Real estate crowdfunding is gaining more popularity among real estate investors. As a new real estate investor, you, too, should know exactly what real estate crowdfunding is and how to get on board.

Everything new real estate investors need to know about real estate crowdfunding can be found in this guide!

What Is Real Estate Crowdfunding?

The general idea behind crowdfunding is finding funds for a project through the use of social media sites. It allows projects to be advertised to many people, who otherwise would have no clue how to reach these projects.

With this in mind, it makes sense that real estate investing and crowdfunding have come together. Real estate investors and developers now have a way to advertise private real estate projects to other investors who typically would not have had access to them. Real estate investors choose which real estate investment opportunities to pursue and then enjoy their return on investment.

What Are the Types of Investments in Real Estate Crowdfunding Deals?

Buying investment property means real estate investors have full ownership and are investing in the value of the investment property. With real estate crowdfunding, there are two types of investments: investment in equity and investment in debt.

Equity investments in commercial or residential real estate property mean that a real estate investor will own an equity stake in the investment property. The return on investment will come in the form of part of the rental income from the investment property.

Investments in debt mean the real estate investor is investing in the mortgage loans of the property. The return on investment comes from a percentage of the interest payments on the loan.

Why Choose Real Estate Crowdfunding?

Whether you’re a real estate investor or someone looking to borrow money for a real estate investment project, real estate crowdfunding has many benefits over traditional real estate investments.

Real estate investors can invest smaller amounts of money than when normally investing in real estate. This is because multiple real estate investors come together and fund a real estate project. The risk they each take on is lower as a result.

Don’t have a real estate network? Real estate crowdfunding eliminates the need to be well connected in order to find good real estate investment opportunities or non-traditional investment property financing strategies.
Many new real estate investors aren’t ready to commit to the responsibilities of buying investment property. Owning and managing an investment property means dealing with repairs, tenants, and maintenance. Real estate crowdfunding eliminates all of these responsibilities and allows real estate investors to still enjoy making money from real estate investments. This boils down to passive income for real estate investors.
Borrowers no longer need to worry about investment property financing strategies. With real estate crowdfunding, they can find financing quickly because of the access to multiple real estate investors. Fees and interest rates on the loans are lower than those of traditional banks. Real estate crowdfunding can actually be the best among other investment property financing strategies.
Real estate investors can work closely with real estate developers and have more of a say in the process than with other types of real estate investments.
Even without owning investment property, real estate investors can still benefit from tax advantages with real estate crowdfunding.
Most real estate crowdfunding platforms offer a variety of real estate investment opportunities to choose from. Real estate investments range from commercial to residential real estate investments. This means real estate investors can easily diversify their investment portfolios.

What Should You Keep in Mind?

As with any real estate investment, real estate crowdfunding has a few considerations real estate investors have to be wary of.

Real estate crowdfunding is still affected by real estate market and residential real estate investment trends. It is not immune to the ups and downs of the real estate market even though it may feel like a completely different kind of real estate investment. Real estate investors have to be knowledgeable about both real estate market and residential real estate investment trends.
The risk of investment default is higher for real estate crowdfunding than with directly buying investment property.
Buying investment property usually means a real estate investor has more options when selling. With real estate crowdfunding, there is only one market to sell to, reducing liquidity.
While real estate crowdfunding platforms have a process in which they approve the real estate investment opportunities, that doesn’t mean that every advertised investment will be the best real estate investment. Research the real estate investments as you would when buying investment property to make sure it will be a good deal.

Who Can Invest with Real Estate Crowdfunding?

Because the rules of real estate crowdfunding were once strict, only accredited real estate investors could invest. This meant that only real estate investors with a net worth of one million dollars or those who had an annual income of $200,000 qualified. Households with two incomes had to be making $300,000 a year to get involved in real estate crowdfunding. If you wanted to know how to invest in real estate with no money, this would not have been a real estate investment option for you.

However, the regulations have become more lenient allowing smaller investors to enter into real estate crowdfunding. Real estate investors with an annual income of $100,000 can now invest up to 10% of their income. Real estate investors who make less than $100,000 are limited to 5%. Even with the limitations, the doors of real estate crowdfunding have opened up to the vast majority of real estate investors.

Some real estate crowdfunding platforms may choose not to adopt the new regulations and only offer their services to accredited real estate investors. Be sure to check each real estate crowdfunding platform’s policies.

How Should You Choose a Real Estate Crowdfunding Platform?

There are over 50 real estate crowdfunding platforms to choose from. Just like traditional real estate investing, real estate investors have to do their research when deciding which real estate crowdfunding platform is for them.

Research the founders and the management of the real estate crowdfunding platform. Make sure they have the capital that will allow them to be in business for a long time. Check to see if they are reputable and have experience in real estate, investment property financing strategies, and technology to manage real estate crowdfunding.
Every real estate crowdfunding platform has its own niche and real estate investment strategy. Make sure these match up with your own goals for investing in real estate.
Find a real estate crowdfunding platform that is transparent with its real estate investors. When buying investment property, real estate investors find out every detail they can before making a decision. Real estate crowdfunding should be no different.
The real estate crowdfunding platform you choose should have great customer service and open channels of communication. This should apply both before and after fundraising.

Real estate crowdfunding is another type of real estate investing that real estate investors should be aware of. It expands the real estate investment opportunities that real estate investors have and allows them to easily invest online. As long as a real estate investor does the due diligence with each potential real estate investment, real estate crowdfunding deals can turn into successful real estate investments.

Not interested in testing the waters of real estate crowdfunding, but still want to get into real estate investing? Mashvisor can help you find the right investment property to give the best return on investment.

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