Though crowdfunding is still a relatively new concept, in the past few years the idea has taken off in multiple sectors. The World Bank predicts that the crowdfunding industry is going to continue this trend of growth, reaching an estimated value of more than $90 billion by the end of 2025.
Real estate has become a key area of focus, as new investors now also have the opportunity to release equity as an alternative financing option. But more importantly, Crowdfunding has opened up the world of real estate to a whole new class of investors. Ever since Congress passed the 2012 Jumpstart Our Business Startups (JOBS) Act, businesses have been able to market what were once private investments to the public. While the act was originally designed to help encourage the growth of new startups and small businesses, it also gave house-flippers having trouble getting bank loans an alternative source of financing. Now, online crowdfunding platforms make it easy for small-time investors to enter the real estate market. Here are some of the best ways that you can improve your investment portfolio thanks to the current crowdfunding craze.
This is a very hands-off method of crowdfunding, making it ideal for new or inexperienced investors. What’s more, most equity crowdfunding opportunities have a low barrier of entry, so you don’t have to be overly wealthy to participate. You supply capital to an established real estate company, while they use it to build or modify their properties. As an investor, you’ll receive a share of any profits the company makes. You won’t, however, have to take over any responsibilities regarding the upkeep or management of the property.
Syndicated Debt Crowdfunding
With equity crowdfunding, you’re able to invest in a project directly. With syndicated debt crowdfunding, on the other hand, your money is controlled by a third-party such as a private lender or bank. The third party divides up an existing loan amongst investors, offering returns with interests. While syndicated debt crowdfunding is a secure lucrative way to invest in the real estate market, the fact that it requires a middleman may end up affecting your bottom line as an investor.
Once upon a time, it was nearly impossible to enter the real estate market as a small-time investor. With easy access to crowdfunding, though, more and more people are able to get in on the action. If you’re looking to expand your portfolio and increase your returns, you may want to look into real estate crowdsourcing platforms that cater to your unique needs.