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What is Crowdfunding real estate and what advantages does it offer?

Posted On Thursday, 03 March 2022 20:42

Real estate crowdfunding consists of raising funds from private investors to finance a project in the real estate sector.

This new form of financing is based on the fact that interested parties will have the possibility of investing in specific real estate projects together with other investors.

The real estate crowdfunding offers the opportunity to developers, investors and all those who want to create their wealth and access to the purchase of real estate without the need to invest so much money.

  1. Advantages of real estate crowdfunding

More access to the real estate business

Historically, only investors with a lot of money and inside connections could access a quality real estate deal and invest.

Because investors pool money with others on a crowdfunding site, they can access deals they would never normally see on their desks. And they can participate in larger deals thanks to crowdfunded capital.

  1. Real Estate Crowdfunding around the world

Real estate crowdfunding is growing at a very fast pace in almost every continent.

In the United States it is well established, in Europe it is becoming more and more common as a form of investment.

Real estate crowdfunding in Italy, for example, is making important progress, also attracting the attention of institutional investors. In France, Germany and Spain it is becoming quite common for retail investors to have a small percantage of their savings invested this way.

  1. Minimum investment amounts

In the past, you needed a lot of money just to be part of a small real estate project. But now investors can raise the amount of money needed for a medium to large project through crowdfunding, so that anyone can access any project they want.

Borrowers who need smaller amounts of capital now have a new source of funding, one that is potentially quicker and easier to close than a traditional bank loan.

  1. Risk profiles for every taste

Not all investment risks are the same. Some are high risk, high return. Others are low risk, low return.

Real estate crowdfunding allows investors to find the right amount of risk for them. The best part? There's something for everyone.

Investors can choose between lower risk, lower reward debt deals where investors fund real estate development projects.

Or higher risk, higher reward equity deals where investments provide partial ownership positions to investors.

  1. Portfolio diversification

There is more than one way to diversify investments. Most people allocate their funds among assets, including cash, money market accounts, stocks and bonds.

Crowdfunding helps both novice and experienced investors diversify portfolios into a variety of quality real estate investments.

Indeed, real estate is an attractive alternative investment for a number of reasons. Investors can diversify across geographies, property types and even operating partners. Individuals can also choose between equity and debt investments.

  1. Unrestricted real estate investment

Unlike traditional real estate investing, real estate crowdfunding is dematerialised: investors do not buy real estate, but debt securities against the carrier of the real estate project they are investing in.

Investors therefore have no management problems (construction work, staff remuneration, sale of the programme property).

  1. Participating in real economy financing

Investing in real estate crowdfunding allows you to participate in the financing of the real economy. The latter was until now reserved only for professionals.

Real estate crowdfunding platforms seem to be the safest way for savers who want to invest in real estate and quickly earn an above-average return. The fact that this investment is completely dematerialised also presents very few limitations for prospective investors.

Although crowdfunding seems to have survived the healthcare crisis, it is important to remember that no investment is 100% safe. 

Any real estate investment carries risks, especially as crowdfunding is a recent investment method. It is important to remember that the return on an investment depends on the success of the real estate project. In particular, if you are interested in this investment, take the time to research the development company and be aware that it is possible that there may be delays in the delivery of the property. 

Although this is rare, we cannot rule out the failure of a project. In particular, cases of bankruptcy of the development company, or even of the crowdfunding company itself, have been identified, moderating the perceived returns on this investment.

Real estate crowdfunding is therefore a new face of the real economy, not an elitist one, which allows investors with lower incomes to benefit from this highly profitable type of investment.

Undoubtedly, the real estate sector has many possibilities for success from whatever role you decide to choose. Whether you are a developer, investor, developer or real estate agent.

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