Crowdfunding is a strategy for raising money for businesses and an easier way to access such ventures for investors. It utilizes the Internet through social media outlets, such as Twitter, Facebook, and LinkedIn, to reach an audience of potential investors, says noted Astro Strategist™ cum Business Astrologer™ Hirav Shah.
Hirav Shah explains that the plan behind crowdfunding is that many people are willing to invest a small amount, and when they do, huge sums of finance can be raised quite rapidly.
Crowdfunding offers companies access to money that they might never be able to raise. Crowdfunding offers investors the ability to become shareholders in a company or in a real estate property.
Real estate crowdfunding entails the amalgamation of funds done by many investors in a real estate project.
This type of crowdfunding is pretty different from venture and loan crowdfunding in terms of investments made.
There are two fundamental ways of investing in crowdfunding deals
Investors can make equity investments in residential or commercial properties. In lieu of the funding of the project, the real estate investor receives an equal share of the property. Returns are then taken up in the form of the rental income generated by either of the properties.
Debt investments are the next best option to equity. When you are investing in debt, you’re basically investing in a mortgage loan related to a particular property. Loans are to be repaid with interest, a part of which is later paid to the investor as a part of the deal.
Equity investments offer a comparatively higher return since the profitability of a debt investment gets limited by the interest rate associated with the loan. The equity investments carry a higher amount of risk, and they do require approximately a longer holding period which makes them highly liquid.
How did Real Estate used to be?
In the past, real estate development was only available for investment, through equity in the development company or through the REITs and was not available for direct investment for most individuals. This was because each of the real estate development ventures was a finite project, and each project is also registered as a security. The real estate developers weren’t allowed to actively trade the investments for their projects due to unquestionable restrictions.
Real estate crowdfunding manifesto differs in terms of investments arranged. With debt, a certain equity investment is made on the payment notes of Real estate share subdivisions. Each note is linked with the performance of the real estate project investment made by the subsidiary.
How Does Crowdfunding Benefit the Real Estate Investors?
Real Estate Crowdfunding provides innumerable benefits to the investors who seek first-hand access to private investments. When compared to real estate property investment or rental property purchase, real estate crowdfunding has the edge over when it comes to the following
The key advantage that the real estate crowdfunding platforms provide over the other different kinds of real estate investments is ‘transparency.’ Investors may have a piece of finite information about the unrevealed access.
The big roadblock related to the private real estate entity is the minimum buy-in requirement. Real Estate, on the other hand, reduces the stake of money to a much lower scale.
Real Estate is a core ingredient for a good portfolio, and evidently, crowdfunding allows it to fill the gap. Between the debts and the investments in both the business and suburban properties, investors have the chance to earn exposure to a new asset group with very little or no barriers.
(iv) Tax Benefits
An investment property always comes with certain benefits, including the ability to duck down the depreciation and other property maintenance expenses. It won’t be possible with REIT to take advantage of tax breaks. The way in which crowdfunded investments are structured, on the other hand, grants investors the rewards without actually owning the property.
What needs to be done before Investing?
As with some other investments, it is important to have good knowledge of real estate crowdfunding. This actually guarantees that investors are getting connected to the right platform and are investing in appropriate deals which fit their goals.
(i) Choosing the right Crowdfunding platform
There are many real estate crowdfunding platforms than we know. Every platform varies in its investing approaches. The initial step that investors should take up is researching about the crowdfunding platforms to gain insight and to know which fits their needs.
(ii) Considering the fundamentals of the investment platform
Preferring to invest in a good and qualified real estate platform is essential. Many platforms do the deals beforehand, while others may discuss it with the investment advisors and then begin with the deal.
(iii) Check the time of Liquidity
Real Estate has relatively different liquidity plans as well as some unique return profiles for each investment made. While making investment decisions, you should know how prolonged you be locked in the deal. With equity investments, the holding period can extend up to 10 years.
(iv) Don’t forget the risk
Though real estate investment can help to diversify and fortify the portfolio, there are different kinds of investments we need to think about in lieu of diversifying the risk. Equity investment is far riskier than debt investment, but it’s a kind of deal when it comes to the returns that investors enjoy.
Hirav Shah sums up the discussion by saying, “For crowdfunding, you will always need a proper platform, and in that case, deciding which one to be used is a pretty difficult task. Whether you’re an investor or a borrower, you cannot afford to take a leap in crowdfunding without doing any research beforehand.”
Hirav Shah says, “Games are won by the players who focus on the playing field, not by those whose eyes are glued to the scoreboard.”