How Does Real Estate Crowdfunding Work | Investor Guidelines

Real estate crowdfunding makes it so easy. It is not even hard anymore for any person to raise funds for real estate. Yes, read it right. In this article, I will show you how it works.

What is real estate crowdfunding?

Crowdfunding is a process where you can raise capital for your business or work by the collective effort of your family, friends, customers, or individual investors. Real estate crowdfunding is about getting a bunch of investors to raise funds to invest in real estate projects.

It is hard to believe that there are hundreds of crowdfunding online platforms that exist to raise money. And it has opened new investment opportunities too for both small and big investors.

Is it really easy to find investors through the internet?

The answer is yes.

Do not be so surprised 

By the JOBS Act 2012, the real estate developers of the U.S.A can advertise on online platforms and can bring investors from anywhere.

How does real estate crowdfunding work?

Actually, we need just five steps to go for a ‘Run’

•  Structure the Crowdfunding process.
•  Need to find a real estate fundraising platform or create one
• Raising funds
• Purchase a real estate property
• Earn a profit

Crowdfunding process:

There are basically two investment types one can go through. Equity(shares) is somewhat akin to buying shares. The investors buy a piece of property or shares and the developer trades a percentage of their property or money.

So a little investment can reap a great return when the property has a great cash flow. On the other hand, the investor can lose money if the investment goes wrong. for example: if the invested company goes bankrupt the investors have to be washed out.

With debt, the investors make money by lending loans to the developers and charging interest. There is a term called ‘preferred equity. It is used as a form of debt to a project where investors get an interest rate with no share of the profits.

Crowdfunding models:

There are two types of crowdfunding models that have their own terms and conditions.

Regulation A+ is a kind of fund that can be raised from any type of investor and can be raised up to $50 million. 

506(c) is for accredited people only. Sometimes the investment of this type of people is more than the regulation A+ funds.

Raising funds: 

Once your paperwork is ready and outlined the main walk plan, then it’s time to go. You can make your own website where you can show your expertise and in return, you can ask for investors to invest. There are some big platforms for raising funds for crowdfunding for your real estate deals.

If you are thinking about going for a marketplace of real estate crowdfunding then keep in mind that they have certain rules and regulations. They will take fees out of your crowdfunding. They might not release your funds until you reach a certain goal and may delay releasing funds to your specific bank account.

Best real estate crowdfunding platforms: 

Several crowdfunding platforms are available on the internet. One might be lost in that ocean. For choosing a platform you need to know the credibility, site functionality, quality of customer services, and documentation.

For choosing a platform you have to be sure it is credible and will remain in operation for long time. Here are some real estate crowdfunding platforms that may be your best choice.

Estate guru: Real estate investments in Estonia, Latvia, Lithuania, Finland, Germany, Portugal, and Spain ROI (+11.3%). Total investment  +€205’000’000. Minimum investment of €50 Estonian crowdlending platform.

Reinvest: Real estate investments with yield and capital growth returns +14.5% return on investment (ROI).

Bulkestate: Real estate investments in Latvia and mostly in Riga +14.75% return on investment (ROI). Total of +23’900 investments done.

The pros and cons of real estate crowdfunding:

The most obvious is to access real estate investments. that was out of reach for so many because the cost of entry was too high. With crowdfunding, many platforms allow you to invest with as little as $500. So it has opened a door to the little investors.

Another benefit is that after investment there is no need to maintain the property. For browsers to make a great network of investors. You can save money and time.

But there is a certain amount of risk involved in real estate deals. Any kind of crisis effect on real estate business like the 2008 financial crisis. 

When real estate values fall, it is usually a local occurrence. When energy prices dropped, for example, real estate markets in energy-producing areas saw a drop in property values.

Finally, real estate crowdfunding opens new doors for investment and allows people to invest in an asset category otherwise they could not access.