Crowdfunding is the process of collecting capital from a group of individuals. How does crowdfunding work in real estate? Simple. Real Estate Investment Trusts (REITs) use online platforms and digital technology to enable crowdfunding to a wider audience. This article highlights the importance of crowdfunding in real estate.
Importance of Crowdfunding in Real Estate
Given its growing prevalence, Crowdfunding in real estate has started to make its mark globally. It provides investors with the following benefits:
- An opportunity to participate in the fractional ownership of the real estate market with minimum capital. It eradicates the need for loans or high monthly instalments.
- For those who desire optimum diversification of their portfolio found that real estate investment is lop-sided and not balanced. Investing in real estate via Crowdfunding helps you create a diversified real estate portfolio.
- Commercial and residential properties have various options today. As a direct investor, you have to choose the type of property that you want to invest in. With Crowdfunding, you can invest in a range of properties that match your financial goals.
- You don’t have to research the property and go through the long and tedious process of the property documents verification. Most Crowdfunding platforms offer pre-verified properties.
There are many other benefits of investing in real estate through Crowdfunding like other platforms help you in finding tenants and take care of the day-to-day property management issues for a small fee. Crowdfunding is also one of the quickest ways to invest in real estate.
Important questions to ask before you invest in Real Estate via Crowdfunding
Are you ready to invest in Real Estate?
Real estate investment can be a complex process for investors who are unaware of the market. Do your ‘homework’ well. Understand the various types of real estate properties and look at their past performance in terms of rent and capital appreciation. The real estate landscape is also greatly affected by macroeconomic factors like the political stability of the region where the property is located, crime rates, number and type of businesses in the area, etc. Learning about these aspects will help you to make informed investment decisions. Once you are familiar with the way the real estate market works, start looking at various Crowdfunding platforms that offer investment opportunities. Compare them and invest only when you are sure it aligns with your financial goals.
What are the benefits offered by the Crowdfunding platform?
If you are looking at residential properties, as a preference, then look for platforms that offer various types of residential properties to invest in. Also, do they offer support to find tenants? Assess the relative costs for maintenance of the property? Assume that you are buying the property by yourself, make a list of all possible costs and legal formalities that need to be done. Then, see how the platform manages all these aspects.
How established is the platform with crowdfunding?
If the platform has handled real estate projects in the past, then you might want to look at the performance of those projects. For newer platforms, you look at the background of the sponsors to assess if they have a sound understanding of the real estate landscape.
What kind of risk profile is acceptable for you as an investor?
There is no investment without risk. And a good investment option is one where you are aware of the risks and the ways the investment provider manages the risk. If the platform has not informed you about it upfront, then ask for the details specifically.
Can you talk to some investors who have invested through the platform before?
This is more with respect to the ‘post-sales service’ aspect of the platform. Does the platform answer queries within a reasonable time? Are their reports comprehensive? Talking to an investor who has invested through the platform earlier can help determine these aspects.
Here some more questions that you can ask which can also help you invest in real estate directly:
- What is the economy of the region?
- What is the level of employment?
- How many people visit the region from other regions for jobs?
- What is the population growth of the region?
- What are the vacancy rates for different types of properties?
- Are there many new constructions that have been completed in the region? (This can imply an increase in demand or a perceived increase in demand for real estate in the region).
Before you start investing ensure that you get answers to most of the questions listed above. Although this might seem like a long list of questions, it can go a long way in ensuring that your investment decisions work well for you. Crowdfunding is an alternative option of investing in real estate and earning good returns. However, it requires the groundwork. Start researching today and be a part of the global real estate landscape!