You’re intelligent, charismatic and you love helping people find their dream homes… but at the end of the day, what really drives you to be the best realtor you can be is the prospect of profit. Like in any industry, money is the motivation. That being said, real estate is in a class all its own when it comes to its earning potential, as it is generally noted as one of the best ways to build wealth.
Investing in real estate, whether in the form of your own home or a commercial property, can set you up financially for many years to come. You can buy a house and watch it slowly increase in value over time, flip houses at a rapid speed, or invest in a commercial property and collect a handsome profit. In today’s world, there are even more unique ways to capitalize on real estate and diversify your investment portfolio. One of those ways is real estate crowdfunding.
What is real estate crowdfunding?
It’s exactly what it sounds like – a crowdfunded effort that allows you to contribute to a larger real estate investment. Have you ever wished that you could buy a $15 million dollar building? What would be considered impossible for most Americans is suddenly within reach with real estate crowdfunding apps like RealCrowd, SquareFoot, PeerStreet, RealtyShares and more. You may not be able to own the whole property, but a $1,000 share of it still puts you on the board in this new school of investment that gives the average consumer access to opportunities unavailable to most individual investors.
What platform should I use?
If you decide to try your hand at real estate crowdfunding, there are various platforms through which you could invest – some that buy and manage properties and others that pool your money and lend it to third party investors. Groundfloor, for example, is a site that lets you choose individual projects to invest in, whereas Fundrise invests in the private market on your behalf. “Fundrise democratizes access to this once-unattainable asset class, making it possible for anyone to become a real estate investor regardless of income or net worth,” according to the company’s website. Each real estate crowdfunding platform has its own niche and unique investment strategy and is breaking industry norms in its own way; make sure that the platform you decide on matches up with your specific real estate investment goals.
What types of investments could I make?
In the world of real estate crowdfunding, there are two types of investments available to you: investments in equity and in debt. While both types can deliver great returns, it’s important to be aware of their key differences. With equity investments in commercial or residential real estate, the investor will own an equity stake in the property and the ROI will come as part of the rental income from the investment property. Think of it as stock, or security, that comes with a “claim” on an entity’s earnings or assets.
When you invest in debt, on the other hand, you invest in the mortgage loans of the property, so your ROI comes from a percentage of the interest payments on the loan. Debt investments tend to be lower risk than equity investments and usually offer a lower, but more consistent return, as they are based on the bond and mortgage market, which experiences fewer highs, lows and price changes than the stock market.
How much does it cost to be an investor?
There are a few costs to consider, which vary by your crowdfunding platform of choice. Many platforms require higher minimum investments in exchange for lower annual fees; for example, CrowdStreet requires a $10,000 minimum investment for at least 36 months, but waives the usual account fees. Fundrise, on the other hand, allows for as little as a $500 investment, but charges a 1% portfolio management fee per year. How much you’ll need to spend ultimately depends on your goals and which platform can best help you achieve them.
How long until I see my return on investment?
While every project is different, results will naturally vary, and this certainly is not a get-rich-quick scheme. You can expect most debt-based investments to start accruing interest immediately. After your funds clear escrow, the interest is paid back to you, either monthly or quarterly, with a balloon payment at the maturity date of the loan. Your return on investment depends on factors including your platform of choice, the type of investment you make and how much you’re willing to invest.
We hope that you’re feeling a bit more confident about your ability to invest in crowdfunding if that is a direction you are interested in exploring. As you conduct further research on your own and decide on a platform that best suits your needs, keep in mind that it’s never too late to join a particular investment – or to become an investor in general!