Basics Of Real Estate Crowdfunding For Beginners

Real estate investment is a strategic and wise investment decision that can not only diversify your investment portfolio but also help you gain a secondary source of stable income. However, if you have a lesser amount to invest, then it becomes really tough to relate it with a real estate property. This is when crowdfunding proves to be helpful.

What is real estate crowdfunding?

The concept of crowdfunding involves a certain number of small investors coming together and investing in a huge commercial property so that they can gain their respective shares from it.

To get a solid understanding of real estate crowdfunding, it is wise to start with the basics. So, there are basically two types of real estate crowdfunding investments –

• Equity investments – This means that each of the investors holds an equal share in that they have invested in the property. And hence, they would get proportionate rental returns income that the property would be generating.
         
• Debt investment – Here you invest in a mortgage loan for a property. As the loan is repaid, the investors keep receiving their money along with their respective interest.

Comparing the two, one would get bigger returns in equity investments as in case of debt investments, the returns are fixed for the interest rate. However, it is to be noted that equity investments are riskier and have a longer holding period. In order to get gainful returns equity investors might have to wait for 3 to 5 years which can anytime change as per the economic conditions of the country.

What are the benefits of real estate crowdfunding?

There are certain distinct advantages associated with real estate crowdfunding, like –

•         There is increased transparency. The investors know all about the property and the expected return before they make any investments there.
•         Investing in real estate crowdfunding is much easier compared to private real estate investment. This is because one would be able to invest even a lesser amount and expect to get some good returns from this.
•         The investors would have the chance to gain exposure to all the new asset class as they could be doing equity or debt investment for both commercial and private properties.
•         Along with these, there are certain tax benefits that you would get being a crowdfunding investor. This is done by the government to encourage more investment in the country.

Some important things to remember

It is indeed a great idea to opt for real estate crowdfunding; however, there are certain things that you should always keep in mind.

Choose your crowdfunding platform wisely. Each of them is different and have separate features. You should do thorough research before finally deciding the best one for you. Moreover, before finalising any deal you should always talk to a reliable financial advisor. This can help you detect any underlying issues that may be present.

You must also conduct meticulous research about the liquidity and lock-in period of investment so that you can understand and finalise your investment goals accordingly.