If you’re new to my blog you’re probably wondering “what is crowdfunding?” and “where does real estate fit in?” These two very different markets – one being old and one being a baby in comparison – have somehow not only found their way to each other but have combined to create the mother of all investments. This very odd pair appears to be coupling nicely, giving hungry investors a new way to engage one of the most profitable markets to date – real estate. But don’t take it from me, take it from the numbers. You know what they say, what can’t talk can’t lie.
2017 was a year for the record books for real estate. Now, this can be traced back to insanely low mortgage rates and tightening inventories but whatever the reason, the fact of the matter is that housing prices rose about 10%, and really, I’m being modest because in places like New York prices rose by 34.6%. You’re looking at these numbers and you’re probably wondering (rightfully so) if you should just throw your hat in the ring and give real estate a try. But wait.. we haven’t even gotten to the good part, so before you make up your mind let me give you the whole story.
You might be thinking, “I can’t deal with the whole landlord situation” – and let me just tell you that I couldn’t either. It’s a hassle and let’s get real, who wants to deal with tenants and landlord chores? Well, if you (just like me) don’t see yourself collecting rent, buckle up because what I’m about to lay down will leave you stunned. Not only is it the right time to be considering a real estate investment but there are ways of doing it without having to deal with any of the above ‘nightmares.’ Progress has been doing its thing, you know, finding new and better ways to riches and you’ve just hit the one post that will pretty much outline the journey.
I’m not saying you couldn’t save up and eventually get there, don’t get me wrong. What I am saying is that if you want to fast forward five to ten years, you have to do it differently. There are ways for you to invest in real estate without having to manage ANY properties and without having to be a millionaire before you get started. Today I’m going to talk about my personal favorite – crowdfunding.
By definition is “the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet.” Reading this you’re probably thinking, “hmm just like Kickstarter” and yes, it kind of is but only better. Using various platforms (not exclusive to social media) like Real Estate Affiliates, Facebook, LinkedIn, Twitter – the aim is to reach potential investors. The basic philosophy behind crowdfunding is that if many people are willing and ready to invest small amounts in a certain project, the money can be raised much faster. As a real estate crowdfunding investor there are many ways to approach this market but today, we’re going to cover the two most popular. Let’s dive right in.
This is the most common approach to real estate crowdfunding as it provides better returns than debt investing, (which I will talk about shortly). Equity investments provide better returns, but I’ll be honest and say they do come with a slightly higher risk, but what good thing in life doesn’t? Essentially, equity investments give investors a stake in a commercial or residential property making them shareholders. Choosing to approach the real estate market in this way means your returns are based on rental income. Should the property be sold, you’ll benefit from its appreciation – just like ownership but without the hassle. Generally speaking, returns are released every quarter. Simple? Simple.
Benefits of Equity Investments
- The sky is the limit – No really, the sky is the limit as equity investments don’t come with a cap on them. Investors may see returns ranging from 18-25% annually with a distinct possibility for more. The more you put in the more you get to pull out.
- Fees are no longer an issue – Don’t want to pay monthly or upfront? Pay annually and still be a part of something great!
- Tax benefits – Think about it. You own property so aren’t you entitled to some tax benefits? As an investor, you could deduct expenses from your annual taxable income for let’s say repairs for your building. (Even if the property you’ve invested in is in another country)
Equity investing is for the patient investors – the ones who aren’t looking to make a quick buck and are here for the long-term. The holding period usually ranges from 5-10 years. But if you’re in a rush, bear with me, I have something for you too.
It sounds scarier than it is so let me explain. Debt investing means that the investor is in essence, the lender to the owner of the property. You (the investor) would receive a fixed income based on two things: the amount you invested and the owner’s mortgage loan rate. Returns are generally released every quarter or every month and your payment will be prioritized during the pay-out.
Benefits of Debt Investing
- The returns are steady – You can easily predict what your returns will look like thanks to this straightforward investment structure. Potential returns range from 8-12% – STEADY.
- Less risky than Equity Investments – two words: foreclosure action. The AMAZING thing about debt investing is that it’s pretty much bullet-proof. If the owner can’t pay the mortgage off to the bank, then you can recover your losses.
Debt investing is for the less-patient investors – the ones looking to make a quick-er buck than those partaking in equity investments. As a shorter-term investment, the holding period usually ranges from 6-24 months.
So, as you can see for yourself crowdfunding comes in many flavors, caters to any palette and has presented itself as the solution to individuals who want to be rich but aren’t already rich. (Pretty ironic if you ask me) It’s all about bringing real estate back to its rightful owners – the people, enabling them to get a taste of what was once reserved for the elite. Now, you get to build your profits brick by brick, online and away from traditional investing narratives. It’s a win-win and I know it sounds unreal because one would assume in this day and age for one to win another has to lose, but that’s why real estate crowdfunding is gathering so much ground by the day. No one is left with a frown and every party is happy – investor, developer, and real estate crowdfunding platform owner. For the first time, investors can finally have direct access to a large selection of investment opportunities that they can research, browse and MOST IMPORTANTLY make informed decisions about. Crowdfunding and Real estate is a match made in digital heaven and it certainly promises to be revolutionary. Only just having taken off, it has already attracted an impressive number of serious investors. What about you? Are you ready to get serious?