Real estate crowdfunding is a great way for both accredited and non-accredited investors to diversify their portfolios or increase their exposure to this market with minimum capital investment. Crowdfunding in general has been around for decades.
Sites such as Kickstarter or GoFundMe have allowed individuals to collect large sums of money through smaller, one-off, investments. In a similar manner, real estate crowdfunding uses this principle to collect small amounts of capital from a large pool of investors which is then invested in different real estate projects.
There are two main ways to invest using real estate crowdfunding: Equity and Debt investments:
Equity Investments – Individual investors invest in properties – either commercial or residential and receive equity in exchange. As a result, each investor holds a portion of the income that is generated. However, individual investors also hold the risk that the investment will default. This type of investment usually holds a larger upside and downside. It is riskier and pertains to a longer holding period of about 3-5 years.
Debt Investments – Investing in a mortgage loan for a property. As the loan is paid down, the investors will generate a profit through the interest (this is sometimes a fixed rate). This type of investment receives income quarterly, semi-annually or yearly.
Pros
Increased Transparency: Unlike other opportunities such as REITs, there is more information about the underlying investment. Crowdfunding applications generally inspect the deals to provide as much information as possible. Investors can choose the projects that they want to invest in rather than investing in a packaged deal.
Diversification with Smaller Investment: Real Estate Crowdfunding allows you to invest in a sector that is not heavily correlated with the stock market. It gives you access to a wide variety of real estate options with minimal investment. Contrary to REITS, this allocation allows you to invest in a specific property.
Tax Benefits: Real Estate Crowdfunding allows investors to benefit from tax breaks such as depreciation. This would normally apply to owning an investment property.
Cons
Risk Exposure: Unlike other low-exposure asset classes such as REITs, these investments mostly back a single asset. As a result, there is a large amount of risk involved in these transactions – especially, if it is an equity transactions.
Liquid: These transactions are not liquid. Most of the crowdfunded real estate deals have a holding period of at least 3 to 5 years. Contrary to REITs, there will not be any cash flow from the beginning.
Investor Type: Most of the deals are open to accredited investors. This means that you must have at least $1M in assets to access these transactions or that you must have made at least $200,000 (single) or $300,000 (joint) for the previous two years. There are other sources for non-accredited investors, but they are rather limited.
Before investing in crowdfunding, you need to do your due diligence on the platform that is most suitable for you.
Conclusion
At the end of the day, only you can determine whether real estate investing is right for you. As a starting point, think through your personal circumstances and the aforementioned considerations. Know that every investment strategy will be different, that each investment strategy has it’s own pros/cons, and that all investing carries a risk so as you continue to gauge whether you should invest in real estate, do your proper due diligence.
Investing in Real Estate comes with several advantages. Navigating the real estate investing process can be difficult, but you do not have to do it alone. We are here to help.
How You Can Get in On the Action
Cash Flow Champs is a privately held investment company that focuses on acquiring and managing opportunistic and value-add multifamily real estate properties. The company specializes in repositioning well-located assets in emerging markets surrounded by positive demand drivers such as population growth and job growth.
Cash Flow Champs partners with entrepreneurs and busy working professionals interested in investing in real estate but who lack the time to navigate the process. Alongside our partners, we aim to bridge purpose and profits in a manner that allows us to improve the lives of the residents in our communities and the neighborhoods where we operate.
In the words of Robert Kiyosaki, the poor and the middle-class work for money. The rich have money to work for them. If you are an individual that wants to build and maintain generational wealth through real estate, all while making a positive impact on the lives of residents and the communities where you invest, we’d love to explore opportunities for synergies.
Schedule a brief call with us so we can get to know you better, understand your life goals, and determine where synergies may exist.
This information presented on this site is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities in the company or any related or associated company and is not a recommendation to pursue a specific investment opportunity. Any such offer or solicitation will be made only by means of the company’s confidential Offering Memorandum and in accordance with the terms of all applicable securities laws and other laws.
