Today, the key question for crowdfunding in real estate is, can two different investment markets, one old and one new can get along with each other in harmony? The answer to this question is positive and encouraging because these two odd couple seems to be paring up quite nicely and giving investors new ways to make profits from ever escalating American, European and other real estate markets.
There are many real estate crowdfunding sites that can provide healthy platform for you to invest in the real estate business and leverage profit.
A recent revolution on real estate business occur when in Crowdfund Investment Conference in New York City, Mr. Markley Roderick who is a lawyer and a the conference moderator addressed about the regulations linked to the Jumpstart Our Business Startups (JOBS) Act of 2012. In Europe, European Crowdfunding Stakeholders Forum assists the European Commission in developing rules and policies for crowdfunding. These rules allow investors to gain direct access to the real estate market by peer to peer lending or crowdfunding.
As you should know that European Exchange Commission and securities explores ways to allow real estate investors of each income level to access the online market of real estate, experts say that wealthier investors are already investing on real estate crowdfunding. The experts explained that this industry is so big that if a small percentage of these investors, invest only a small sum of their assets then we are looking at trillions of dollars business
What is Crowdfunding?
Crowd funding is basically project or venture in which we raise small amounts of investment from a large number of people, mostly through the internet. Real estate market and crowdfunding are a natural fit. Crowdfunding allows us to easily connect with our friends, family and colleagues through social media networks like Twitter, Facebook and LinkedIn to spread the word around about new business opportunities to attract investors.
Crowdfunding has the potential to raise the entrepreneurship by increasing the number of investors from whom funds can be raised beyond the traditional circle of owners, friends, relatives and opportunity capitalists. Industry groups related to real estate are already utilizing the benefits of crowdfunding.
According to the Commercial Real Estate Development Association, “Crowdfunding for real estate is not an entirely new Phenomenon”. Many experienced real estate players have already entered in this field. There are many platforms available with their own niche and strategy, with different requirement of minimum investment. Each platform has the same goal which is to meet the specific requirements for net worth or annual income. Crowdfunding role is to open the field of investment for more small investors under the rules and policies set by European Union(EU).
According to a study, both investors and real estate developers can gain significant profits through crowdfunding. Now let’s take a look at some of the pros and cons of crowdfunding in real estate.
Pros of Crowdfunding
- All kind of small and large investors have access to the real estate market.
- Investors have a voice in real estate development and they get to work directly with real estate developers.
- You can choose from many ongoing real estate projects to invest your money.
- In crowdfunding, you have access to many projects, so finding a suitable project for you is very easy.
Cons of Crowdfunding
- Investing in crowdfunding has the same risks involved as for any real estate investment. If the market goes down then you will likely to lose some money too.
- Crowdfunding lacks liquidity and the absence of secondary market can be problematic to selling opportunities for the investors.
According to professional’s advice, if you are starting in real estate crowdfunding, you need to go with a crowdfunding firm that is doing well in this field of business for a while. Trusting a crowdfunding company that can survive mean that your investment can be well capitalized. The biggest mistake you can make is, trusting a crowdfunding company that is started by a group of amateurs, who are unable to capitalize themselves.
As an investor you should research the platforms in which your firm is planning to invest. Not all platforms are equal, so you should test multiple businesses plans in order to capitalize from your investment. Before you trust a crowdfunding firm or platform, make sure to investigate the founding partners and project managers to find if they have a strong reputation that rests on their previous business ventures.
Transparency is Essential
We advise you to look for crowdfunding platforms that not only acknowledge the risks but also provide an educational approach to risk management. Most real estate crowdfunding platforms today allow recognized investors to invest. If you are a regular crowdfunding investor then you are advised to invest the amount that you are comfortable with according to your overall investment portfolio. Another useful tip is to invest only in offerings from sponsors that you already tested and know that they will look out for your best interests in good or bad times.
We advise you to pass the investment opportunity, where you don’t understand how your money is being used or the risk factors involved in the return of that investment. In that case it is better for you to seek the advice of your trusted investment advisor. You need to be patient while making an investment decision because there are always plenty of other investment opportunities to choose from.
Is This Doable, and How to Crowdfund?
The passage of the new Regulation Act which was presented in March 2018 was the part of EU’s Fintect Action Plan, it was the catalyst for launching crowdfunding for real estate and many other business ventures. In the past, restrictions were placed on fundraising efforts, these restrictions were specifically limiting the fundraising to only pre existing relationships like friends, family and colleagues, preventing other sponsors or party to openly advertise or soliciting private investment opportunities.
The new Regulation Act by EU allows sponsors, issuers, syndicates and other platforms to raise capital from private investors and advertise those private investment opportunities to authorize investors under certain conditions. This Regulation Act represents a big change for sponsors raising funds for real estate projects or development. This Act also gives green light to crowdfunding firms to direct market to a large group of potential investors through internet and social media.
For the first time in history, the investors have direct access to the real estate investment opportunities offered by private sector, which they can browse, research and make investment decisions online based on well provide information.
Crowdfunding has proven to be a revolutionary act in the real estate market. The business is booming and it already benefits many small investors. Many senior investors are also attracted by its success and they had already invested some impressive amount of capital in this business.