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Democratizing Real Estate Investments – The Silver Bullet Called ‘Crowdfunding’

Without any question, real estate is the most evergreen avenue for investment. However, in markets like the United States, real estate continues to be an example of the classic expression ‘so near, yet so far!’ For a considerable stretch of time, the only way to invest in real estate was to go with the conventional route of purchasing a house as a whole with your money. The only route of relief was that you could be a down payment and get into a long-term mortgage. However, upon hindsight, it still looks excruciatingly cumbersome as a commitment.

However, in the modern era of online investing, things have drastically changed. Now, the real estate investment landscape is undergoing a drastic transformation because of the growth of real estate crowdfunding.

What is real estate crowdfunding?

The phrase is almost self-explanatory. It is a process that allows a real estate property to attract small investments from multiple investors. A crowdfunding platform is created to facilitate this process. This platform takes care to invest in real estate projects on your behalf.

What has contributed to the growth of real estate crowdfunding?

We have already stated that real estate is one of the safest avenues of investment. However, the exorbitant pricing of the assets has been a major deterrent for small investors from investing in real estate.

In addition to small investors, it also deterred large investors from putting all their eggs into one basket.

With real estate crowdfunding opening up, it has opened the floodgates both for small investors and large investors alike. It has also contributed to the growth of liquidity of the real estate assets. Liquidity was one of the most major challenges when it comes to real estate because it was quite difficult to find a buyer for such an exorbitantly priced property. However, with crowdfunding, this issue was effectively taken care of, and that too, without compromising on the value of the property. In fact, the enhanced liquidity has contributed to increasing the value of the property, making everyone in the ecosystem happy about the profit – the owner of the real estate property and all the investors who got into crowdfunding.

An example

The example that we give is simple and straightforward, and for the sake of understanding, we are skipping the complexities involved. 

It is to be noted that real estate crowdfunding is not as simple as it seems in this example, and there are a lot of meticulous processes involved, which we will be looking at in the oncoming paragraphs.

One real estate crowdfunding platform decides to purchase a property worth $500,000 in a lucrative location like Florida. It lists the project on the crowdfunding website with a full breakdown of why it is believed by the platform that it would be a great investment option.

An investor can study the property and its attributes and decide to invest, say, $5000. This opens up similar investment opportunities to 99 other investors. This ends up in the property being divided into 100 equal parts, with each investor claiming only 1% of the property.

Choosing a real estate crowdfunding platform

Now that it is known how real estate crowdfunding platforms work, there are a few aspects that need to be taken into consideration by the investor before they choose the platform.

  • What is the minimum investment required? Is it within the price range suited for small investors, or is it confined only to accredited investors?
  • What is the type of property? Is it a traditional residential property or a commercial building or a long-term tenant agreement property?
  • What is the lock-up period? How long will it be before you can withdraw the funds and reap the profit of your investment?
  • What is the likelihood of the underlying property to generate profit in terms of appreciation or rental income?
  • How much does the crowdfunding platform charge for using the services?
  • What does the purchase entitle you to? Is it shares in the asset as debt or equity or a blend of both? If it is a blend, what is the ratio of the debt to equity?

As we talk about minimum investment eligibility, we should digress a bit to talk about accredited investors. Accredited investors are investors who have a net worth of at least $1 million or have an established annual salary of $200,000 or more consecutively for two years.

In an endeavor to keep up with the norms laid out by the Securities and Exchange Commission (SEC), a lot of investment platforms limit their opportunities to accredited investors. However, when it comes to real estate crowdfunding, there is a thorough mix of platforms that require a minimum investment all the way from $5 to $10,000.

The different types of properties

One of the pointers that we discussed was about understanding the property that is being invested upon. There are different types of properties that can be funded. It is to be noted that most platforms, well aware of the fact that they should not put all their eggs in one basket, will offer multiple investment options. The different types of properties include residential properties, multifamily residential properties, commercial properties, development projects, and real estate loans.

Crowdfunding as a business

Given the steady growth of real estate as an investment platform and the intervention of technology that has democratized real estate investments, it would be a great idea to invest in the real estate crowdfunding platform. However, there are a lot of things that you will need to have figured out before you embark on creating a business out of realistic crowdfunding.

The first step is to decide on the kind of real estate you will offer. There are different types of real estate, as we’ve seen earlier, and it is in your business prerogative to decide what real estate types will make it to your final list of investment opportunities.

You will need to find the right technology or companies that have a good hang of creating real estate crowdfunding platforms. In those circumstances, you will not need to worry about the technology or the intricacies that go into creating one. As long as you get your real estate crowdfunding platform designed according to your requirements, it would be good to go.

Enter Blockchain App Factory

Blockchain App Factory, with its expertise and command over new-age technologies like blockchain, cryptocurrency, and tokenization, is the right partner for you to take care of building your real estate crowdfunding platform. Our knowledge in various crowdfunding platform technologies like PHP, CakePHP, MySQL, Bootstrap, Post gre SQL and Linux, ensures that there is no lapse in the quality of coding that goes into creating your platform.

The experience of having worked with the real estate markets of the United States, United Kingdom, and Australia ensures that the business aspects of the platform are upheld at every level.

If you would like to create your own platform, all you need to do is get in touch with our team and discuss your requirements. We will take care to put together all the aspects of your dream and make your real estate crowdfunding platform a worthy investment!

I'm a Blockchain research analyst, an avid learner, and a passionate writer about revolutions in the field of cryptocurrencies, Exchanges and blockchain technology. I coordinate with entrepreneurs and help them develop and improve their businesses by providing them insights on the latest development techniques and advancements in the blockchain-based crypto sector.   

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