Is Real Estate Crowdfunding a Good Investment?

Real estate investing holds some level of intrigue for many investors. They are enticed by the potential for a large return on their investment, realize it’s a good alternative to the equity market and a method to expand diversity in their portfolio, but have reservations about risk and the amount of capital required. Real estate crowdfunding can make entry into the real estate market simpler, but as with every investment, it’s important to fully understand the specifics and determine its suitability within your investment goals.

Real estate crowdfunding basics

Crowdfunding is a means of raising capital through the collective efforts of individuals rather than more traditional methods of banks, financial institutions, angel investors or venture capitalists. It is in essence peer-to-peer financing for real estate with one party seeking funds for a real estate project and the other party looking to get a high return on available capital. 

Types of real estate crowdfunding

As an investor, you have the choice of equity vs. debt investment. An equity investment is an investment in a specific property or properties, whereby the investor can share in the net income the property generates plus a share of appreciation if the property is sold. A debt investor receives a fixed rate of return on funds loaned to the property owner, with the loan secured by the property itself. 

Accredited investor

Some real estate crowdfunding platforms require you to be an accredited investor, a term defined by the Securities and Exchange Commission as one exception to registration with the SEC for a company that sells securities. An accredited investor has either a high net worth ($1million) or high income (in excess of $200,000 each of the prior two years) or both. However, not every platform requires their investors to be accredited.   

Pros

One upside of real estate crowdfunding is getting into the real estate market with a minimal investment, some as low as $1000 or less. Also, you can diversify, not just in contrast to stocks and bonds but also within the real estate market by being involved in multiple individual deals. The possibility exists to generate regular income and also share in appreciation without having to do any of the maintenance or management details that an individual real estate investor must be concerned with.

Cons

Due to the fact that many real estate crowdfunding projects are long-term in nature, liquidity is an issue. Additionally, as a relatively new and somewhat loosely-structured investment, there is sometimes less information available for investors to monitor performance for real estate crowdfunding platforms than traditional investment types.

We have the knowledge and experience to provide superior investment advice designed to match your long-term goals. When you’re ready to take the next step with your investment portfolio, contact Primior.

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