Real estate crowdfunding is a way to raise money online for real estate acquisition from a large group of people. It can be done successfully without needing to spend a substantial amount of money. Individuals and businesses can use crowdfunding to access capital from a large group of potential investors on internet platforms and social media sites.
Crowdfunding is done in such a way as to allow fundraiser collect money from large number of people to via online platform. It offers them the opportunity to invest in residential, industrial or commercial properties without the need of raising large amounts of money. Crowdfunding uses social media and online platform to connect investors to property investment.
How does crowdfunding work?
Real estate crowdfunding is similar to the equity version of it in that an investor can buy into a property and become a shareholder. Since it’s a pull resources together kind of investment, investors do not need to solely purchase a property. The properties are jointly bought and they earn a part from the profit generated from the rental or sales of the property. This is done based on the amount they invest. Here are some best real estate crowdfunding websites.
Types of crowdfunding
The three most common types of crowdfunding are
Peer-to-peer
This is similar to the conventional borrowing of money form the bank, but here it you borrow from lots of investors. In this type of crowdfunding, crowds lend money to the individual or company with the understanding that the money will be paid back with interest given a specific period of time.
Equity crowdfunding
Equity crowdfunding is the sales of stocks to a number of people in return for investment. It is similar to how stocks are bought in the stock exchange market.
Profit sharing & revenue sharing
Businesses can share future profits or revenues with the crowd in return for funding now. Pros and cons of crowdfunding
Pros
It is usually open to non accredited investors. Unlike then when investors need to be accredited i.e they must meet certain income or net worth but now non-accredited investors can participate in crowdfunding for equity and real estate transactions.
Crowdfunding requires lower minimum investment requirement
Cons
Companies and individuals do not know each other
There is potential for loss. This is true for all business.
Companies involved in real estate crowdfunding are newer, making it harder for you to find a longer track record to go on.
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