When it comes to investing, every investor considers real estate as a great investment vehicle. However, not all investors and other market players are capable of shelling out money to invest in real estate properties, especially those in the commercial market. This is what makes real estate crowdfunding a popular type of investment in this field.

To have a better understanding of how real estate crowdfunding works, below are the things that you have to know before you invest in it:

Real Estate Crowdfunding: An Overview

As the world continues to evolve digitally, more and more people are becoming interested in getting into real estate crowdfunding. Primarily, real estate crowdfunding refers to a way of investing in more significant and expensive real estate projects. In its simplest terms, it’s a type of real estate investment that allows several individuals to combine their small amounts of capital to finance commercial properties. This is usually done using crowdfunding platforms available online.

Real Estate Crowdfunding: Basic Info To Learn Before Investing

By now, you have an idea of what real estate crowdfunding is. However, this method of investing is a relatively new method available for both individual and institutional investors. As such, you might be confused about how it can help your investment efforts.

Parties Involved

To get you started with real estate crowdfunding, you need to get familiar with the parties involved in this method. Typically, this method of investing requires two parties, namely the sponsor and the investors.

• Sponsors – refer to persons who look for the property and come up with the capital to fund the acquisition and management of its operations.

• Individual Investors – refer to persons who provide the needed financial equity for the operation of the property. Once the investments are placed, the next step is the distribution of returns. The sponsors who are tasked to raise funds will dispense the profits among the investors depending on the agreed schedule. 

Thus, before you invest in real estate crowdfunding, make sure you’re familiar with the parties involved in the transaction, so you know what to expect later on.

Crowdfunding Platforms/Sites

Just like other forms of investments, investing in real estate crowdfunding requires the use of the best crowdfunding platforms/sites found online. That’s why before you invest in it, you should get the right channel to protect your real estate investments.

In a nutshell, a crowdfunding platform/site refers to a peer to peer investment site that brings the parties together for a financial goal. There, those people who have funds to offer as investments can connect with those who need capital for their projects. Ideally, these platforms are used by individual investors, but due to their growing popularity in the real estate market, more institutional investors are also becoming interested in using them.

Moreover, most real estate crowdfunding sites provide investors with high returns on the capital they shell out and, at the same time, offer lower rates to the real estate developers. These benefits explain how appealing these sites are to the concerned parties.

However, with several choices to choose from, it’s essential to find the perfect crowdfunding platform that complements your financial goals. To ensure you get the right one, below are the points you need to consider in your selection process:

• Always know the track record of the platform you’re considering.

• Check the types of investments available in the site.

• Get familiar with the fees and expenses you’re going to pay when you use the platform.

• Assess the kind of return that you’re expecting to receive from your investments.

• Know the rules and the potential risks of using the platform.

As you can see, there are so many factors to keep in mind when choosing a crowdfunding platform. But, if you want a site that’s flexible enough to cater to more expensive investments, commercial real estate crowdfunding platforms like Fundrise can be one of your options.

Types Of Investments

Aside from the parties, you should also need to know and understand the two common types of real estate crowdfunding. These include debt investments and equity investments.

• Debt Investments – This refers to a type of real estate investing that allows investors to fund single or several mortgages. When you invest in loans, these will be secured by some real estate assets. If the project didn’t push through, the guaranteed properties would be foreclosed, and a part of the proceeds from selling the same will be distributed to the investors.

• Equity Investments – This refers to a type of investment that allows investors to capitalize on a portfolio of real estate properties to enjoy shares. Equity investments usually work for an extended period because the assets involved are new developments or those that require repairs or renovations. For example, there are key locations in the United Kingdom and other parts of the world, which can be a great source of these investments. And since they’re considered as long-term commitments, the investors can expect a quarterly distribution of passive income from the increase in the value of the property as well as the rental income.

Conclusion

There’s no wonder why real estate has been one of the in-demand and popular investments in the financial community. With more properties being developed, you can certainly grow your wealth in the long run.

But, if you’re looking for ways to diversify your portfolio by investing in commercial properties and other sophisticated projects, then real estate crowdfunding can be a way to go. As the years go by, it has changed the way people do real estate investing.

So, if you decide to give this method a try, keep the necessary information mentioned above in mind to maximize returns on real estate investments.