Real estate has always been a solid, safe investment with good potential for high returns. Whilst this remains true, finding investments with high returns (over 8%) is becoming more difficult each year.
With the introduction of services like AirBnB and new borrowing opportunities (i.e. p2p), as well as an increase in online resources, more and more of the public looking to become a landlord.
Many markets are saturated for that reason. More sophisticated investments are needed in order to make higher returns. Investments that are out-of-reach of normal retail investors.
This is where real estate crowdfunding has really shone in the past few years.
Crowdfunding is a democratised way for investors to get together and invest in big, sophisticated projects that they wouldn’t have been able to do on their own.
Here are 5 of the major reasons to invest in real estate crowdfunding.
- A low minimum for investments.
This is extremely important. Needing a low amount of capital to invest makes this choice investment widely accessible to most people.
Real estate may be a great investment, but the traditional method is out of reach for many investors. Having to save up $50,000 for a deposit and another $50,000 to renovate is not going to happen for most. Most young investors will be still saving to try to acquire their own property.
Many crowdfunding companies will have minimum investment requirements of around $2,500. This means buying into many more types of projects, compared to being limited to what you can afford to do solo.
- More opportunities.
Traditional real estate often means limiting yourself to your own location – otherwise it will be a tough time travelling, managing and translating in a foreign place.
This is tragic when the market you reside in is seriously saturated, too expensive, or with barely any opportunities.
Crowdfunded real estate investments are essentially remote investments. The project itself is handled by professionals.
The opportunity to invest in many more markets means high return investments are easier to come.
Not just the markets, but the projects themselves. The low capital requirements along with remote investment means the ability to invest in extremely elaborate investments that provide very high returns.
- Geographic diversification.
If house prices crash in London upon a no-deal Brexit, this could push someone into negative equity if their second home is located there.
Crowdfunding real estate platforms however offer investments from all around the world. And with a minimum capital requirement of a few thousand, you can likely find yourself with real estate investments in all four corners of the globe.
The benefit of this is that if London prices do crash, perhaps only one of your investments are in jeopardy. The investment in the Shanghai hotel project is probably not going to crash in equal measure as a result.
As any established investor know, diversification is the greatest risk mitigator.
- You don’t have to be a landlord.
Arguably the number one reason to invest in crowdfunding, is that you do not have to be a landlord.
Traditional real estate investors will often tell you of their horror stories. Unhygienic tenants, late rent payments, complaining neighbours. This is all a real possibility for them. Many landlords go from investors to babysitters – particularly student lets.
Crowdfunding avoids property management altogether. You have a professional to take care of all that. This is really the best way to earn passive income from real estate.
There is no administration either. It is ownership of property without the documentation, organisation and difficult communication.
Traditional property takes months for purchases to go through. Deals collapse from long chains and mortgage rejections and so on.
Crowdfunding real estate platforms have really used technology to their advantage.
With the platforms existing almost exclusively online, everything is much more efficient. Payments and investments can be done almost instantly.
Wasted time is a big threat to any investor, and crowdfunding mitigates that almost entirely.
On top of that, many platforms make use of mobile apps. Checking an investment on a mobile app in under 10 seconds is invaluable. Keeping up with fund managers on the phone or physically going to an estate agent suddenly seem unnecessary and inconvenient.