What You Should Know About Crowd funded Real Estate
It’s no surprise that the Internet and online platforms continue to disrupt and revolutionize industries across the globe. The real estate industry in particular is prone to these changes and has already been affected in new ways. So if you’re familiar with Kick Starter, an online crowd funding platform, you’ll know that it’s helped to launch a variety of projects. This includes everything from technological gadgets to board games and more. Well, the idea of an online crowd funding platform has made its way into real estate. And here we are, living in the era of crowd funded real estate investment opportunities.
What are crowd funded real estate investment projects?
In the past we have discussed methods of real estate investment for those of you who aren’t ready to become a full out landlord and would prefer a hands-off approach. As we’ve alluded to in the introductory paragraph, crowd funded real estate options present yet another way to achieve this objective.
Specifically, this is where a group of people can join in on a real estate project without having to contribute the full amount or find partners to assist in the financing. These platforms open up the investment pool to a much larger audience that doesn’t even have to know each other. Generally, there is a minimum level of investment stated in the conditions for each project. A lot of these platforms have only been open to accredited investors, but recently there have been some websites that make the practice more accessible to those who are not.
How does this differ from REITs and other real estate investments?
This may sound like investing in REITs but it’s different in the following way. In a REIT, you invest your money into the fund and the company then invests this pool of funds into a variety of properties. After that, you receive payment in the form of dividends and ideally capital gains on the stock. This cycle continues indefinitely so long as the REIT remains in business. Thus, your money is only then returned to you once you decide to withdraw your capital from the funds.
However, in crowd funded real estate transactions, you generally focus on a single investment project. Now, this investment could be in a single property or a group of properties. However, once the deal has reached its duration, you receive your initial investment plus or minus any proceeds you earned on it. As you can see, your invested capital is not continuously rolled over into further projects like it would be in a REIT. So essentially, it’s up to you to go and find your next investment in order to repeat the process.
Some clear benefits of crowd funded real estate can be seen so far.
As an investor you have more control over the properties included in your portfolio with crowd funded investing.
Since these investments are not publicly traded, the value of your investment is relatively stable compared to alternatives that fluctuate on public markets.
Stated at the very beginning of the article, this is a great hands-off approach for investors wanting to get into real estate without becoming a landlord.
However, we must also be aware of the inherent challenges associated with these investments.
Although the investment value is more stable compared to publicly traded REITs, crowd funded investments are also more illiquid.
If you are looking to play an active management role, then you should probably seek real estate investment opportunities elsewhere.
These investments are still fairly new and are not as heavily regulated. There should always be some caution when investing in unregulated markets.
Crowd funding is one of the many opportunities available for the savvy investor in today’s market. Our Rich Dad Education trainers will introduce you to proven strategies that can help you launch your career as a successful real estate investor and develop a "Rich Dad Mindset."
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