What is real estate crowdfunding?

What is real estate crowdfunding?

The real estate crowdfunding involves the pooling of funds by several investors in a real estate project. This form of crowdfunding is different from crowdfunding based on rewards, venture and loan in terms of how investments are made, the type of potential return investors have and the level of risk involved.

There are two basic ways to invest in crowdfunding real estate transactions. First, investors may make equity investments in commercial or residential properties. In exchange for financing the project, the investor receives a stake in the property. The returns are realized in the form of a share of the rental income generated by the property. Investors generally receive quarterly payments.

Debt investments are an alternative to equity. When you invest in debt, you invest in the mortgage associated with a particular property. Loans are repaid with interest, and then a percentage is paid to each investor involved in the transaction. These payments can be made monthly or quarterly.

Between the two, equity investments offer the potential for higher returns because the profitability of a debt investment is limited by the interest rate associated with the loan. On the other hand, equity investments carry a higher degree of risk and generally require a longer holding period, which makes them more non-liquid. Equity investors are also at the top of the capital stack, which means they are the last to be repaid.

As with any other investment, it is important to exercise due diligence by investing in real estate crowdfunding. This ensures that investors connect with the right platform and invest in offers that match their goals and risk tolerance.

Here are some tips that investors should keep in mind to make sure their real estate crowdfunding experience goes well:

Choose the Right Real Estate Crowdfunding Platform: There are dozens of real estate crowdfunding platforms to choose from and they vary in their investment approach. The first step for investors is to look carefully at technology-based crowdfundingpotential platforms to identify those that are most likely to meet their needs. For example you have immocracy

Carefully consider the fundamentals of each investment: Contrary to what some may assume, choosing to invest in real estate using one of these qualified platforms does not mean that they are investment advisers. Although many platforms process transactions in advance, they are not all. While a particular platform may seem best to start investing in real estate, it is always recommended that investors discuss the details with a financial advisor or trustee first.

Make sure you consider the liquidity timeline: Real estate has very different liquidity schedules as well as unique performance profiles for each individual investment. For example, with respect to investments in debt securities, you may consider a retention period of six months to two years. With equity investments, the holding period can be up to 10 years. Understanding how long you are ready to make an agreement at the outset is a necessity when making investment decisions.

Do not forget the risk: While real estate investing itself can help diversify and strengthen a portfolio, there are many types of investments in the category to consider in order to diversify risk. As mentioned earlier, equity investments tend to be riskier than debt investments, but there is a tradeoff in the type of return investors receive. In the end, investors must weigh these two factors against each other to determine which option is the most appropriate.

As you have seen, crowdfunding in general and real estate crowdfunding in particular is developing day by day, and it has become clear that this type of financing is the new economic wave that will revolutionize the modern economy including the real estate.


This article is a translation from http://richesse-et-finance.com/quest-ce-que-le-crowdfunding-immobilier/

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