What is real estate crowdfunding?
Crowdfunding is a method that provides a platform to collect a pool of investors that finance investment opportunities. Real estate Crowdfunding websites have attracted a lot of attention from entrepreneurs, policymakers, investors, and the general public.
The platform helps in seeking funds from hundreds and thousands of people across the world. The idea of crowdfunding is not new, but what makes it innovative is the powerful online platforms that enable large-scale funding campaigns.
These platforms lower the campaign running cost by leveraging the Geographic’s and social reach of the internet to connect fundraisers with millions of potential backers.
How does it work?
The real estate crowdfunding involves three main parties: sponsors, crowdfunding platforms, and massive investors.
First of all, the sponsors or the company acquire the property and start investment projects. They may also hire contractors who manage the project on their behalf. Then comes the crowdfunding platform that acts as a middleman between sponsors and investors.
The platform does the paperwork and advertises the deal to the pool of investors. Investors invest their capital in the campaign, which is collected by platforms. There are many notable crowdfunding platform sites.
Although crowdfunding is highly profitable, it is not without risk of losing investment or gaining loss so you have to be extra diligent. Here are some advantages and disadvantages that this platform provides.
- With real estate crowdfunding, you have a variety of investment options, and thus you can grow your investment network.
- With crowdfunding, you can make your investment decisions without the need of managers or analysts for a recommendation.
- For companies, the crowdfunding raises more considerable capital than traditional fundraising. The method is specifically beneficial for newbies.
- It’s a great marketing tool that broadens the investment network of companies.
- It makes you a silent investor, and you can choose the property you are going to invest in and wait for your profit after investment. That’s all you have to do.
- Investors don’t require huge capital to invest as there are small investment options present.
- Investors can broaden your investments to multiple streams of income instead of investing it all in a single project.
- You can easily track your investments and progress and of the projects that you have invested.
- Lower fees and better returns are provided without the need for brochures or managers.
- Liquification of the interest is a hard task. Even in case of severe need you have to wait for the due date to get your investments back.
- You are a silent investor who is putting capital but has little say in its allocation. So if you are the one who wants to be in control, then it may not be the best for you.
- An inexperienced investor is more prone to investment defaults. They may invest in a campaign that looks appealing but not profitable enough.
- The company or sponsors are not bound to share, maximum profit, so there are chances that you may get paid less than you deserve.
- You are more prone to the risk of investment default. An inexperienced investor may stick in a campaign due to its appealing features and are more likely to get stuck.
Crowdfunding is a growing trend in the investing space. The platform can be of great benefit for both investors and sponsors if used correctly. As an investor it can be of great interest for you if you are extra diligent while investing your money.