Over the past two years, the real estate market has been in a constant state of evolution as it adjusted and grew with the effects of COVID-19. With prices constantly on the rise, and with no indication of them slowing in the near future, investors are seeking alternate routes into the real estate world with an easier-to-meet barrier of entry.
When prices just keep climbing, but bank accounts can’t keep pace, what better solution than to invest in a small portion of a larger asset? Like purchasing a share of an Exchange Traded Fund (ETF), crowdfunding allows those that want to invest in real estate the ability to purchase a smaller slice of the pie.
How are investors crowdfunding real estate?
Crowdfunding companies have been popping up that gather funds from investors and pool them together to purchase a property. Potential assets include both commercial and residential properties which can either be in development or pre-existing. Typically, management and advisory fees are charged, but the company handles the rest of the process for the investor as they collect the dividends. Companies like Fundrise.com allow investors to choose their own strategy, deposit capitol, and they’ll seek out new assets to add to a portfolio over time. Fundrise offers an app that allows users to watch the development of their assets over time and includes regular updates via reports.
What are the benefits of crowdfunding?
- Lower barrier of entry
- Greater ability to diversify an investment portfolio
- Shared expenses that allow a backer to invest in larger properties than they otherwise would
- Backers don’t have to qualify for a loan or mortgage to be included
- Easy way to introduce new investors to the market by minimizing risk
- Allows for a more hands-off investment
Great, but is there a downside?
- Advising and management fees as well as other potential annual fees
- Assets can’t be easily sold
- Because these platforms are so new, there is little information on the long-term viability of crowdfunding in real estate
- Some platforms require larger investments to participate than the average Joe may have access to
- Limited ability to assess the value of an opportunity so research on the platform is a requirement, as is trust in their expertise
- Paying taxes on the dividends
You’re probably wondering what the returns are from investing via crowdfunding. My Stock Market Basics dug into the numbers (and they explain exactly how) to find the answer. On average, real estate crowdfunding investors saw a return of between 11 and 15 percent. The average real estate investment (not through crowdfunding) yields 8 percent, according to Millionacres. Regardless of what these numbers say it’s still important to do your own due diligence and decide if investing in a crowdfunding platform is right for you.
Property data to help inform your next investment
If you or your clients are looking to invest the traditional way, The Warren Group has the data you need. With Our Data Solutions you can access the most up-to-date and accurate property data available to locate, target, and assess available properties in your target market. View property characteristics, homeowner data, deed & mortgage data, foreclosure and pre-foreclosure data, and a lot more. Whenever you’re ready, reach out to one of our data specialists and ask how our data can work for you.