Why is Real Estate Crowdfunding so attractive?
- Jun 20, 2016
- 4 min read
Real Estate Crowdfunding might be a new concept, but it’s growing like wild fire. There’s no denying that it has become immensely popular among a large number of real estate investors. According to Massolution, the global market for Property Crowdfunding investments has expanded by more than 150%, to more than €2.5 billion in 2015 and is expected to exceed €3.5 billion in 2016. It represents the fastest-growing segment of the Crowdfunding industry as a whole.
Real Estate was inherently fragmented and inefficient. Under the traditional model, real estate investors solely rely on their own networks to access quality real estate investments. And to participate, they typically need to invest a minimum of at least €50,000. The problem is, most investors just don’t have that network or don’t want to put such a large amount of money into a single property, which obviously limits diversification. And although REITs solve part of the problem, with REITs investors lack transparency and control.
Real Estate Crowdfunding eliminates most of the barriers involved with traditional property investing. Real estate is time consuming, expensive and requires skills, network and local knowledge. Crowdfunding platforms like www.crowd4funds.com, not only have a level of access and transparency that has never before been possible for real estate investments but also greatly reduce the time and capital requirements needed to invest.
This is because investment is passive and investors don’t have to worry about the usual headaches that come with due diligence, property management and investment minimums. This allows property investors to invest more quickly and also to allocate the same €50,000 across multiple properties in different countries thereby achieving greater diversification.
Imagine sitting on your couch in London or Paris and browsing real estate investments in Cyprus or Spain from your laptop or tablet. Crowdfunding is making that possible.
Why is Real Estate Crowdfunding so attractive?
The answer is simple, it allows investors to buy into a real estate project for a relatively small amount of money (as low as €1,000) while offering the potential for high returns. But that is not the only reason real estate crowdfunding has seen exponential growth in the last few years. Here are some of the other reasons for this growth.
Transparency - A good platform will also offer a range of properties that have been vetted and checked. This ensures a very clear understanding of the merits and risks of each transaction.
Ownership - The only other way small investors can get into the property market is through a REIT that owns properties. By investing in a REIT, the investor is indirectly buying into a pool of residential or commercial properties, but there is no ownership established. A real estate crowdfunding platform, on the other hand, gives the investor a share certificate for each specific investment.
Ease of Use - The ease of dealing with a real estate crowdfunding platform is one of the major draws for investors. The entire transaction is completed online. Investments are tracked online and investors receive regular updates regarding the status of their property. Essentially, the investor gets all the benefits of owning real estate without having to deal with complicated and time-consuming tasks like due diligence, management, e.t.c.
Global Investment - Well-informed property investors know it’s prudent practice to diversify their portfolio among asset classes and countries. They know that real estate offers a stable investment opportunity along with the scope for capital appreciation. Additionally, they recognize the prospect of monthly returns in the form of rentals. Previously, it was not possible for many investors to diversify into the property market, especially in other countries, because of the high investment involved and the logistical constraints. Real estate crowdfunding platforms have removed these impediments, allowing international investors to diversify geographically.
The future of real estate Crowdfunding
Historically, real estate has been slow to adapt to technology and this has attributed to the fragmented and inefficient nature of the industry. But that trend is now changing. For example, only 10 years ago, searching for a home online wasn’t a possibility, yet today, billions of searches are made online.
Real estate will continue to become more and more efficient as its intersection with technology becomes more and more prominent. As a result, we’ll continue to see greater efficiency, more transparency and much greater access in the real estate industry. And Real Estate Crowdfunding will play a big part in that.
Also, due to regulations, most Real Estate Crowdfunding platforms had only been open to accredited investors. But with new regulations, we started to see retail investors participating in the industry.
We believe not only will the explosive growth of the industry continue in the future, but it will also get significantly stronger. We have to remember that the majority of people still have no idea what crowdfunding really is. As media coverage increases, soon there will be fewer questions about what Real Estate Crowdfunding is and more questions around how people can start investing.
As Real Estate Crowdfunding is evolving it will be exciting to see what changes come about in the industry over the next years. One thing is certain, investor confidence in real estate is back and investors are looking for new and creative ways to participate.
Comments