Real estate crowdfunding: What you need to know

Investing in real estate is one of the most effective ways of making money with few risks. Most people who invest in real estate do so by using a home loan or their savings to purchase a property or two that they then use to make an income via rental or by flipping the property for a profit. This is a fine way to make money with real estate, but it is not the only way.

Right now, real estate crowdfunding companies are becoming very popular because they allow you to pool your resources in order to buy property or to finance real estate companies who are looking to build properties.

If you’re interested in real estate crowdfunding, here are a few things that you need to know:

It’s lower risk

Since you do not have to invest the whole amount of a property – several crowd funders pool in together – real estate investment via crowdfunding offers a lower-risk way of adding to your portfolio.

The company does most of the work

If you’re looking for a hands-on, real estate investment, crowdfunding is unlikely to be for you because the company and any developers you’re bankrolling will do all the work of buying/building properties. They will also sell real estate on your behalf, so you really won’t have to do much at all. For most people, this is actually ideal because the less hands-on an investment is, the better – it enables you to earn money without lifting a finger. So, just bear all that in mind before you act.

Accredited investors only

Although it is not always the case, most real estate crowdfunding companies will only allow accredited investors who have at least an income of $200,000 per year or liquid assets totalling a minimum of $1 million use their platforms, which means if you have a smaller amount to invest, you will have to do some digging to find a platform that is not so strict. Start with Fundrise and Realty Mogul, which are a bit more reasonable. Then, branch out when you start making gains and you’re in a better position.

Commitment

If you invest in an equity project, then you will usually need to commit for a minimum of 3-5 years, which means that you will not be able to access any of the cash you’ve invested for a while. If you need a quicker payoff, debt investments are your best bet.

Do your own due diligence

Although real estate crowdfunding can be a very lucrative way of investing because it is still such a new way of doing things, not all of the companies offering it are exactly great at doing their due diligence, and you will find that not every investment represents a good deal to you. That’s why, as far as possible, you should always do your own due diligence before giving them your money. That means knowing the rules of the game, checking the risk of any project before you invest and not putting all of your eggs in one basket, spread your cash out, and you will have much less risk.

Real estate crowdfunding is here to stay, but it is not yet perfect, so if you want to invest, do your homework and pay attention.

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