Crowdfunding has gained a lot of popularity since its inception on the internet. From game development companies to real estate investments, every industry and sector seems to be benefiting from online funding. However, it is best that you do proper research before choosing this route to make investments, especially when it comes to real estate investments that are large in size.
Here are the pros and cons of going the crowdfunding route to invest in real estate.
Crowdfunding For Real Estate – Pros
Lots of Options
Crowdfunding websites for real estate get investors that are from a lot of different locations. Similarly, they have properties in many different locations as well and many of them are experienced real estate home buyers as well. You don’t necessarily have to buy houses. Instead, you can choose from a variety of commercial properties too. Furthermore, it is up to you to go for high-risk equity deals, lower reward debt offerings or other types of options.
Diversification of Geography
When investing in real estate, you want to diversify the location of the properties. If you invest all of your money in one location, you will have a higher risk because if that market goes down, all your investments will result in negative ROI. On the other hand, you can diversify the locations you invest in by working with a real estate crowdfunding company.
Diversification of Portfolio
One of the basic rules of investing is to diversify one’s portfolio. Avid investors like diversification not only because it helps them distribute their risks over many different facets but also because it establishes them as an expert investor in the community. You could invest in vacant lands, commercial properties, residential buildings, etc. when you choose to invest in real estate crowdfunding.
Small Investment Size
One of the gripes that many investors have with real estate is that this market does not let them in unless they have a lot of money. On the other hand, real estate crowdfunding has completely changed that notion. Today, there are crowdfunding websites that can let you start your investment career with just $5,000. That’s the beauty of crowdfunding i.e. the investment is drawn from a crowd of investors.
Minimal Property Management
Managing your properties can occupy a lot of time on your schedule. According to Corey Tyner of We Buy Houses Phoenix, doing so will prevent you from furthering your investment ventures. If you want to keep the hassle of property management out of the equation, real estate crowdfunding is the best option for you. In crowdfunding model, you just invest and wait for that investment to grow with time.
Cons of Real Estate Crowdfunding
Lack of Control
Because your investment in a property is small, you don’t have much control over it. Professional real estate investors who like to manage their properties on their own might not like this model.
Difficult to Cash Out
There are so many different people investing in a property in the crowdfunding model that investment eventually becomes rigid. If at any point you want to sell the property to get your cash back, it will be near-impossible to do so instantly.
Lower Returns on Rentals
With most REITs, 90% of the rent that comes from a property gets divided among the investors. On the other hand, there is no such rule in crowdfunded properties. As a result, your returns on rental properties can be extremely small.
In the end, it’s great news for real estate investors that they now have an additional option of investment. Furthermore, the pros of real estate crowdfunding outweigh its cons by a big margin. It is for that reason this type of real estate investment has become so popular lately.