Ever joined into a kickstarter? Feel like you’ve done some good sometimes haven’t you. Well why not combine generosity with investment and make a little bit of money? Property Crowdfunding is how…
Property Crowdfunding is changing the way we invest in property and is fast gaining popularity across the globe. As the efficiency of the crowdfunding model was demonstrated, property developers took notice and used crowdfunding as a successful way to raise funds for a wide range of property projects. In a short time, property crowdfunding has developed into a multi-billion dollar industry.
Real Estate Crowdfunding
Crowdfunding is the raising of money (“funds”) for a specific property project from a large group of individuals. Individual contributions are pooled as the “crowd” for a common collective project proposed by a property developer or purchaser. Property crowdfunding allows individuals to invest in Real Estate based projects such as property investments, developments and constructions.
Why Real Estate Crowdfunding Works
Real Estate crowdfunding has many advantages over other traditional forms of property investment;
For the Investor:
- Flexibility for the investor in the size of their investment. i.e. investors are able to invest directly into commercial property developments with a smaller incremental investment, rather than the norm in the current market which requires each investor to outlay sizeable funding portions.
- There is no need to get involved in the day to day administration or running costs of owning a property
- You can choose the individual properties or projects that best suit your investment objectives and risk profile
- You can participate in projects which are not usually accessible to the general public, such as commercial property developments
- You can communicate directly with the property project sponsor
- There is no cost to invest in a crowdfunded property project
For the Developer:
- Developers can gain significant exposure on a platform that drives significant investor traffic to company profile
- Expansion of investor list immediately increases the number of strong advocates for the end product of a development
- Obtain access to qualified investor networks
- A cost and time effective as well as user friendly means of attracting, engaging and capitalising on an investor audience
- Unique, custom built technology, integrated AML and data analysis and an automated offer and acceptance process makes the investment process simple and streamlined
Crowdfunding vs ASX Listed Property Trust
Listed Property Trusts (REITs) invest in a wide range of properties, and charge significant ongoing management fees, in some cases 15% of capital invested. REITs also have an increased market exposure due to the volatile nature of the ASX. Crowdfunded Properties allow Investors to select the individual properties or projects they wish to get involved with. In addition, Listed Property Trusts don’t usually participate in smaller projects or certain types of projects, like commercial developments or apartment construction.
What does an Investor receive?
When you invest in a crowdfunded property project, you actually invest in the shares in a company or units in a trust (also known as an “interest”). The company or unit trust then in turn buys the property and / or manages the property development. As a security holder, you will hold the rights associated with the class of security that you have agreed to purchase. You may hold the same rights as the project owner by acquiring ordinary shares in a development company. Alternatively you may acquire preference shares in the company but receive a high rate of return on your investment.
How are property partners chosen?
All property property partners (ie property owners and developers) are assessed for suitability before a project is listed. A wide range of factors are taken into account, including:
- The sponsors previous experience;
- Whether the sponsor is properly licensed;
- Key personnel;
- Current portfolio size;
- The reasonableness of the project proposal.
In summary, a responsible Real Estate Crowdfunding platform will look for high-quality, experienced project sponsors with an established track record.
When are returns received?
Each project is unique, so returns or distributions will depend on the individual project. Some projects may provide distributions immediately, like a property investment, while a property development may only pay distributions once the project is complete. The project description will provide an indication of the expected returns and the timing of returns. Some investors would argue that there are better ways of investing in real estate, such as note investment. Real estate investors buy and sell notes, debt security instruments obligating repayment of a loan at a set interest rate in a defined time period, as a way of gaining potentially higher returns without the risks associated with the stock market.
To learn more head over to https://crowdfundup.com/
“Any advice provided on this blog is general in nature. Readers are urged to seek their own professional advice before making decisions.”