Most of us are no strangers to crowdfunding. Perhaps you’ve donated to a friend’s Kickstarter campaign, or given money to a hot new product that you think shows potential. In recent years, though, the face of crowdfunding has changed. Instead of cash donations, crowd funders are instead investing in small stakes in projects, with property becoming one of the fastest-growing sectors in the industry.
Businesses are able to market formerly private investments to the public and are designed to help startups get their foot through the door. Property crowdfunding has also been adopted by house-flippers as an alternative to bank financing, which can sometimes be difficult to access. Nowadays, there are more and more crowdfunding platforms breaking into the field of property investments.
Crowdfunding helps to level the playing field in today’s housing market, giving individuals the opportunity to participate in lucrative projects that were formerly only available to large-scale investors. Now, lawyers, doctors, small business owners, and other professionals can invest in properties from family developments to shopping centers. Property crowdfunding is still relatively new, but if you’re interested, there are a couple of avenues that you can follow when investing.
Equity crowdfunding platforms allow investors to participate in projects alongside major property companies as they build or develop new properties. Typically, investors might raise some cash by releasing home equity, using alternate savings or even taking out a loan for investment purposes. Investors receive a share of the profits without having to worry about managing any property themselves. Fees are typically reasonable, usually between 0.5% and 3% annually, and there’s often a low barrier of entry for interested investors.
Syndicated Debt Crowdfunding
Instead of allowing individuals to invest directly, debt syndication platforms divide up an existing housing loan and syndicate it out to several investors. These loans are usually offered by private lenders instead of banks, and often issue high interest rates. While syndicated debt crowdfunding is less risky than equity crowdfunding, it also includes a middleman, which means lower returns for the investor.
Platform-issued Debt Crowdfunding
This model often involves smaller properties, including single-family homes that are to be renovated and resold for a quick profit. Many house-flippers use this type of crowdfunding to raise the money they need to fix up and sell a property. Investors can buy into a property backed loan with the platform acting as a lender, so no middleman is involved. This type of investment is relatively low-risk and often yields results quickly, but offers less upside than equity.