Real Estate crowdfunding has experienced staggering growth, intensifying and evolving rapidly into a multi-billion dollar industry. The investment model for commercial real estate is simple: there is inherent demand for real estate in a given area. Investors purchase the property and make money in two ways: first, by charging rent for the use of the property, and second by appreciation in the property’s value over time.
Real estate crowdfunding involves the pooling of funds by multiple investors in a real estate project. There are two main investment types to choose from:
- Equity investments
Investors make investments in commercial or residential properties and in exchange, they hold an equity stake in the property. Each investor shares in a portion of the rental income the property generates.
- Debt investments
Specifically, this means investing in a mortgage loan associated with a particular property. As the loan is repaid, the investor receives a share of the interest.
Between the two, equity investments offer the potential for bigger returns because the profitability of debt investments is limited by the loan’s interest rate. On the other hand, equity investments are riskier and they typically require a longer holding period.
With the passing of Title III changes under the JOBS Act, real estate crowdfunding has established itself as a major game changer. There are now more then 150 websites where you can invest and sell Real Estate using some form of crowdfunding. It has opened up investment opportunities for every American which was usually limited to high net worth individuals or institutional investors. Now everyone can own a piece of prime Las vegas property in locations that just wouldn’t have been possible without equity crowdfunding. By reshaping and shifting the way individuals find and invest in properties, and by introducing tech-based solutions and removing some of the most challenging barriers to real estate investing, real estate crowdfunding has opened new doors for both investors and borrowers alike. Additionally, there’s an immense amount of work and time needed to maintain a large property – with crowdfunding you don’t worry about that, you just invest and wait to see the returns.