What is Real Estate Crowdfunding?
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Today’s podcast will cover everything you need to know about real estate crowdfunding, what it is, who it is suitable for, and how you can choose the best real estate crowdfunding platform with our help.
What is Real Estate Crowdfunding
So, what exactly is Real Estate Crowdfunding? Much the same as crowdfunding which has taken off in recent years, real estate crowdfunding pools together the funds of many investors to invest in real estate. What this means is that thanks to real estate crowdfunding, you can have access to invest in real estate projects with a relatively low startup cost. You can usually get started with as little as $500. This greatly lowers the barriers to entry for getting involved with real estate investment.
This Real estate crowdfunding is typically carried out through dedicated crowdfunding platforms which we discuss in much more detail in today’s podcast.
Where Real Estate CrowdFunding Shines
So, what are the benefits of getting involved in Real Estate Crowdfunding? Well, there are many. In fact, we have just touched on one of the major benefits already. That is the low cost access to real estate investments. These can start out on some platforms as low as $500. There is simply no other way that you could get involved in any kind of real estate investment for such a low figure. What this does is remove the barriers to entry that exist for many new or casual investors who simply do not have access to huge amounts of capital to invest.
Many of the real estate crowdfunding platforms facilitate investment in REITs. These are well known as having high dividend returns due to their requirement of having to 90% of their taxable income to investors. This can allow for a dividend return of more than 10% annually in many cases.
Another plus point with real estate crowdfunding is that it allows you to add a great level of diversification to your portfolio. Of course, there are still risks involved as with any kind of asset, but the more diversified you can be, the better. This type of investment also gives you great access to property assets without any of the usual hassle associated with property investments, so there are no daily management headaches.
What Real Estate Crowfunding Doesn’t do So well
While there are a host of positives to discuss when it comes to Real Estate Crowdfunding, there are a few bumps in the road too. Among a few of the things that Real Estate Crowdfunding does not do so well, fees are usually quite near the top for any investor. Of course, you want to keep these as low and competitive as you possibly can. This is an area where platforms are improving as more and more competition comes into the market, though you are still looking at a fee of between 1% - 2.5% of your total assets under management. Given the availability of many low cost, commission-free trading opportunities in the sector, this can be a sticking point for some investors.
The platforms themselves are also something which you need to pay close attention to. The whole world of real estate crowdfunding is relatively new within the last 6-7 years. This means that many operators, although they are improving, still do not have a vast degree of experience. Given the fact that they are also not required to register with the SEC, you can see where issues may arise. Increasingly though, these platforms are building a reputation for compliance, and the SEC and other bodies are maintaining vigilance to ensure you are well protected as an investor.
Another couple of minor downsides are that these platforms facilitate a lot of investments that are more long-term in nature. This means they cannot be easily bought and sold, so you need to have something of a longer term mindset getting started. A final point would also be that, while it is great to receive a high dividend, you should remain mindful that taxes will be owed on these dividends.
How to Choose the Best Real Estate Crowdfunding Platform
Now that you have a basic understanding of what real estate crowdfunding is, and why it may be suitable for you, we will take a look at the factors you have to consider when choosing a real estate crowdfunding platform. Here we will cover every angle of choosing a potential platform which will hopefully arm you with enough information to make the best decision going forward.
For precise and up to date information on all the best Real Estate Crowdfunding platforms, don’t forget to check out our dedicated catalog at InvestorGreg before making your final choice.
Fees and Features
Getting into the finer details, as we mentioned earlier, there are some fees associated with Real Estate crowdfunding if you are getting involved. These typically take the form of annual asset management fees which can range from the low-end at 0.25% up to more than 2% in some cases. This is effectively a fee on the total amount of assets under management in a similar fashion to some stock brokers.
There are a couple of other fee models which charge a monthly percentage fee on the interest you earn, or a fee on your profits if they are above a certain amount.
One of the most unique features on offer from some of the real estate crowdfunding platforms like Fundrise is an innovative 90-day money back guarantee system. This kind of feature can really help you in managing your risk.
Portfolio Details
Once you start looking more deeply into real estate crowdfunding platforms, you will find that they offer extensive access to a wide range of real estate portfolios. These often include a number of Real Estate Investment Funds (REITs), and other eFunds from around the US, Europe, and sometimes the rest of the world. With some investigation you can no doubt find a portfolio investment like this which suits your requirements based on the investment term, and the proposed ROI.
Products
Considering these investment goals and planning is vital if you are to succeed in reaching your investment goals through Real Estate Crowdfunding. Typically, a platform will make a number of broad ranging products available depending on what your goals are. Generally, these can be categorized based on the level of risk associated, the proposed level of dividend payments, and the term of the investment.
Our range of platform reviews at InvestorGreg provide the ideal resource for you to start researching exactly what products each platform has to offer, and how they can help you reach your goals. This information is up to date, and completely unbiased, aimed at giving you all the information you need to make an informed choice.
Deposits and Withdrawals
Once you have researched and selected a broker, you will want to find out more information about how you can make deposits and withdrawals. This is typically not a difficult process, and for the most part, you should be able to make deposits by wire transfer. In some but not all cases, you may be able to fund your account using credit or debit cards and eWallets, though wire transfers are the most commonly available method.
For withdrawals too, you can typically withdraw your dividends back to a connected bank account by wire transfer. This process should take no more than a few days to complete after you have confirmed the withdrawal.
Customer Support
A key element of any business is the ability to provide a strong level of customer support. This is no different with a Real Estate Crowdfunding platform and you will find that the majority of services offer an excellent level of support in many forms. You can usually find the answer to many of the most common questions through an FAQ on the company website. Failing that, most platforms will offer a web-based live chat service or support contact through email or phone which is often professional and fast acting to answer any questions you may have.
Security and Reliability
Moving on to another key area, that is the security and reliability of these real estate crowdfunding platforms. As we mentioned earlier, this is improving all the time as the platforms get bigger and increase in popularity with investors. The SEC are taking a more active role too in how they monitor the industry. This ultimately provides you with some of the best, and most transparent operations in the industry to invest in.
With the security of your data and funds, you can also rest assured that each platforms prioritizes the security of these things for you by following strict security protocol and adopting the most tested and safe operations, particularly online where you will find their sites operating with bank-level encryption and security procedures.
How to Invest In Real Estate Crowdfunding
So, now that you have more information on all things real estate crowdfunding, how can you get started? The answer is that this could not be much easier. You simply have to open an account with your platform of choice, pass the verification process with this platform, make your deposit, and you are ready to start investing.
To make the process even easier, we would highly recommend taking a look at some of our in-depth platform reviews over at Investorgreg so you can get the full lowdown on a platform before making your final choice.
So, there you have it. Real estate crowdfunding is the in thing and a great way to diversify your portfolio with a new investment that does not have to break to bank and is very easy to get started. Thanks for listening & we wish you every success and don’t forget InvestorGreg is here to help you every step of the way with news, broker reviews, and more. Don’t forget to check out our website InvestorGreg.net for all the latest, and subscribe to the podcast to see the next installment coming very soon!
The InvestorGreg Editorial Team is a group of financial writers and analysts who cover the worlds of finance and investment. Read more
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