Real estate crowdfunding provides developers a means of raising capital for their projects without having to rely on a single lender or investor. Multiple investors contribute to the project and earn a profit based on the size of their investment and the income the project generates. This type of opportunity provides benefits for those who are interested in investing in real estate, but too inexperienced or busy to dive into the development side of things.
The Benefits of Real Estate Crowdfunding
While real estate investing offers lucrative opportunities, many people aren’t comfortable with the idea of managing property and dealing with tenants. Crowdfunding allows you to invest in worthwhile real estate projects without having to get involved in the management of the property. The project leader uses your money, along with the funds contributed by other investors, to develop and manage the property.
Additionally, crowdfunding allows you to invest in several projects at once. This provides every investor with opportunities to diversify their portfolios, so they have a greater potential for maximizing their returns. In some cases, investors can earn more than the 14% annual returns expected from stock investments, and you can potentially see a 20% growth on your initial investment.
How Does Crowdfunding Work?
First, a business plan for the project is created. This involves buying the land or existing property and contacting the contractors needed to get the property in ideal condition. All of the expenses involved in getting the property ready for use will be tallied and added to the total cost. This will help the project sponsor to develop a budget, which will be used to create a proposal on the crowdfunding platform.
Once the project has been published on the crowdfunding platform, investors can read the details of the project and gather the necessary data to determine the risks and potential returns on the investment. If they choose to invest in the project, they will receive a percentage of the profits the project yields in exchange for their investment.
As this overview suggests, real estate crowdfunding is beneficial to both investors and developers. It brings them together more efficiently and helps developers acquire the capital they need to pursue their project. Investors earn returns on their capital without having to get involved with the administrative and physical labor that goes into developing and managing commercial real estate.