HOW TO CHOOSE YOUR FIRST REAL ESTATE CROWDFUNDING INVESTMENT
Source: Rebecca Lake / U.S. News & World Report
Real estate investing has always been a popular way for people to invest their money. It provides a stable, high cash flow, as compared to its value; however, for a long time it was only available to the wealthy.
Usually, one had to have a personal relationship with the deal sponsor, and even then those deals required five- or even six-figure buy-ins.
Thanks to recent changes to crowdfunding laws, anyone can invest in real estate through crowdfunding platforms with as little as $1,000.
Real estate crowdfunding is a great way for everyone to participate in the benefits of real estate investing, such as consistent returns, reduced risk, tax benefits, and none of the worries associated with direct ownership. With all of the associated benefits, it’s important to know how to choose the right investment for yourself.
Things To Consider When Choosing Your Real Estate Crowdfunding Investment:
Debt or equity? Both real estate debt and equity crowdfunding have their pros and cons. The difference between the two is similar to the difference between investing in stocks and bonds. Real estate equity investments have a potential for strong upside and uncapped gains if the profits outperforms expectations. Debt investments have mitigated risks because the investment is secured with a fixed interest return. There also exist hybrid crowdfunding investments that blend together elements of debt and equity.
Check the downside.No investment is ever risk-free, including real estate crowdfunding. When choosing between debt and equity, the decision comes down to risk tolerance. With equity crowdfunding, there is the possibility of losing all of your investment. While debt crowdfunding may not offer you the same potential for higher returns, risk is reduced because, in the event of bankruptcy or foreclosure, any proceeds are paid first to the debt holders.
Choose the right platform.There are multiple real estate crowdfunding platforms out there, but they’re not all the same. Investors should consider where the investments are located, fees involved, the minimum investment amount, and the team behind the platform.
According to CFX Markets, crowdfunding real estate investments account for $2.5 billion of the commercial real estate market. There is a bright future and a lot of growth potential for real estate crowdfunding as investors are beginning to lock in on the multiple benefits that it provides.