Crowdfunding may be the easiest way for anyone to start investing in real estate

In years past, if you wanted to do a real estate transaction, there was basically one way to do it: save and save for years to find enough capital to convince a bank that you were enough credit risk for them. to lend you a ton of money.

Then you (or your real estate agent) would look everywhere for a property to buy. After that, you had to hope and pray the appraised property for the purchase price and then you finally got your loan. It was the old way. Now, thanks to the advent of real estate crowdfunding, there’s a whole new way to get the funds you need to close a real estate deal.

What is crowdfunded real estate?

Imagine for a moment that you come across a great real estate deal, but you don’t have the money to close it. Instead of going to a bank, you gather 50 of your friends and family to present them with the opportunity to purchase a small portion of a real estate investment opportunity that you have identified. Each of them makes a contribution and hopefully those contributions will total enough money to buy the real estate deal you are proposing.

Then, whoever contributes to the deal earns a share of capital based on their individual contributions. Once the deal is done and the profits are made, you divide the loot and distribute it to your partners based on their individual contributions. This is the very definition of real estate crowdfunding.

Real estate crowdfunding seems like a new idea, but in fact, it’s actually an old concept. When a company sells shares to raise funds for a new project, it is essentially crowdfunding. Before the big commercial banks started providing real estate loans in the 1920s and 1930s, crowdfunding was also how many people bought real estate. The difference is that now online crowdfunding platforms allow you to reach potential investors anywhere in the world, as opposed to just friends, family and people in your immediate circle.

Related: Best Real Estate Crowdfunding Platforms for 2022

Investing in people and projects

Real estate crowdfunding offers investors many potential benefits. One of the most important is the diversity of investments available on crowdfunding platforms. Almost everyone realizes that buying single family homes and selling them for a profit is a great way to build wealth through real estate. But for many years, large real estate projects that generated residual income for investors were almost entirely beyond the reach of small investors.

Indeed, the financing of commercial projects is not provided by the federal government as many home loans are. This translates to investors with a maximum loan term of 15 years and no federally subsidized program that allows them to close deals with as little as 3% down payment on a 30-year insured loan. This meant larger down payments and larger monthly payments, which prevented regular investors like you from being able to secure income property or buy into any real estate outside of single-family homes.

This is where real estate crowdfunding comes in. Crowdfunding allows investors to buy into a wide range of real estate investments, many of which would normally be beyond their reach.

Crowdfunding also offers options for investors with virtually any budget, with minimum investments on different platforms ranging from $10 to $100,000.

Related: Best real estate crowdfunding for non-accredited investors

Conclusion on how to use crowdfunding to invest in real estate

Real estate crowdfunding is not a new idea. Investors have been pooling money to buy real estate for decades. However, the difference with real estate crowdfunding is that you can now partner with like-minded investors from across the country (or the world) to close real estate deals that were historically only available to well-heeled or accredited investors. . The advent of real estate crowdfunding platforms also allows you to examine offerings in emerging markets outside of your geographic area. If you wanted to make a real estate investment, but don’t have the capital to buy a property on your own, or want to consider investing in other locations without going there for due diligence, the real estate crowdfunding could be the perfect option for you.

This article presents the highlights of How to use crowdfunding to invest in real estate published on Benzinga Money. You can read the original article here.

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