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Five Reasons Real Estate Crowdfunding Will Disrupt the Current Model

When you think of real estate investing, “exciting” probably isn’t the word that comes to mind. Thanks to crowdfunding, though, this industry is already starting to get really interesting and will continue to do so. Here are five reasons why.

No One Likes the Current Model

Alright, that’s not 100% true. If you’re the type of person who has $100,000 lying around and can put large sums of that into a property, the current way real estate investing works is probably just fine by you.

The truth, though, is that most people would love to invest in real estate. Even with the housing market crash we just saw, the majority of people have an easier time trusting the fact that people will always need homes or properties to do business out of than putting their faith in something like the stock market (which hasn’t exactly been confidence-inspiring lately).

Real estate crowdfunding is set to take off because so many people have been begging for an alternative. A lot of sellers can not only get a better price for their property, but better stipulations in the sale too. No longer do they have to hear, “If you can find someone else with that kind of money, fine. Otherwise, this is what we’re willing to offer.” On the other side of things, though, more people can now enjoy the benefits of owning an investment property, getting a commercial space for their business and much more.

Investors Win Out

Like we just covered, real estate crowdfunding could greatly improve the industry for those who sell properties. However, the same can be said for investors too and we’re not just talking about the fact that you can get in the game without having a pile of cash on hand.

That certainly helps, of course. What a lot of investors love about the crowdfunding model, though, is the fact that they no longer have to deal with a lot of the headaches that traditionally came with buying a property. In the past, this meant you also had to handle any maintenance and repair costs that would come with the property, as well as overseeing other management tasks. This has definitely been a huge strike against buying properties for many investors. They’d rather take their chances investing in a corporation, knowing that far less went into it after purchasing the initial shares.

Thanks to crowdfunding, though, you can now own a piece of a property as part of an investment team. With your investment comes a budget that includes ongoing maintenance and property management needs (a percentage of the returns will generally be used to fund these requirements too). You get all the benefits of owning a property without the hassle of having to look out for it.

Bye, Bye, Banks

For those who don’t make six-figures every year, coming up with the money for an investment property or some similar venture meant going to the bank. Most people would put this experience right up there with visiting the dentist. Even if you received the money you wanted, you were generally lucky if you walked away with anything that remotely resembled a favorable interest rate.

Of course, with the economy being what it has been, a lot of people don’t have the best credit in the world. Even if your credit is just average, this could become a fatal flaw on your loan application. If you don’t want to get buried in interest payments, you might have to accept that real estate investing just isn’t going to happen for you.

Crowdfunding gets these unnecessary issues out of your way. The JOBS Act made the playing field much more level for smaller investors who might not want to deal with the bureaucracy of a bank loan.

In many ways, you can look at this as a win for banks too. These institutions can now focus their funds on less-risky, higher-yield propositions rather than trying to keep a large contingency of their clientele happy.

There Will Be More Investors than Ever

We’ve already touched on this point to varying degrees, but it’s worth highlighting just how big an impact crowdfunding will have on the current model in terms of the number of investors.

Years ago, if you didn’t have the money to invest in a residential or commercial property, you could put your money with others in a property management fund. Even this was difficult though. Generally, you still needed a good deal of money. You usually also had to know someone who was in the fund (what’s often referred to as the “Country Club” mentality).

Both of these hurdles worked to keep a lot of people from ever getting involved. Most peopled turned to mutual funds instead, an investment avenue with a reputation that is much more favorable than its reality.

The doors of this world have been blown open with crowdfunding. You’re going to see more investors than ever before simply because it’s now a real possibility for so many people. Furthermore, investing in real estate is much more intuitive than doing so in a company. This is another reason that, over the years to come, you’re going to see an ever-growing number of investors getting involved with this opportunity. It won’t be guaranteed money, but it will be something much closer than the current option.

Commercial Real Estate Is About to Get Interesting

There are definitely some very interesting properties out there to rent, whether you need a place to live or a location for your business. At the same time, though, it’s tough to claim that these types of properties have really changed all that much. On the outside, the designs may differ some, but inside, they’re mostly the same.

To a large degree, this isn’t because of market demands. It’s because the same types of investors have ruled the market this entire time. With the arrival of new blood, you can expect projects that take bigger risks in terms of design, green-technology, cultural appeal and much more.

If you’ve been looking to invest in real estate or have in the past, but haven’t been happy with the outcome, crowdfunding is about to disrupt the way things used to work.

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