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How Real Estate Crowdfunding Puts the Investor in Charge

The last decade has not been easy on investors. No matter where you put your money, it probably didn’t survive untouched when the recession came roaring through. As such, you may be very wary about putting your money out there once more. This is understandable, of course, but investing is something we all have to do or inflation will eventually get the best of us. This is why so many people love real estate crowdfunding: it puts the investor in charge.

You Get to Choose Your Investments

Before crowdfunding came along, those of us with enough capital to really get into real estate investing faced a pretty dismal prospect. You could hand over your money to an investment firm specializing in real estate and basically hope for the best. It was almost exactly the same as giving your cash to an investor who would then go out and try to find the right stocks to put your money behind. In both situations, you lack control. Instead of investing in stocks or real estate, you were really investing in the person or company handling your money. This isn’t what most people had in mind.

Investors also tend to dislike the fact that they have almost no information about where their money went. If something terrible happens on the stock market, you’ll have no idea whether or not that was your money that just got zeroed out.

Crowdfunding, by its very nature, puts you in charge. You get to decide on which properties you want to invest in. This means you can leverage any knowledge you may have of the housing or commercial market, a given neighborhood you used to live in or have friends living in, etc. As the real estate market is in no way as volatile as the stock market, most of us have real-world experience we can use for investing in properties without fear that tomorrow an entire city is going to become unfashionable.

Manage Your Risk

It doesn’t matter if you’re Warren Buffet or someone with an extra $1,000 they want to put into something, the number one fear of every investor is risk. Everyone knows it’s impossible to avoid completely, but we all want to minimize our exposure as much as possible.

As we touched on above, for most people, this has generally meant choosing the right investment vehicle. When it comes to stocks, the vast majority of people simply don’t have the time to look into potential risks involved with a certain investment and then keep an eye on that stock day-in and day-out.

Instead, all we can do is find the best possible investor who is within our budget, hand over our money and be optimistic.

Once again, crowdfunding is here to make things more comfortable for your average investor. You have much more control over where you put your money, making it much easier to mitigate the risks that come with investments. As we mentioned above, you can make these investments with much more confidence, too, because real estate generally doesn’t change in the blink of an eye, like stocks often do.

You’re also no longer tied to one investor or firm. Their penchant for risk does not have to automatically become your own. Instead of putting all your eggs in one basket, invest where you feel it makes the most sense. This is actually a very smart way to diversify your portfolio so that if one investment does fall through, you have others to depend on.

Options for Diversification Abound

Speaking of which, it’s worth pointing out the different types of real estate projects you can invest in. Obviously, there are both homes and commercial properties. However, there are also two types of investments:

  • Debt: With this option, you basically become the bank or lender. This is almost always done in cases where a property developer needs a loan. You and your fellow investors put up the money to help them buy and refurbish the home and then receive predetermined, monthly payments in return. As collateral, you can always foreclose on the property if you find your borrower has defaulted.
  • Equity: This type of lending has you acting more like a traditional investor, which is why it’s the method of choice for those with commercial properties. You put together the necessary funds to bankroll the project, then collect monthly checks based on the profits the building has brought in. There is normally an equity bonus at the end of the transaction once the property has been sold.

Of course, no matter which method you choose, you have countless options for the type of property you add to your portfolio. Everything from single-family homes to apartments to hotels to malls is being funded through this amazing type of investing. As an investor, this means you can build a diverse portfolio virtually immune to turns in the economy.

Competition Will Work to Your Benefit

Right now, there are roughly 100 different platforms out there on the World Wide Web. By the end of 2016, that number may get close to doubling. This is to be expected from any breakout industry, though, and the total number of viable platforms will most likely fall in the years to come until it rests at a stable amount.

While this does mean a bit of market volatility for you, the investor, think about how that competition is going to benefit you as well. For one thing, no matter what, there will always be more than enough platforms to choose from. This is yet one more way to diversify your portfolio.

However, competition is already in high gear as superior platforms are rising to the top and those that don’t have much to offer are falling by the wayside. This is always good news for the market, but it also means you can trust that those platforms still in the game are more than willing to work hard in order to secure your business. It ensures they’ll always be working hard to keep your business too, knowing full well that you could leave at the drop of a hat.

Don’t make the mistake of thinking all investments are doomed. Even though the economy has been rough, the recession is over and it’s now time to use what you learned to grow your money. For all of the above reasons, there is no better way to do this than with real estate crowdfunding.

Matthew Sullivan


Image by Shutterstock


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