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Real Estate Crowd Funding: What an Investor Should Know

We live in exciting times. The economy is beginning to become transformed by disruptive elements like crowdfunding, and the opportunities available to savvy investors are beginning to multiply. While you may be familiar with crowdfunding as a platform that’s used by entrepreneurs to support their startups and various ventures, you may not be aware that is now being used as a model for real estate investment.

Over the past several years, multiple platforms have cropped up that allow investors to use the crowdfunding model to invest in real estate. Given that this is a new kind of investment opportunity, you may not be aware of what this entails. In order to assist you with your decision to become involved with real estate crowdfunding, we’re going to review the essential facts that you should know.

What About Real Estate Investment Trusts (REITs)?

In the past, investors who did not possess the capital to become directly involved with real estate relied upon real estate investment trusts (REITs). As a financial instrument these present a number of benefits to the savvy investor, however they are fundamentally different than the opportunities afforded by real estate crowdfunding. There are two primary distinctions to be drawn. First, the value of an REIT, like any other security, is subject to the mood of the market and its fluctuations. Second, an investor is investing in the REIT’s portfolio of real estate investments of which that investor will have little or know knowledge. With real estate crowdfunding, the return on the investment is determined by the property itself, and the investor will know what property he or she is investing in.

Two Kinds of Investment Opportunities

There are essentially two kinds investment opportunities afforded by real estate crowdfunding. An investor can become involved with either debt or equity.

  • Debt: Some crowdfunding real estate platforms, including ours, allow investors to become involved with the debt side of real estate. Here, the investor, along with others, purchases the mortgage of a given property. In this way, the investor becomes the lender, and is then able to earn interest on the debt that he or she owns. Should the debtor fail to make good on payments, the pool of investors can foreclose upon the property in order to recover their investment.
  • Equity: Other crowdfunding platforms allow investors to pool together to actually purchase real property. However, it’s worth noting that the investors themselves do not actually become the “owners” of the property. Rather, they gain an interest in a limited liability corporation, which actually owns the property in question. The value of these investments is therefore attached to the appreciation of the property’s value. For this reason, equity-based real estate crowdfunding carries a greater level of risk.

Naturally, the array of investment opportunities are much greater than the above two categories. Within each, an investor can become involved with residential or commercial property in addition to other kinds. Further, the period of investment – whether debt or equity – can be different, and investors can locate a period that matches their investment goals and risk tolerance.

Our platform offers real estate crowdfunding investment opportunities of the debt variety. Through it, you will have the opportunity to invest in residential mortgages. In addition to diversifying your investment portfolio, you will also be doing a great service for the United States economy, as our crowdfunding platform gives homeowners the opportunity to restructure their mortgages, giving them the opportunity to keep their homes if they’re currently facing foreclosure.

Who Can Invest?

For the most part, real estate crowdfunding is available to accredited investors. An accredited investor can be a number of different things, including banks and insurance companies. When it comes to individuals, the criteria is thus: The individual investor, in order to be considered an accredited investor, must have an annual income of $200,000 or more over the previous two years. If the individual investor has a spouse, then they both most have an annual income of $300,000 or more over the previous two years. Absent that, the investor must have a net worth of $1 million or more, wherein that net worth does not include the investor’s primary residence.

What About Non-Accredited Investors?

At the moment, the vast majority of real estate crowdfunding platforms are limited to accredited investors, including our own. However, there are changes on the way that will make real estate crowdfunding available to non-accredited investors as well. As a matter of fact, there are some states in the country that currently permit non-accredited investors to become involved, provided that their investments are in real property located within their state.

As the provisions of the JOBS Act roll out, though, non-accredited investors should be able to get their skin in the game. So, if you’re not currently able to become involved with our real estate crowdfunding platform, take heart. The doors should soon be open to everyone, and that will be a truly exciting time, both for fledging investors and for the United States economy overall.

Is Real Estate Crowdfunding Right For Me?

This is, ultimately, the question, is it not? As with any other investment opportunity, you will have to weigh the potential rewards against the potential risks. Further, you will have to determine the maximum investment you can make, and whether or not a crowdfunded real estate investment will make sense within your overall portfolio.

That said, real estate crowdfunding is an exciting opportunity for anyone who can get involved. This year alone, real estate crowdfunding is expected to account for over $2.5 billion of economic activity, which you can be a part of. Over the years to come, many only expect this amount to grow even further, and with it the number of tremendous opportunities available.

So, if you’re interested, sign up with us today. You can take a look at the various investment opportunities that we have available, and then determine if any of them are right for your goals, risk tolerance and portfolio.

 

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