Real Estate Crowdfunding Projects — 9 Reasons it’s a Great Option for Investors

Investing in real estate requires big money, right? Every headline shouts of new developments that cost tens of millions of dollars, which makes it hard to imagine ever breaking into the investment game. But there is a way in through real estate crowdfunding — powered primarily by social media and word-of-mouth marketing. 

Crowdfunding consists of many people contributing a small amount of money to fund a goal. In real estate, the goal might be to pay for an apartment building, an industrial site or raw land for future development. The investors — those who contributed a little bit of money — then become shareholders in the investment. It’s similar to fractional real estate investing, where investors own a percentage of a property.

Real estate crowdfunding gives individuals and businesses access to a large amount of capital quickly, and the potential return on investment is impressive. Real estate crowdfunding generally outperforms the stock market, sometimes at double or triple the rate. 

READ: Start Investing in Real Estate — 6 Tips for Millennials

Even though every investment carries the risk of loss, there are 10 significant benefits of investing in real estate crowdfunding projects.

1. You don’t need much money to get started

Real estate crowdfunding is a great option if you’re just starting out and have limited funds to invest. The price of entry is very low, sometimes just a few hundred dollars. 

2. You can diversify your investments

You could use your nest egg to buy another investment property, but then you’d have two residential properties to manage. Real estate crowdfunding allows you to dabble in everything from commercial properties to medical centers. This diversity in your investment portfolio is always a good idea.

READ: How to Invest in a Rental Property with No Money Down 

3. Real estate crowdfunding creates passive income

If you are looking for a steady stream of passive income, real estate crowdfunding can help. Through rental income or smart development, it’s possible to generate regular income without hands-on management or daily involvement.

4. You get expert advice

Real estate experts typically manage the best real estate crowdfunding platforms. You can harness this expertise when selecting and managing potential properties. 

5. It’s easier to liquidate

There are cheap ways to buy a rental house, but if you ever need access to the equity you build when you rehab a foreclosed property or a vacant apartment building, you’re in trouble. When you invest in real estate crowdfunding, selling your shares in a secondary market is possible. It’s not as fast as heading to the ATM to withdraw money, but it certainly beats trying to liquidate a property.

6. The risks are clear

Crowdfunding platforms run by real estate experts also come with an analysis of a property’s potential risks and profits. This reduces the burden on individual investors and minimizes the risks. 

READ: How to Reduce Real Estate Investment Risks — 12 Expert Tips

7. Transaction costs are low

Buying a property on your own comes with tens of thousands of dollars in closing costs, plus whatever renovation or marketing costs are incurred. Real estate crowdfunding projects have a much lower entry price, with costs divided among investors. This is just one way that real estate crowdfunding encourages investors who were previously shut out.

8. Investors can get a foot in the door

Not everyone has angel investors like Elon Musk at their beck and call. For some investors, simply getting a meeting can be challenging. Investing in real estate crowdfunding democratizes investing for people who otherwise could not enter some investment markets.

9. There are global investment opportunities 

In addition to economic diversity, real estate crowdfunding projects can help you expand your portfolio geographically. Many projects are open to investors from across the globe. This allows you to take advantage of favorable exchange rates in other currencies. It also opens the door to emerging markets, where the profit margin can be much higher.

10. You have more control

Real estate crowdfunding and real estate investment trusts are similar, but REITs maintain control over the investment. Real estate crowdfunding is more in the hands of individual investors. 

You might give money to a REIT to decide where to invest, but with crowdfunding, you pick the project and jump in. On the other hand, crowd funders might decide to let a REIT manage the money they raise. This can be helpful for new managers who want someone with more experience behind the wheel.

Risks to consider

As with any investment, there are risks involved in investing in real estate crowdfunding projects. Although it’s possible to sell your shares in a secondary market, this type of investing is still harder to liquidate than investments in the stock market. 

In addition, managing investments through a crowdfunding platform requires due diligence. If your selected platform isn’t up to the task, you may experience project failure or poor returns.

Talk to a financial advisor if you’re considering investing in real estate crowdfunding projects. They can help you understand the risks and benefits of this investment strategy.

Luke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times and more.