Real estate investments are one investment form favored by loads of new and seasoned investors. Why? It’s simple; the profit margins associated are enormous.
However, investing in real estate isn’t as easy as it sounds. To enter into a real estate venture, you’ll need to have a sizable amount of cash, either self-generated or through a bank loan. As a result, most people who’d like to delve into real estate shy away because of the enormous finances.
Is there an easier way to acquire properties in the buzzing US real estate market? Thankfully, there’s one medium available to investors; real estate crowdfunding.
Although we’ll be giving a more encapsulating idea on this concept, crowdfunding has been around since time immemorial. Albeit unused in the real estate market in times past (dominated by the elite), the goal of crowdfunding is straightforward – pool resources together to attain a common goal.
Using this analogy in real estate, it’s no wonder why people without adequate financial power are rushing towards crowdfunding for non accredited investors. It’s catching on quickly!
That said, if you’re a new investor looking for tips on how to go about this venture, this article aims to put things into perspective. Below, we’ll be looking at real estate crowdfunding, the forces attached, and considerations to make when choosing a deal that suits crowdfunding for non-accredited investors.
Real Estate Crowdfunding: What’s the Ideology Behind This Concept?
To understand crowdfunding real estate investment, we will use a real-life illustration. So, let’s say you’re in a college program and one of your colleagues is falling behind tuition. When people come together to contribute some amounts to make up the fees, a crowdfunding action has just occurred.
The same principle applies to real estate crowdfunding. However, rather than the sponsor (the person who ignited the donation precedent) looking for more funds, real estate crowdfunding seeks to find other investors with one common goal – investing in certain real estate forms for a specific timeline. Here, interested parties (investors) can contribute to buy equities, pay debts, and lots more.
While crowdsource real estate investing has been around for some time, a development that changed the dimension of this industry was the Jumpstart Our Business Startups (JOBS) Act signed by Barack Obama in 2012. Before this provision came into existence, sponsors couldn’t advertise their offerings to prospective investors using social media platforms.
However, the JOBS act lifted the restrictions placed on crowdfunding real estate ventures. Thus, anyone could enter crowdfunding deals without any reservations whatsoever. This new law also gave rise to accredited and non-accredited investor classes keying into deals they wouldn’t have had access to in times past.
Now that we’ve given a comprehensive view of real estate crowdfunding, let’s examine the individual forces that make this industry function effectively in every ramification.
Forces Involved in Real Estate Crowdfunding: Taking a Closer Look at the Intricate Aspects Associated
United we stand and divided we fall, they say. That said, real estate crowdfunding can’t function appropriately without one or more of these parts. Notable mentions include:
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Sponsors
Without sponsors at the thick of proceedings, crowdfunding in real estate isn’t possible. These entities are responsible for using their financial resources to draft out deals for investors.
The sponsor is in charge of the whole deal from acquisition, refinancing, and ensuring that it’s stable at all times. Since sponsors are entities, they’ll give prospective investors documents stating the rules and regulations associated with any deal.
Nevertheless, with so many of these entities out there, not all have the stellar record they advertise. Consequently, an investor must do encompassing research on their past activities, reviews from other investors, and their strengths and weaknesses.
When everything checks out, then investing party can now go ahead and enter into a deal with a certain amount of money.
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The Crowdfunding Platform/Site
Before crowdfunding activities for real estate deals began to feature Internet-based websites, middlemen were the “go-to” alternative. Their job, from the description, was simple – connect sponsors with interested investors.
However, online crowdfunding platforms started opening up over a decade ago, thus relegating intermediaries to the background. Now, people could make deals with the “tap of a button.”
While some sites have some deals they’ve acquired mastery on, other sites offer investors the luxury of using a different medium to carry out crowdfunding deals.
Also, instead of being hosted by third parties, most of these platforms operate under the ever-watchful eyes of sponsors. Consequently, this allows for a much smoother transaction as investors and sponsors can communicate without restrictions of any kind.
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Investors
Investors are essential in the crowdfunding process. With the JOBS act coming to the fore, it opened up crowdfunding for non-accredited investors and their accredited counterparts.
However, while it looks as though the JOBS act coming into play gave rise to this development immediately, the US Security Exchange Commission (SEC) only allowed non-accredited investors to take part in crowdfunding in 2015.
From that moment onwards, the rise of passive income for non-accredited investors began as they could invest monies they could afford. For context, some crowdfunding platforms that cater to the needs of non-accredited investors grant investments as low as $10.
Choosing the Best Crowdfunding Deal: Vital Aspects to Consider
Contrary to previous beliefs, getting the best crowdfunding deal doesn’t involve huge sums of money. With these factors considered thoroughly, you can enter the crowdfunding deal of your dreams. They include:
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Risk
There are risks in every investment, and investors don’t want to end on the negative side of events. Consequently, you might want to look towards an eREIT or deals that spread the start-up capital in other promising investment ventures.
Doing this ensures that an investment falling through doesn’t mark the end, as you can still yield profits from others.
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Investment Form
Since real estate investments vary, crowdsourcing platforms depend on their expertise to focus on a particular deal. For example, a platform might offer securities attached to apartment buildings.
However, if you’re unsure what investment form to take, do diligent research and go with a fund that grants you the luxury of dealing with your preferred investment.
Major Takeaway
Real estate crowdfunding has been around for a while now. While 2012 brought about a dramatic tilt that involved advertising funds to the public market, it was only in 2015 when crowdfunding for non-accredited investors was feasible.
With so many platforms available to enter deals, exercising restraint and weighing up your options as a non-accredited investor is vital. By doing diligent research on the sponsor, their services, and their best suit, you can make good profits in almost no time.
