What is Real Estate Crowdfunding?

May 4, 2018
Posted in Insights
May 4, 2018 DCT Capital Fund

Traditional methods of real estate investment can lead people to believe that owning a property for rental and flipping a home for profit are the only ways to get into the market.

But the landscape of real estate investments is continuously evolving; one of the ways this is happening is through crowdfunding platforms. These websites are a low-risk point of entry to participate in the market.

Crowdfunding platforms offer investors a way to look at investment opportunities in online forums, where a larger number of small-time investors supports a project or startup.

The environment for these kinds of investment opportunities is fast paced and can be quite lucrative, but it is by no means a get rich quick scheme. Here are a few things to consider before making the dive into this investment opportunity:

Minimal Involvement on Your Part

Opting into a crowdfunded setting means that you defer to the expertise of those who run the campaigns you invest in.

More specifically, the team or individual behind the project is going to do the bulk of the work on behalf of you and other investors. If you are the kind of person who likes to be hands-on with every investment, this may not sit well with you.

If you are comfortable with letting others have control, this becomes a low effort, low-cost method of expanding your portfolio.

Be Prepared to be Vetted

There is a common standard among real estate crowdfunding platforms to require proof of income of $200,000 per year or liquid assets totaling $1 million at the minimum.

However, if you don’t meet these qualifications or are looking to start with a smaller investment, you still have options. Platforms like Realty Mogul and Fundrise offer more accessible investment opportunities, to begin with. 

Get Ready to Wait

Equity projects typically have a commitment period of 3 to 5 years. This means that there will be a significant period of time before you see any return on your investment.

However, there are other investments that offer a more immediate payoff. Debt investments tend to be an excellent go-to choice for those looking for quicker returns.

Regardless of your preference, it will always be important to keep your crowdfund portfolio diversified, just like any traditional method of investment.

You Need to Do Your Homework

While quite lucrative, real estate crowdfunding is still relatively new to the market and it’s your responsibility — like with any investment — to do your research before getting involved.

Knowing who you are investing in, how your money will be used, what the expected time frame is for the investment, and the policy of the crowdfunding platform are all details you need to be aware off before you opt in to invest.

Above all else, you will need to do some level of risk assessment and take care to avoid campaigns that seem too good to be true. With all that in mind, you should be ready to set foot into your next real estate venture.