Everything You Need to Know About Real Estate Crowdfunding

Crowdfunding is a relatively new concept in the real estate industry; however, crowdfunding defined as new is only true to the degree that it is now open for the average person. Everything real estate begins with the desire of individuals to invest in properties without personal liability for the entire speculation. Before the Jumpstart Our Business Startup Act of 2012, businesses could not directly solicit investors to participate in funding real estate deals because of the restrictions of the Securities and Exchange Commission (SEC).  Now, because borrowers, especially flippers, need investors for real estate deals, the practice of marketing directly to the public is more prevalent, and investors find that they can profit well in crowd funded loans. Borrowers need private investors to accomplish their goals of property development.

Steps to investing in real estate may involve a private real estate investor, crowdfunding accredited investors, crowdfunding non accredited investors, crowd investors, or a bank loan for real estate investment. Securing good real estate deals requires real estate know how, and accredited investor crowdfunding is one way of putting together borrowers with investors. The importance of real estate investment to the person looking to get into the business hinges on understanding real estate investing terminology and the risk factors that are involved. The Capital Stack definition can be thought of as a pyramid describing total invested funds and how they trickle down from high to low risk investments. While this model is often found in commercial investments, it would behoove any investor to understand how it works.

Accessibility 

It is now possible for small investors to get in on a piece of the pie for a relatively small outlay. Investments, as small as $1,000, can easily be obtained with a few strokes of the computer keyboard. Regardless of whether the stakeholders are on the investment end of the transaction or the borrowing end, all parties should be aware of any pitfalls that might occur. The ability to scan pre-screened properties makes it a lot easier to get into this type of private funding for real estate investors. Actually, real estate private funding is competing strongly with traditional lenders for real estate investment deals.

The burgeoning real estate market is a hot bed of activity. Social media has been a major player in this new entrepreneurial effort, and traditional methods of real estate investing are competing with more “mom and pop” type of investors. While there are pros and cons in the industry, an astute investor will look at the odds and do his due diligence in determining well-capitalized companies with a good track record who are likely to have staying power.

Diversification 

Equity investments and debt investments are the two core types of products from which to choose. Equity investments involve purchasing an equity share in a property that generates rental income, and the investor receives a share of the rental proceeds. Debt investments are more associated with mortgage loans where the investor shares in the interest as the loan is repaid.

An investor’s holdings depend on how the investments are structured, so it is imperative that potential investors research the performances of the different proposals before making a commitment. Considerations to bear in mind beforehand include the length of time they will be locked into the deal, whether the deal has been thoroughly vetted, and the potential risk involved. The same regard should be taken whether they participate in debt or equity investments. Investors should understand the meaning of crowdfunding and whether the deal is for long term real estate or whether they can expect an immediate return. The crowdfunding process should be undertaken with the same diligence as investing in any other speculative venture.

Transparency 

Crowd funding platforms give today’s investors access to more information about the investment’s progress, and they can acquire frequent updates. Vetting properties beforehand allows investors to have enough information to make informed decisions about any property before they invest, and they can keep track of their interests to see how well they are performing. Investors should look for companies that admit it if there are risks and do not offer a “pie in the sky” approach.

Understanding return on investment is critical. Novices should seek out an investment advisor and be especially vigilant about his knowledge of what is transpiring. Veteran investors have people in place to help them decide if an investment is worthwhile. Just because it is easier to invest in this way does not mean that anyone should take the plunge. Stakeholders should take all aspects of the investment into consideration, and if there is anything that is confusing or uncomfortable, they should bow out. There are always other platforms to research and possibly invest.

Conclusion

With today’s large group of investors, more deals can be offered to a greater portion of the population. Tax benefits that generally would only apply to outright ownership can be appealing to an investor. As an accredited investor, the shareholder should consider how to begin real estate investing, and seek answers to questions, such as, “What is real estate and what does it mean to invest in real estate?” What to know about real estate and understanding private real estate are important concepts to grasp. What you need to know about real estate is that you need to be as careful as you are with any other investment.

What is it about real estate that is so alluring? For one thing, it is usually a hedge against inflation, and that alone, makes it a valuable asset in the investor’s portfolio. Investors can search out sites where connected investors review the various offerings and make informed decisions about their investment choices.

A real estate company meaning usually relates to all aspects of a transaction being under one roof, but it does not really fit the profile of crowd funding. A typical real estate company, such as Act One Realty, performs duties of helping clients buy or sell property, but crowd funding strictly pertains to investments. Generally, experience, timing, and knowledge provide all you need to know about real estate.