April 15, 2021

Crowdfunding Real Estate Investment: What You Need To Know

Written by: HUDSONPOINT Team
Alternative Investment, Private Equity, Real Estate

Real Estate Crowdfunding

Real Estate Crowdfunding is a modern method of investing that is both convenient for businesses trying to raise capital and accessible to investors who want to own a part of the business.

Through crowdfunding, businesses can fund their growth with money they might not have been able to raise. At the same time, interested investors can become shareholders of businesses that may have otherwise been out of reach.

Crowdfunding can also be applied to real estate investing, where it is growing in popularity.


What is crowdfunding in real estate?

In a crowdfunding model, a group of investors pool their money together to have a stake in a much larger investment that might otherwise be inaccessible. This type of crowdfunding is not new. People have always had the option to come together as neighbors, relatives, or friends and fund a common project or investment.

However, you would need to get a whole lot of relatives together to invest on a large-enough scale for lucrative real estate projects. That’s because the Securities Act of 1933 prohibited private companies from soliciting the public for investments. Effectively, this meant that real estate crowdfunding was invite only—you had to know a guy who knew a guy.

Thanks to the Jumpstart Our Business Startups (JOBS) Act of 2012, real estate developers were able to make crowdfunding more accessible to real estate investors.


Benefits of real estate crowdfunding

Until recently, investing in high-end real estate was reserved for those who had substantial connections and capital. Even the smallest real estate crowdfunding opportunities required five to six figures in initial capital.

With the minimum investment bar set so high, the average investor was effectively locked out of the real estate crowdfunding market (even if they were somehow able to find a deal). Similarly, real estate developers had to rely on a very small pool of investors, making it difficult to earn capital.

Crowdfunding changed all that. The following are the benefits of crowdfunding over traditional real estate investing:


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1. Less capital risk

Traditional real estate investments may large amounts of capital, which makes sense because of the small number of investors funding a project. One could opt for real estate investment trusts (REITs) but the lack of control over where their money is invested makes many investors hesitate.

In comparison, crowdfunding pools money from many investors allowing individuals to share the financial burden. Today, as little as $5,000 could get you into the market. Additionally, you have much more control over where your money is invested.


2. Flexible, less costly diversification

Crowdfunding allows you to spread your capital over different properties in your city and around the world, which may reduce risk and increases potential capital gains. You can even diversify your portfolio across a range of currencies to mitigate the risk associated with decline in currency value.

In contrast, traditional real estate investing requires you to have physical access to your business, which is too challenging for most people.


3. Automated sourcing

Crowdfunding real estate investment makes use of technology to not only create awareness among property investors but also to perform transactions. This means that paperwork, compliance, administrative tasks, etc.—everything required in traditional real estate investment—is automated.

In other words, the streamlined investment process that normally takes several months can be completed in an afternoon, on a smartphone, from virtually anywhere in the world.


Drawbacks of real estate crowdfunding

Of course, this isn’t to say that crowdfunding in real estate doesn’t carry its own risks. Every investment comes with risks that need to be properly understood before pulling the trigger. Some of the drawbacks of real estate crowdfunding include:


1. Less control over property

While it is easy to diversify, since you have an option to invest in properties around the world, on-the-ground property management is outside your control.

Some investors might find this convenient as they don’t have to spend more valuable time and resources on day-to-day management. However, other investors may desire more of the control that comes with traditional real estate investments.


2. Similar risks to traditional real estate investing

Real estate investments, and indeed all forms of investments, are never guaranteed to deliver returns. There is always some degree of risk that your investment will either underperform, lose money, or—in the worst-case scenario—go to zero.

Market fluctuations, setbacks in the development of the property, as well as the reliability of the investment sponsor, can all influence the success of your investment.


Is real estate crowdfunding for you?

For the last 20 years, HUDSONPOINT Capital has been a go-to resource for individuals and groups looking for alternative investments.

We advise our clients on where to invest and how to get their foot in the door for institutional-level real estate solutions and other exclusive real estate investment vehicles, including the best real estate investment trusts (REITs), exchange-traded funds (ETFs), and crowdfunding platforms.

Are you interested in crowdfunding real estate investments? Want to find out how these types of opportunities might fit in with your broader portfolio and long-term goals? Give us a call today on our toll free line at +1-888-544-5244 to speak to a representative. Or visit our website to learn more about our services. If you’re interested in adding Real Estate to your portfolio, please schedule a call to learn more about the Real Estate opportunites we have available right now.


Investors are encouraged to review the JOBS Act and information regarding “Crowdfunding” in it’s entirety.  For more information regarding “Crowdfunding” please see em>https://www.sec.gov/spotlight/crowdfunding.shtml

Please note that any investment involves risk including loss of principal. Some risks of investing directly or indirectly in real estate include declining real estate values, changing economic conditions and increasing interest rates.

This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice.

Securities offered through National Securities Corporation Member FINRA/SIPC


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