The Rising Popularity of Real Estate Crowdfunding
Crowdfunding is the latest buzz in the US real estate market that has allowed thousands of small private investors to own large residential and commercial real estate projects. With a minimum investment of around $5,000 in cash, crowdfunding has opened the door for small investors to purchase shares in various lucrative real estate ventures.
“Being able to put your money in different real estate projects is a great way to reduce risk”, says a real estate expert, “People can gain optimum returns from their investment by buying shares in real estate through crowdfunding.”
Unlike REIT (real-estate investment trusts), crowdfunding allows people to invest in properties that are not limited by geography or size. When these properties start to earn rental income, investors get a major slice of the revenue. They would also share in any profit when the properties are sold to other investors.
According to the president of National Real Estate Investors Association (NRIA) in Cincinnati, there is great demand for crowdfunding from both entrepreneurs and the public who want to gain access to capital, and invest in profitable real estate ventures.
Clearly, crowdfunding is a lucrative option for investors through which they can buy stakes in just about everything from luxury hotels, to premium condominiums and mega shopping malls. Before last year, most small investors could not think about investing in commercial properties. It was an avenue open to only the mega rich.
The scenario is changing, however, and small investors are finding themselves as part owners of mega real estate projects like mobile-home parks, shopping malls, and apartment buildings all over the US. The recent surge in crowdfunding has been spurred largely due to financial regulatory changes that have made it easier for construction enterprises to obtain financing for their projects.
Not only is the income stream attractive but also the risk attached to these investments is next to none. The returns from these investments could reach as high as 14% to 15% that includes price appreciation and quarterly payments.
Right now, crowdfunding is limited to accredited investors with an annual income of $200,000 a net worth (excluding a primary residence) above $1 million. However, SEC is working on opening crowdfunding to the middle class public as well.
Experts, however, caution that real estate crowdfunding is a relatively new phenomenon and investors should do plenty of research before committing their investment in the latest real estate investment vehicle.
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