Crowdfunding makes real estate investing easier and more accessible
With all the recent talk of new SEC regulations and intrastate crowdfunding bills, it’s easy to sometimes lose track of the basics. Real estate crowdfunding has become a billion dollar industry in only a few short years, and there’s a reason for it. Crowdfunding enables investors to access the real estate market while mitigating some of the inherent risks found in all investments. While not perfect for everyone, real estate crowdfunding offers many attractive features. Here are 7 reasons you should consider real estate crowdfunding:
- Portfolio diversification. One of the first things most investors hear is that they need to diversify their portfolio. As we’ve discussed, real estate crowdfunding allows investors to diversify their portfolio by investing in the real estate market. While the stock market has been on an upswing in recent years, there’s no guarantee that will continue forever, and real estate offers investors a chance to hedge their bets. Private real estate returns generally don’t move in tandem with the equities market, and aren’t as sensitive to short-term market volatility. No investor can consistently predict market crashes, but portfolio diversification can help you weather the falls better.
- Low minimum investments. Historically, investing in real estate has been a practice only available to the wealthy elite. Buying an investment property usually required large sums of cash, often up to six figures. Given that the average 401k balance is only $100,000, that’s left a lot of people out in the cold. Real estate crowdfunding addresses this issue. Many platforms, including PeerRealty, allow investors to participate in deals for as little as $5,000. This lets investors enjoy the benefits of real estate investing while limiting downside risk.
- Geographic diversification. All real estate isn’t the same, and all real estate markets aren’t the same either. Real estate crowdfunding gives investors the opportunity to vary their risk profile by investing in more markets than they otherwise would be able to. Want to invest $100,000 in 10 different markets across the country? Real estate crowdfunding lets you do that. Alternately, an investor who feels strongly about a particular market can focus on that market, even if they live halfway across the country. Real estate crowdfunding expands the horizons of real estate investors.
- Wide variety of deals. Real estate crowdfunding platforms offer different types of deals, giving investors the opportunity to assume only the amount of risk that they’re comfortable with. Investors can choose between lower-risk, lower reward debt offerings or higher upside, higher-risk equity deals. Interested in stabilized retail properties or new development projects? The odds are that you’ll find something you’re interested in on a real estate crowdfunding platform.
- Asset transparency. Real estate crowdfunding offerings are often compared to REITs, but there are several key distinctions between the two investments. Besides the greater diversification benefits that we’ve previously discussed, crowdfunding allows for much greater transparency and control over asset selection and location. If you invest in a REIT, you may know the general types of assets that the REIT invests in, but you won’t know anything about the specific properties. With real estate crowdfunding, you can select the markets and properties that you’re comfortable investing in. You’ll also receive periodic updates on the property, something you won’t get with a REIT.
- No property management hassles. Let’s face it, being a landlord isn’t much fun. Landlords are responsible for selecting tenants, property upkeep and repairs, and occasionally having to evict problem tenants. Unless you’re a real estate professional, you probably don’t want to spend your time doing all of that. Real estate crowdfunding allows you to invest in real estate while leaving property management to the deal sponsors.
- Investing in your community. We’d be remiss if we didn’t mention this last factor. Real estate crowdfunding has truly democratized investing. Investors now have the ability to help strengthen their own communities by investing in their own backyard. Crowdfunding can help connect local residents, community organizations and other stakeholders by allowing them to directly invest in local real estate. This feature offers great potential in the years to come.
As you can see, real estate crowdfunding offers a lot of benefits to many different groups of investors. It’s projected to become a $2.5 billion industry worldwide in 2015, and as regulations on the industry are lifted that figure will only rise. Obviously, all investors should carefully consider their own investment profiles, but people interested in real estate investment opportunities may find that real estate crowdfunding is right for them.