Crowdfunded real estate investing is quickly gaining momentum as an innovative new approach to investing in real estate. Crowdfunding is a form of real estate investing where investors crowdsource funds for projects that require significant financial investment by the Owner(s) but are not supported by private or public financial support. This is a risky strategy for any real estate investor, because the projects typically require a significant amount of money upfront to fund the projects from start to finish. Additionally, there is no guarantee that the projects will generate profits or be successful, so the investor may lose money on both ends. To crowdfund real estate investing, there are a few important tips to keep in mind:
Short Term Strategy. Crowdfunded real estate investing requires new investors to take a short term view of the project. Many of the projects that are crowdfunded are started as real estate speculators who plan on holding their interest in the property for a set period of time, usually one year to two years. There are also some real estate investors who crowdfund projects that they intend to sell to new investors once the project has reached a certain level of success. Therefore, new investors should consider whether their interest in the project is long term or short term.
Private Equity. Private, commercial real estate investors have typically relied upon private reits to fund their projects. In some cases, private reits have provided seed money for the projects; however, they still retain a minority stake in the business. Crowdfunding eliminates the need for private reits and allows new investors to obtain a large percentage of the equity in a business by crowdsourcing.