Real estate crowdfunding is an online investment strategy where different investors fund abandoned or distressed properties, acquire distressed mortgages, or fund secured types of mortgages. This form of investment has seen a tremendous rise in the recent past as many investors are looking to find inexpensive ways to become involved in large real estate purchases. In the U.S. alone, the market for real estate crowdfunding is estimated to be worth more than $2.5 billion. And just like any other type of investment, real estate crowdfunding comes with its pros and cons – the following are some of them.
Pros of Real Estate Crowdfunding
Diversification of Opportunities
One amazing thing about real estate crowdfunding is the fact that you stand a chance of getting investment opportunities. How is this possible? If you have a direct or single ownership of a real estate property, chances of you getting investors are limited. A good number of investors are more comfortable with an open type of investment since they can choose between equity and debt investment. With real estate crowdfunding, you get the opportunity to open up your property and attract more potential clients.
Increased Accessibility to Real Estate
A great thing about real estate crowdfunding is the fact that the investment opportunities are unlimited. With as little as $100, some real estate crowdfunding sites are willing to give a chance to invest in different properties such as office buildings, malls or residential homes. In simple terms, you don’t have to be filthy rich to get a piece of your most desired property.
Less Stressful Investment
Unlike other types of investments such as flip-housing, real estate crowdfunding investments give you the investor peace of mind that you deserve. For instance, when flipping houses, you have to do things like source the funds, pay the interest to your lenders, as well as face very high taxes that come with borrowing. Real estate crowdfunding involves long term goals which come with lesser tax rates.
Cons of Real Estate Crowdfunding
The ability of the owner to meet financial obligations at times becomes a challenge. The moment an investor takes up a property and is unable to support it, the likelihood of losing the property due to harsh economic times are high. Furthermore, the investor shoulders the entire loss by him/herself.
A majority of real estate crowdfunding investments are unsecure. What this means is that the moment the crowdfunding company goes down, you run the risk of losing your hard invested money.
High Loan-to-Value Ratio
Real estate crowdfunding investments usually come with a high LTV ratio. As an investor, you should always consider these values before taking any form of debt loans.