When you think of crowdfunding, you probably think of that one friend who was in a band and asked you to support their newest album by donating to their Kickstarter. But when we talk about real estate crowdfunding, we are talking about a whole other ball game. Real estate crowdfunding is an opportunity for individuals to participate in projects that were previously only available to institutional investors. These investments can be bought into for as little as $5,000 and with an average of $10,000, in one years time, you can expect to see anywhere from $700 to $1,200. And within three to five years of investing, you can expect to see returns of $5,000 to $15,000. One of the great benefits of this kind of investing, is that you can choose which projects that you specifically want to invest in and you have the ability to diversify your investments due to the low buy in.
There are two major kinds of real estate crowdfunding –
Equity Crowdfunding
Equity crowdfunding is the original real estate crowdfunding and is probably the most popular and most profitable kind of crowdfunding. It gives you the ability to invest passively, choose your investments personally, and to diversify your portfolio quickly. One of the great benefits of this kind of crowdfunding is the very low barrier to entry. You can normally start investing with as little as $5,000 and you are able to reap the great benefits of commercial real estate returns. Equity crowdfunding also give you the ability to tap into uncapped gains and there is a low degree of correlation to the public market. A few things to think about when looking at equity crowdfunding, is to recognize that while the investment may be low, there is little to no opportunity for liquidity until the maturity of the investment which is normally at least 5 years.
Syndicated Debt Crowdfunding
Debt syndication is a rapidly growing concept as it allows someone take an existing real-estate loan, secured by a deed, and syndicate it out to individual investors at a fixed rate of return, usually between 8% and 12%. These loans are usually taken out by private, non bank lenders, which means that they will have higher interest rates because the loans are short term and pay out much faster than traditional loans. They are less risky than equity investment because they payout way quicker and they are secured by an underlying property. And the short time frame that they fall into means that investors can turn around and invest more capital, more often. The only real downfall to these kinds of investments are that you are locked into what you are capable of earning. So no matter how well the investment does, you only earn a certain percentage and you aren’t able to increase the earnings.
Here at Magnolia Design Properties, we love educating people and giving them options when it comes to real estate investment. We are not currently involved in a real estate crowdfunding project, but we would love to chat with you if you are interested in real estate investing. No matter what your experience, or what kind of investing you are interested in, fill out our contact form for more information and investment opportunities.
