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New tech give new opportunities - you don't need a bank to invest in property. You can now become an investor utilizing these top real estate crowdfunding sites

New tech give new opportunities - you don't need a bank to invest in property. You can now become an investor utilizing these top real estate crowdfunding sites

Real estate investment has always been a game for the big dogs. With a high barrier-to-entry and a history of backroom deals and greasy palms, many investors would never even think of real estate investment as a viable option. Leave that for the big wigs, right?

Not necessarily.

Like many forms of investing, that stigma is beginning to change in the digital age. The advent of real estate crowdfunding has opened up a whole new world for investors looking to get a foot in the door of large commercial developments, residential projects and more.

Advances in technology continue to transform multiple industries. Every aspect of our world has changed dramatically within a short span of time. Airbnb is bigger than the world’s top five hotel brands combined, but doesn’t own any real estate. Uber is said to be the world’s largest taxi company but doesn't own any vehicles. Leading communication channels such as Skype and WhatsApp no longer need traditional telephone infrastructure.

So what is real estate crowdfunding all about, and how does it work? Read on to find out.

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What Is Real Estate Crowdfunding?

Real estate crowdfunding is when real estate projects are allowed to be partially or wholly funded by individual investors, who have just recently gained the right to invest in these kinds of projects.

Like other forms of crowdfunding, real estate crowdfunding is a new invention. The JOBS act in 2012 helped pave the way for crowdfunding in real estate, but unfortunately for eager investors, there are rules on who can participate.

You have to have a net worth of at least $1 million, not including your primary residence. Don’t have that much in assets? You have to earn at least $200,000. Those high barriers mean real estate crowdfunding is not something the lay investor will have access to – at least not right away.

However, it does give millions more people access to one of the most secretive aspects of investing. It also allows companies to fund their goals without going through the more formal rounds of fundraising.

How Does It Work?

When you invest via a real estate crowdfunding platform, you become a limited partner in the investment - which can vary by project. You really need to look at the project when deciding. Some projects are debt-based, meaning that you are providing a loan that is secured by the property. Some projects are debt-based, but you’re actually investing in a third-party note tied to the performance of the underlying real estate investment.

such as a REIT, which holds a property or multiple properties and you’ll receive cash flow as well as some of the upside in appreciation.

Many companies only require a $5,000 minimum investment in a project, so the barrier to entry is relatively low. The companies also charge fees of up to 3%, which may be a shock for those used to investing in low-cost mutual funds and ETFs. You may not see these fees directly, since they are typically paid out of the return prior to paying you.

How Do You Make Money?

Making money in real estate crowdfunding, like any type of investment, requires doing a lot of research. $5,000 may not be much for some people, but the smaller investors who will benefit the most from real estate crowdfunding need to contribute carefully.

Just like any type of investment, you can make money in two ways:

  1. Appreciation of the asset (typically the property you’re investing in)
  2. Income from the asset (such as rents received)

Every investment varies – some guarantee a minimum return, some don’t. You really need to read the fine print before investing.

It also helps to only invest money that you can afford to lose. This is partly why only accredited investors are currently allowed to participate in real estate crowdfunding. Some companies let investors put as little as $5,000 into a project. If you’re not completely sure about a firm’s prospects but still want to invest, investing a small amount may be the best option.

What Companies Are Involved?

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  • Realtyshares – Realtyshares offers investors a variety of properties to choose from, including residential, mixed-use, commercial and retail. They don’t charge their investors fees, instead placing that burden on the property holders. Investors can start seeing a return just a few weeks after the project is funded. We are partners with Realtyshares, and they’re giving College Investor a $100 bonus when you make your first investment using promo code Partner100. Check out our RealtyShares review here.
  • Fundrise – One of the most popular real estate crowdfunding sites, Fundrise has a minimum investment of $1,000 and charges between 0-3% in fees. The site is ruthless about which projects it accepts – only about 5% of proposals are chosen. Fundrise is another one of our favorite sites simply because of the range of investment properties they have to choose from, but also because you don’t have to be an accredited investor to invest – they are one of the only platforms that allows this currently. Check out our Fundrise review here.
  • Realty Mogul – Investors who use Realty Mogul have the flexibility to put as little as $5,000 down, but can also participate in large-scale projects – such as the Hard Rock Hotel in Palm Springs. People can fund real estate loans or buy an equity share in a property.
  • RoofStock – RoofStock is a company that allows investors to purchase single family rentals that are already occupied. Beyond having a great marketplace, they offer a lot of add-on services like management that makes investing in single family rentals extremely easy. Check out our full Roofstock review here.
  • PeerStreet – PeerStreet has become the most “famous’ real estate peer to peer lender, with the endorsement of several major finance personalities. They use a data-driven approach and focus exclusively on debt financing. PeerStreet also currently has the lowest investment minimum at just $1,000. Check out our full PeerStreet review here.

Transformative Tech Ushers In A New Landscape

Possibly the most exciting aspect of the fintech revolution is how it is changing customer behavior and increasing expectations at breakneck speed. But there is an increasing realization that this speed of change will never be this slow again.

However, tech disruption is nothing new, and many forget that we have been here many times before. In a relatively short time, technology replaced typewriters, fax machines and floppy disks in offices all over the world. Transformative technologies will continue to lower costs, increase operational efficiency and ensure that every industry continues to evolve in the name of progress.

Sitting at the same desk every day of the week is unproductive in an age where collaboration and flexible working are considered the norm. Equally, landlords cannot expect to lock business tenants — who are increasingly looking for flexibility to expand as they grow — into long-term leases.

As fintech and real estate continue to evolve, we can expect the connections between buyers, renters, landlords and property owners to be transformed by blockchain, digital media and technology. More and more creative, alternative models and solutions will continue to appear and force incumbents to adapt to the changing real estate landscape. Who will the big winners be? The answer is a new generation of consumers from all walks of life who will have opportunities to participate in the real estate industry for the first time. Don’t get left behind.

Embracing The Shared Economy

<>With this new wave of real estate startups, innovators are paving the way for online investing and technology to empower investors from all backgrounds to build their own portfolios quickly and at lower costs than ever before. Welcome to the shared economy. Contrary to popular opinion, technology is not creating a divide; it’s actually bringing people together and providing opportunities to those who dare to think differently.
Traditional real estate assets come in many forms, including land, residential homes and various commercial building types. But rather than having a single owner or landlord, new tech-based solutions are ushering in a new era of shared or fractional ownership.

By embracing fintech, real estate crowdfunding companies have democratized real estate investment by enabling more less-experienced investors to participate. The good news is that it has never been easier to invest in real estate and build a portfolio with lower capital requirements. The bad news is that the lower barrier to entry has allowed technology companies to enter the industry without a real estate background. It is critical for investors to perform as much due diligence on the platform they are investing with as the assets they are investing in.

Final thoughts on P2P real estate investing

If you’re an accredited investor and are looking to get into real estate, P2P real estate investing is something that you should consider. It’s very easy to get started – but just like traditional real estate investing, it is higher risk for higher reward.

If you’re willing to accept that higher risk, check out these platforms.

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