Funding real estate investments isn’t as straight forward as some other business ventures. Equity crowdfunding for real estate investors is just one of a few different options.
Equity Crowdfunding for Real Estate Investors Can Banish Nightmares
Real Estate investing can be scary. There are so many unknowns. All investments are risky, but being stuck with property that does not generate profit is a nightmare all on its own. There are many things to consider in a real estate endeavor. Some of them you may have thought about.
For instance, do you want to invest in residential or commercial property? Others may not have crossed your mind. Equity crowdfunding for real estate investors is probably not running through your brain regularly. You can sleep peacefully and avoid the nightmares just by accessing a little information. Knowing what you are getting into and what your options are can work wonders for your peace of mind.
Stretch Your Mind
One thing that can help you get a good night’s sleep is doing stretches before bed. Stretching relaxes the muscles. It also helps avoid the twitching that can come with restless leg syndrome. Another benefit of stretching is that is prepares your mind and body to wind down.
When you begin to think about real estate investing, before equity crowdfunding for real estate investors can even be an option, you will need to stretch your mind to consider all the possibilities.
Residential Real Estate
There are two types of residential real estate investments. You can invest in property to re-sell for a profit, or you can invest in rental property.
Property for resale typically refers to house flipping, which is tricky. You have to find a home in a location that will sell. There has to be a balance between the work that needs doing and the resale price. A lot of things have to fall into place. Despite all of this, many people make a successful living flipping houses.
Investing in rental properties includes single family homes, apartment buildings, or duplexes. Improvements may be necessary depending on the situation. It is important to be sure any improvements actually add value however. There is a break-even point where you will not be able to get the cost of improvements back through rental income.
Commercial Real Estate
There are a couple of sides to this. There are commercial real estate investors that purchase property for commercial use. These are the people building shopping centers, strip malls, and buildings for businesses. Most often they are companies rather than individuals.
The companies still need funding for their real estate endeavors. Thanks to the JOBS Act of 2012, they have a new way of getting that funding. It not only helps them, but it also lets individuals enjoy the benefits of commercial real estate investing. That does not sound like much, but previous to this it was very difficult for individuals to break into commercial real estate investing due to the high cost.
What is this awesome new dream come true you ask? That would be equity crowdfunding for real estate investors.
Location, Location, Location
You are going to sleep better in a place that is meant for sleeping. Moreover, you are going to sleep better in your own place meant for sleeping. The best sleep comes in your own bedroom and you own bed. However, if your options are a hotel room and your car, the hotel is going to be the next best option, because its purpose is sleep. Location matters when sleeping, and it matters in real estate investment.
You have to consider the location of the property when making your investment decision. Flipping a house that is in an area no one is buying in is not a good idea. Even the most amazing house in the world won’t sell if it is in a high crime area, flood plain, or other unfortunate place. Even if it does sell, the price will likely have to be so low you incur a loss.
The same is true of rental property and commercial property. An apartment building in a college town or metropolis is a no brainer. An apartment building in a town of less than 2,000 may bear more thought. It could work, but there are many things to consider.
With commercial property, you have to think about whether the economy of the area will support the new business level.
Consistency
Any sleep expert will tell you than a consistent bedtime routine is important, regardless of age. The same is true when it comes to real estate investment. You need to find your niche and stick to it. If you are going to flip houses, flip houses. If you are going to be a landlord, do that. Commercial property investment your thing? Stick with it.
It is almost always impossible to do everything. It is impossible to do everything well. Pick one area of real estate investment and stick to it. Don’t stretch yourself too thin among different types of investment properties.
Ingredients Matter
There are some ingredients in the things we eat and drink that can cause problems with sleep. Choosing food that is good for you is necessary for keeping nightmares away. The same is true for real estate investing. You get out of it what you put into it, and where you get your funding can make a difference.
What are your funding options? You can self-fund, which isn’t an option for most. In the past, the only other option was financing. There are plenty of real estate lending products available from various sources.
Thanks to the JOBS ACT of 2012 however, there is now a new ingredient on the list. That is equity crowdfunding for real estate investors.
How Does Equity Crowdfunding for Real Estate Investors Work?
What is equity crowdfunding? How does equity crowdfunding work? To understand how this funding option works, you need to understand how crowdfunding itself works. With the JOBS Act of 2012, small businesses gained relief from a lot of requirements in place by the SEC. These requirements held many businesses back.
The Act allows for open investing options that do not require investors to register with the SEC. This applies as long as they meet certain guidelines. Thus, crowdfunding platforms are born.
For entrepreneurs looking to “kick start” their business idea, you now see sites such as Kickstarter and Indiegogo. These sites allow individuals to post a business idea and accept investments as low as $5 and as high as, well, the sky’s the limit.
In return, investors receive some sort of reward. It may be a some of the profits, a free product, or any number of things. It is often a reflection of the level of investment. Today there are tons of crowdfunding platforms all over the internet.
Real Estate Equity Crowdfunding
Real estate crowdfunding is similar to crowdfunding for small businesses, but it isn’t exactly the same. Most of those that list on real estate crowdfunding sites are commercial real estate businesses. They are seeking funding for their endeavors.
Regular Joe’s can invest in a commercial real estate portfolio. This is similar to investing in a stock market portfolio. Then they can enjoy the returns without actually buying an entire piece of commercial property.
In this way, commercial real estate investors can raise equity and avoid a loan. At the same time, individuals can enjoy the benefits of commercial real estate investing for as little as $500.
Top Equity Crowdfunding Sites for Real Estate Investing
There are many equity crowdfunding platforms for real estate investors. These are just a few. It will take some research to figure out which one will work best. When deciding, be sure to take into account ease of use and the lowest possible investment level, among other things.
Crowdstreet
The options and training with Crowdstreet are what make it top of the line. You can choose from portfolio or direct investing. It is also easy to make decisions with confidence because they offer a lot of training material for investors.
The lowest investment for portfolios is $25,000, but the minimum for direct investing varies.
RealCrowd
The best part about RealCrowd is that you can browse offerings before you sign up. The information includes minimum investment and average returns. This allows for a lot of the decision making to happen before you even log in.
Fundrise
Fundrise is a great starter site for those that want to break into the world of equity crowdfunding for real estate investors. The number one advantage of this site is that the minimum investment is $500. They also have lower fees than many other sites.
There are a lot more sites that have a wide range of options and advantages. It would definitely be worth it to take some time to look at them and figure which one will work best for you. This is true whether you are a company seeking funds or an individual looking to invest.
Note: We work to keep the information on our reviews up to date, but be sure to check the details yourself since changes can happen without warning.
Benefits of Equity Crowdfunding for Real Estate Investors
On the property owner’s side, there are many benefits. The top one is the ability to raise funds without debt. This is the same reason crowdfunding is a popular way to fund a small business startup. It isn’t free money. There are fees and profit sharing involved. It is often substantially cheaper than borrowing the funds, however.
For individuals, this is a great alternative to stock market investing. The returns are generally larger and more consistent. The minimum investment can be very manageable. Those sites that have a higher minimum investment are options for investors looking to cash out current investments or retirement funds. They can try out a new option.
A Word about the JOBS Act
This plays such a huge role in the equity crowdfunding for real estate investors topic that it bears mentioning the background briefly. The official title is “Jumpstart Our Businesses Act of 2012.” By design, it relieves small businesses of many of the stringent requirements put forth by the SEC.
President Obama is the one who put his signature on it back on April 5, 2012. It releases some restrictions on raising capital, including allowing small businesses to go public with less than $1,000,000 in annual revenue. It also increases the validity of crowdfunding for both startup and real estate investing.
Other Ways to Avoid a Real Estate Investment Nightmare
Play by the Rules: Know the Equity Crowdfunding Rules
Always be honest. Because lying and cheating will keep anyone up at night. So much of real estate investing depends on referrals. You will not get referrals if you are do not practice integrity in your business.
If you are a landlord, be a good one. If you build commercial property, don’t cut corners. The same thing applies if you are flipping houses. Do not accept bad work to save money. Make sure your contractors do the best work they can so that buyers, investors, and renters get what they pay for.
Stay Informed
Nothing can keep a person awake at night like not knowing what you don’t know. While ignorance is bliss, the thought of the unknown can be terrifying. Educate yourself continually on real estate market trends, housing trends, and more.
Know the Market
Speaking of the market, you need to know it inside and out at all times. You should be intimate with it. In fact, if reading puts you to sleep, you can make reading about your corner of the market at the top of your reading list each night.
Sleep Tight, and Don’t Let the Bedbugs Bite
Crowdfund real estate investing has opened up a whole new world for many. The average Joe can now earn a nice passive income. Real estate investors have an alternative funding option, and it is often more manageable than financing.
If there is a gap, there are plenty of business credit funding options still available as well. Many lenders offer real estate investment loan products with credit score requirements as low as 600. Interest rates vary, and due to the nature of the industry, terms are typically 13 months to two years.
If you are looking for financing to supplement your equity crowdfunding for real estate investors options, be sure to shop around, the same as you would shop around for a crowdfunding site. Do your research so you can choose the best option or combination of options for your needs.
