Pooling investor capital with through crowdfunding allows for “group buying” in shares of real assets and real property, including residential and commercial real estate. Apartments, office complexes and retail buildings all represent interesting opportunities for investors looking to receive above market returns on invested capital. Instead of purchasing entire buildings and properties, directly dealing with tenant issues, investing in shares of real property means investors receive a return on their capital without being involved in the regular management or day-to-day operations of the property.
Transparency & Control
Investing in commercial and residential properties through crowdfunding allows for some key advantages over a typical REIT (Real Estate Investment Trust). First, both private and public REIT investors are limited in the information they receive about specific properties held in the REIT. In addition, REITs typically limit investors to properties held in a basket portfolio that of properties located in various areas throughout the country. REITs are also focused on large, commercial deals and therefore rarely invest in smaller (and sometimes more ROI positive deals) retail or multi-family buildings with less than 50 units. Finally, REITs don’t allow for investing in local properties in your own region, which effectively further separates the investor from his/her investment.
In the case of crowdfunding for real estate, investors typically own shares in a structured entity (such as an LLC or C-Corp). The entity becomes the sole investor in the deal with all the individual investors infusing capital to help perform the equity financing. Structuring the deal with an entity helps protect investors from liability and helps to streamline distributions and reporting from the property.
Distributions & Liquidity
True to form, most real estate investments include shareholder distributions and capital payouts according to the returns of the individual property or portfolio of properties. Distributions are entirely dependent on characteristics of the property, including stage of development. Because some investment opportunities include needed funding for real estate development, the distributions may not occur for several years. Other opportunities may focus directly on income-producing properties with historical and expected regular cash flows. Such investments can begin returning distributions as early as one month following the consummation of a deal. How one invests is entirely dependent on investor preference, including desired return coupled with the expected risk profile.
Real estate crowdfunding offers a number of key benefits over its counterparts in private business equity. First, real estate provides a tool for investor diversification in different asset classes. Second, crowdfunding real estate transactions typically have a much quicker timeline for receipt of returns and expected liquidity from distributions. Third, real estate represents a physical asset that often holds more value than other equity-based deals, meaning there is something that can be liquidated in the event a deal goes south.
Using crowdfunding for transactions also helps to boost the power of your investment network, giving other local, regional and national investors the ability to bring capital into a compelling deal. At Crowdfundraiser, we actually expect the real estate industry to see the most rapid uptick among equity-based investment options in crowdfunding.
Potential investors are invited to get in touch with us directly.