How to make money from Property crowdfunding
Property crowdfunding also known as real estate crowdfunding is a way to raising money for real estate investment by reaching out to a pool of investors to contribute a small amount of money towards a project. In simple terms, if 4 friends plan to buy a single property you can call that crowdfunding. In this article, we will break down how Property crowdfunding works? How to make money from Property crowdfunding? Pros and cons of property crowdfunding.
How does real estate crowdfunding work?
The crowdfunding platforms identify different properties such as a single house, a selection of flats in a block, or an entire block. Investment is raised by the pool of investors until the purchase is 100% funded. Now the crowdfunding platform forms a company to buy that property with the investment pooled by the investors. Investors are given shares in the company proportional to the amount they contributed. The crowdfunding platform manages the property, finds the tenants, and collects the rent. Investors receive rental income as a dividend in the proportion to the amount they invested
Should you bother once you have invested in real estate crowdfunding?
No, you don't need to bother as the crowdfunding platform will take care of everything. The crowdfunding platform will hire a managing agent who takes care of everything and they will take a fee for that. Though you will be paying fees to the crowdfunding platform now you don't need to manage everything by yourself.
How to make money from Property crowdfunding?
You can make money from your property crowdfunding in two ways. You can enjoy monthly profit in the form of a rental though it might be paid out quarterly or annually it depends on the platform. You can also enjoy capital gain it means you can capital gain once the property is sold.
Can you exit your property crowdfunding investment?
Yes, you can exit your investment with just a few clicks but that doesn't mean that you can sell your shares instantly. The process of exiting the investment differs on different crowdfunding platforms. Well known Property Partner crowdfunding platform gives you the option to exit five years after the initial purchase was made, they do have a secondary market where you can offer your share to other investors. Here you can set your own price with a discount if you are in a hurry to sell.
Who should invest in property crowdfunding?
Crowdfunding is right for real estate investors who want a passive income from projects that they would not access or could not afford on their own. It is one of the best options for those who want to increase their debt exposure. Investment in property crowdfunding can be great for those who are looking for an alternative to investment in the stock market since this option allows them to own property that would be otherwise unattainable.
Minimum investment in real estate crowdfunding?
The best part about property crowdfunding is that you don't need a huge amount of money. You can invest in property with far less money than you’d need to buy a buy-to-let property on your own. The minimum investment criteria may be differ on different crowdfunding platforms, the minimum investment can be as low as £100 or it can be less than £1,000.
Real estate crowdfunding Pros and Cons
- You don't need a high amount of investment
- The buying process is very easy and smooth
- Selling your investment or exit from investment is easy.
- Crowdfunding has the benefit of transactions transparency as members know exactly where their funds will be invested
- It provides you an opportunity to diversify your investment to various asset classes and countries
- You don't need to worry about tenants, repairs, rent collection, and other things as they will be taken care of by the crowdfunding platforms
- The value of the property might fall
- There might be lots of repairs that increase the expenses
- You usually don’t have total control over whether the property gets kept or sold
- You don’t have any control over the management of the property
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