Pros and Cons of property crowdfunding
The Digital era has made Property crowdfunding so much easier. It is so much better than the traditional methods of raising money. Nowadays crowdfunding platforms use social media platforms such as Facebook or Twitter to market their ventures directly to wider audiences of interested investors.
Though Property crowdfunding process has become much easier but the pros and cons associated with Property crowdfunding are very much the same. In this article, we will break down the pros and cons of property crowdfunding. Before we get started let us understand what is property crowdfunding?
What is 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.
It is a type of equity investment, as you own a share of the equity. People can invest their money directly into one or more properties, which are managed by the platform.
Now as you understand what Property crowdfunding let us dive into the detailed pros and cons of property crowdfunding.
Main Advantages of property crowdfunding
Small Investment Size
We all know that how much money is typically required with a traditional real estate investment but crowdfunding provides you with the opportunity to become a real estate investor because of the small investment size requirements.
Now you don't need tens or hundreds of thousands of pounds that would more typically be required to purchase a property to invest in real estate. Some crowdfunding platforms allow potential investors to make an investment of as little as £100 pounds to £1000 pounds.
Anyone Can Invest
As long as you have the minimum investment money in your bank account you can invest in the property crowdfunding. As now you don't need to bother about mortgage funding as the investment amount is low and will not burden your pockets.
Source of Passive Income
You can earn passive income on the amount invested by you. 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.
Benefits of geographic diversifications
With the help of crowdfunding platforms now you can take the benefit of geographic diversification. Now you can invest your money in the property as per your preferred location. You can research the location where you believe that can fetch the best ROI (Return on Investment).
You don't need to be Experienced
Property crowdfunding platforms are so easy that a non-experienced person can easily invest in a property. These platforms take care of the property management on your behalf. You need to invest money and just need to monitor how well your investment is performing.
Investment process is fast
SPV buys the property once the investment amount is reached. The process is relatively much faster than you searching for a suitable property, going through the conveyancing process, and installing a tenant.
You can sell your investment easily
Yes, you can sell your investment easily though it can be a time-consuming process. It may take some time to find a new investor willing to buy your share but it’s a lot less hassle, with no estate agents to deal with.
By diversifying your portfolio, you are essentially minimizing the risk that comes with making a singular investment by spreading that risk across numerous investments. If one of your investments happens to fail, your investment portfolio will be spread across numerous investments.
Main Disadvantages of property crowdfunding
Investment Outcome can be fluctuating
There are chances that your investment may return lower than you have expected. Tenants might not pay the rent or might end up empty for an extended period. There is also a chance that property could require extensive work.
Platform fees can reduce returns
Using crowdfunding platforms may reduce returns due to various fees associated with it. In most cases, you need to pay Asset management fees, Account fees, transaction fees and VAT.
This type of investment is considered to be an illiquid investment and it is often referred to as one of the main disadvantages of investing with crowdfunding. At the time of emergency, it is very difficult to be sold for cash as it requires a considerable amount of time to sell the investment.
Lack of Control
Another main disadvantage of real estate crowdfunding is that you don't have control over your investments. The platform or its management company runs the property. If you’re not happy with the way your investment is panning out, there isn’t much you can do other than sell your share.
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