Investors are always looking for new ways to raise capital for real estate projects. So it is no surprise that more and more of them are turning to crowdfunding platforms to generate it.
The concept is very simple. People come together using the crowdfunding platform to pool their resources in order to fund a project. In general, this happens in two ways. One is called debt investment, where people become lenders who provide capital and are paid back in instalments over time. The other is equity investment, when people actually become part owners in a large shared investment scheme.
As with any kind of investment, there are definite advantages and drawbacks of raising money in this way.
Investing through a crowdfunding platform is very accessible and easy. Investment can be done online at the click of a mouse button. You don’t need to work in the industry and you can buy in for small amounts of money.
Also, if you use a reputable crowdfunding site, the investments will be legitimate, and will already have been vetted. You will have access to all the relevant information and you can follow the process closely. This kind of transparency is very appealing to people without an in depth knowledge of investment.
The amount of choice is also incredible. You’re not limited by geographical location, and the type of investment covers the whole spectrum. It could be a small housing estate or a huge luxury apartment.
Crowdfunding also means you can invest from a distance. There’s none of the hands on management required that puts some investors off.
The main drawback is that the risks of crowdfunded investment are greater. Some research has shown that compared to direct lending, the risks of default are higher so you need to do your homework into the project.
Another major problem is that when you are dealing with large numbers of investors, then the amount of problems also increases. The more people involved, the greater number of people to be compensated. And remember, every investor is entitled to his or her opinion.
When more people are involved, it also means that your assets are not easy to get to. Every investor has a say and if you can’t find someone to buy you out, then you have to wait it out until the property is sold. However, this is often the case with many other forms of direct investment, and in many cases there will be provisions in place to allow you to access you money when needed. As always, you need to do your research before putting any money down.
Lastly, and equally as importantly, crowdfunded property is not as regulated as more direct lending. That means your investment is not as safe, with security for your investment not at as high a standard.
While crowdfunding is an exciting new development in property investment, it is definitely not the financial El Dorado that some have promised. If you’re looking for more security, better access to your money, and greater autonomy, you may be better off following a more traditional investment route.
There is, however, an alternative to both direct investing and crowdfunding. Here at Agile we offer the best of both worlds. You can invest both small and large sums, invest without the hassle of direct involvement but also be sure that your investment is protected and vetted by professionals.
To find out more about the local and national property market, or if you would like to chat about anything to do with property investment, give us a ring on Norwich 01603 567804 or send us a message.
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