Cons and Pros of Crowdfunding for Real Estate Projects

Real estate owners and investors are funding their projects in a new way—by using online crowdfunding platforms such as WeFunder and AddyInvest. These platforms are trailblazing novel paths for both accredited and non-accredited investors who are looking to invest in the real estate sector.

Crowdfunding is more commonly used to raise money for startups. A good reason for this is the fact that it’s luring investors to diversify their portfolios with both startups and real estate investment in Istanbul. With a CAGR of 11.2%, the crowdfunding market is predicted to hit $25.8 bn by 2027, which testifies about its potential.

What is Real Estate Crowdfunding?

By real estate crowdfunding, we imply that a group of investors gather funds to purchase certain property and share its profits. It could be a deal as small as fixing and flipping a family property to crowdfunding large development projects. And the latter means much.

Regular investors can participate in this market and invest in commercial properties, such as malls, retail stores, and hotels. Before, only privileged and wealthy investors could participate in these deals, but crowdfunding changed the game.

The Jumpstart Our Business Start-ups (JOBS) Act of 2012, opened ways to the use of crowdfunding platforms for real estate projects. It allowed non-accredited investors to enter the market and real estate developers to create campaigns in crowdfunding portals.

A specific type of crowdfunding that is becoming popular is equity crowdfunding. By utilizing platforms such as Wefunder, StartEngine, or Kickstarter investors could purchase a small share of a business or project. It allows entrepreneurs to raise capital even when they are not compliant with SEC rules, and investors to have part of a large commercial property.

What are the Drawbacks of Equity Crowdfunding in Real Estate Projects?

Little control over the property. When you join a crowdfunding project, you have little control over the project decisions, considering the number of investors involved. In these cases, decisions are taken by the majority.

Difficult to manage. Since the investments are limited to a certain amount, it means that you would need more people to raise enough capital. Managing all relationships with investors takes its own time and might get complicated. Plus, the taxing and accounting processes get sophisticated, since we’re talking about tens or hundreds of investors.

Low liquidity is bad for investors. The real estate market could cause delays in the completion of a project due to various factors, such as: weather conditions, materials, or resources. As a crowdfunding sponsor, this might work negatively on your side because investors would want to see results quickly. However, real estate crowdfunding is characterized by a lack of liquidity, which means investors won’t be able to move their money during a certain period of time.

The Reasons Why Using Crowdfunding for Real Estate Projects Is Beneficial

Access to a broad market. Using crowdfunding platforms such as WeFunder, sponsors can set up Wefunder marketing campaigns and access a wide audience of investors. Also, investors can browse through different projects provided with a simple search on the platform.

No minimum investment is required to enter a crowdfunding project. This benefits both investors and crowdfunding creators. Anyone can invest their money regardless of their wealth or qualifications, without having to pay any fat fees upfront or be limited to invest a minimum amount for a buy-in. Before, these sums were over five figures, but now you can invest less than $1000 if that’s your budget.

Getting to choose the risk. Investment risks differ from one another, and investors get to decide what to do with their money. They’re allowed to choose deals with low risk in return for low returns, or if they’re more brave go for high risks with greater returns.

Crowdfunding has opened new ways for sponsors and real estate developers to get their projects off the ground. Leveraging advertising and the right crowdfunding platforms with the help of a crowdfunding marketing agency could give you a boost.