A Real Estate Crowdfunding Investment became possible when legislation titled Jumpstart our Business Startups Act (“JOBS Act”) became effective in May 2016.
Prior to that date if you wanted to invest in private real estate transactions you had to be considered “accredited”, which meant you had to meet certain net high net worth or annual income requirements.
With the new legislation, smaller investors are now allowed to make a crowdfunding real estate investment that was never previously possible. As a result, a new niche industry was born around crowdfunding of real estate transactions.
Let’s say that you want to invest $10,000 of your savings today. Maybe the stock market has been too volatile, or you’ve already got enough money tied up in stocks. You decide to invest that $10,000 in real estate.
Historically your main plan of action with a real estate investment would have been to buy a small individual property using the $10,000 as a down payment.
Now with crowdfunding real estate you are able invest a relatively small amount in certain large private transactions that previously would have been off limits. When done well this type of investing will allow you to get attractive annual returns on your investment over time from these real estate deals
In many ways, owning a piece of a real estate crowdfunding transaction is similar to owning some shares of a stock in a company.
In both cases you are the partial owner and the management team is required to disclose to you certain information about the health of the business from time to time. This allows the investor to track the progress of their investment to help assure things are going well.
Think of your crowdfunding real estate investment as a way to diversify your investment portfolio across more than just stocks, bond and precious metals. Real estate is seen as an excellent type of investment in general that is suitable for many investors. Crowdfunding real estate investment is just a newer way to invest in real estate.
As with most types of investments, investing in real estate has a risk you will lose some or all of your money. Crowdfunding of real estate transactions does not eliminate that risk.
And if you are not sure what you are doing, don’t invest in real estate through crowdfunding or any other manner.
The answer is ………… it depends!
If you are a very conservative investor who does not want to risk losing some or all of your investment dollars, then real estate investing is not for you. That includes the idea that a crowdfunding real estate investment not being right for you.
If you are an investor who is willing to take a moderate or large amount of risk then I can see a crowdfunding real estate investment being an OK investment.
Given that real estate crowdfunding is relatively new, if an investor is going to invest this way, they should start slowly. I could see an investment of 1% to 4% of your investible funds being dedicated to realestate crowdfunding initially and then can be modified up or down over time based on your experiences from investing that smaller amount.
Top Real Estate Crowdfunding Sites
We rate and ranked the top real estate crowdfunding platforms on 5 critical criteria. Fees, investor requirements, investments and deals, transparency of information, and usability.
best for:
Accredited investors, crowdfunding real estate, income investors
In Summary:
Real estate investing has been a great wealth accumulation vehicle historically over the long term.
Real estate investing is also a great way to diversify if you’ve reached your investment limits in other areas like stocks, bonds or precious metals.
Real estate investing is not for everyone given that there is a risk you will lose some or all of your investment.
If you decide to invest in real estate, crowdfunding is a new way to invest in larger real estate transactions then you would ever be able to do on your own.
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