In a situation where an excess of demand fails to interlock with the excess of supply, aggregators become relevant. With the increased number of projects turning out innovations but missing out on funds and with investors who have enough money to invest but not confine all their investments to one place, crowdfunding has found its relevance!
Crowdfunding is the method of getting funds from common investors as opposed to the practice of getting them from conventional institutions like banks. With crowdfunding in place, projects with a scope and potential for innovation can access capital directly from the Investors. On the other side, investors can identify opportunities that they deem as profitable, and also diversify their portfolio. Crowdfunding has made it faster easier, and convenient for both small businesses and investors alike.
Crowdfunding makes it possible for retail investors to connect with and invest in large projects. Considering the size of real estate assets, it could be one of the many industries that can take advantage of crowdfunding. In 2016, as reported by crowdsourcing.org, real estate crowdfunding reached a whopping $3.5 billion.
Advantages of Real Estate Crowdfunding
- Transparency – Crowdfunding platforms take the onus of scrutinizing every deal that they offer potential investors. This translates to increased trust and transparency for investors to make informed decisions.
- Portfolio Diversification – Crowdfunding presents a variety of asset classes to the investors and they have a chance to sample various investment options before they make an informed decision. Even if they want to put all their eggs in one basket, they can try out different baskets before they put everything in one!
- Accessibility – Gone are the days when you needed an exceedingly high amount of money to invest in real estate. With crowdfunding, you can become an investor with a minimal contribution which might vary from platform to platform.
Even with the abundance of advantages, there is quite some inhibition regarding crowdfunding especially when it comes to real estate. Let us look at the most common excuses that people give to refrain from investing with crowdfunding.
Crowdfunding is an Excuse for Bad Deals
Common people have a perception that crowdfunding is for companies or projects that failed to secure capital from traditional institutions. Most of the times, choosing a crowdfunding website is more about the size of the deal rather than the quality.
The interests imposed by the banks might not make sense for equity or loans that range from $1 million to $5 million. With crowdfunding, there is a chance for sponsors and borrowers to keep it light on the investor relationship taxes as the platforms themselves take care of these costs. Crowdfunding has attracted its well-deserved accolades only because of the convenience it offers.
Another important attribute that real estate companies miss out on its variety. Money lending institutions do not offer variety but crowdfunding websites help in consolidating numerous investors into a single platform. This makes it extremely convenient for real estate companies to reach out to as many investors as possible to raise their funds. Above everything, since the reputation of the platform is at stake if at all a bad project is listed, the platform will make sure that every little aspect of the project is checked before it gets enlisted!
All Crowdfunding Sites are the Same!
While they might be almost similar in their functionalities, it is the people and the products listed on the platform that makes the difference!
As an investor, it is important for you to understand the platform which resonates with your agenda. There might be platforms that approve deals that offer cash flow while others look at appreciation after developing the land. Some platforms will underwrite all transactions and some will visit the site. Too many parameters need to be considered before you choose your crowdfunding platform. The very fact that you will need to consider these many parameters makes it understandable that not all platforms are the same!
As much as it is about understanding the platforms, it’s equally important to create a platform that will facilitate real estate tokenization. The platform, above figuring out the profit and tokenization mechanism, also needs to be sound on the technical part, without giving any points of vulnerability for users with malicious intent.
Quality is Proportional to the Quantity
While it can be partly agreed that the volume of the deals can indicate success and popularity, it is not the rule of the thumb that it can be taken as a yardstick!
Playing The devil’s advocate here, numerous deals could possibly mean that the platform might not have been entirely diligent in screening the projects. They could also be approving deals without scrutinizing the quality just so they can boost their numbers to trap people who think that quantity implies quality!
When there is no defined limit for quality or quantity to point at the trust-magnitude of the platform, creating a real-estate crowdfunding platform is a great business opportunity.
The point of quantity versus quality should always be taken with a pinch of salt! After all, it is your hard earned money and it should never go into that space where you can never profitably recover it from!
They are Simply Third-Party Markets
Just like any other ecosystem where there are competing products, there are bound to be rotten apples – crowdfunding platforms that have failed to carry out the due diligence.
On the brighter side, there are amazing platforms that vet each deal and underwrite them. It is perhaps the third parties that can validate the authenticity of these third-party markets. Third-party markets provide an unbiased perspective of the market in number. It would be a good idea to look for reports, market data and performance and also consider the history of the sponsors to determine the eligibility of these platforms. The first sign of a legitimate platform is the transparency with which they share the information with both parties!
What if the Platform Closes?
It is quite a valid question and a great practice to consider the threats of existence like bankruptcy. A good platform will have its contingencies in place to avoid ending up in such an abysmal situation. As an investor, you can check their special purpose entities that offer bankruptcy remoteness. Sometimes, the platform might have connections with the party that will bring them out of their dire situations.
Anything said and done, researching the platform is of utmost importance before you invest your money in there.
I Better Stick to the Classics!
There is no compelling reason for you to step out of the classics if you have the monetary space to accommodate huge investment amount and the auxiliary expenses like taxes. However, with crowdfunding, you can deal with more than one investor and it not only helps you in finding the right investment but also creates a network for you, so you can, at a later point in time, consider pumping in your investments with other trusted investors. In addition to this, the platform offers protection to safeguard you against any malicious exploitation which might not be available with the sponsors!
Should I Start A Real Estate Crowdfunding platform
Investing in real estate would have literally been a million dollar question if not for crowdfunding! Now, it has come down to a question that is worth just a few thousand dollars!!
This has opened the floodgates to a new wave of business in creating real estate crowdfunding platforms. The real estate segment remains as lucrative as ever, and crowdfunding has only added to the magnitude of liquidity. If you can, at the right time, create the right platform for crowdfunding, the chances of profits are enormous.
Blockchain App Factory, with its team of experts, helps in creating a perfect crowdfunding platform. Drop in your inquiry with us, and we’ll take it forward in the direction of profits driven by one of the most evergreen avenues of profitability in investments.