AQRE Guide to Crowdfunding For Real Estate – How to Invest

Basic crowdfunding is nothing new.

In fact, it’s been around since at least 1713, the year that Alexander Pope funded his translation of Homer’s Iliad with money from 750 individual donors.

And today, crowdfunding still exists in the world of investments….

Any time that people pool their resources to complete a project that would be too difficult for one person – that’s crowdfunding!

When you look at it from this angle, you can probably think of times where you’ve had to come together with friends or family to crowdfund… to buy a gift or rent a vacation Airbnb for example.

If not, then chances are you’ve heard of groups of people pooling their money to donate to a worthy cause or fund a unique product.

Crowdfunding for real estate is not much different from this and has also been around for years. So let’s cover its basics, starting with…

What is real estate crowdfunding?

At its most basic level, real estate crowdfunding is the use of online platforms to raise money for a real estate project.

It’s one thing to invest your own personal savings into a property. It’s another thing to have people you don’t even know investing in your project.

Crowdfunding allows real estate investors to attract more interest and, therefore, attract more funds.

The only difference between the crowdfunding you might do with your friends and this, is:

1. The money is used specifically to fund a real estate project, and
2. You stand to make a nice profit from your investment if the project goes well.  

That said, what are some common forms of real estate crowdfunding?

We’ll cover two of the most popular forms of real estate crowdfunding below.

The two types of real estate crowdfunding

Crowdfunding for real estate can be split into two unique paths. These are:

1. Equity investments – here investors pay to own a share of a rental property and get paid their share of the rent collected from that property. They can also make money from the appreciation of the property once it’s renovated and/or sold. This is similar to having shares in a company.
2. Loans- here the investor is offering a loan to the property owner while using the property itself as the security. As a result, the investor gets paid monthly interest payments for the duration of the loan. This is similar to mortgages offered by banks but offers higher returns.

At this point, you may be wondering which of the two is the better choice…

Well, it comes down to personal preference.

With equity investments, the money will be disbursed on a quarterly basis. On the other hand, the loan investment allows the investor to earn a monthly return.

That said, the investor worth his salt will need to know about any developments. The information will be relayed on a quarterly basis.

You will also want to track the performance of the investment. Crowdfunding companies allow you to do this as well over their dashboard.

Whichever path you choose, the benefits to real estate crowdfunding can be huge! Let’s go over some of them…

The benefits of real estate crowdfunding

So what makes real estate crowdfunding so good? And why should you consider it as a potential option for your investments?

It’s oh so very easy!

There’s no underestimating it – crowdfunding has been a huge deal for the real estate investment industry!

It solved many of the problems faced by traditional real estate investors, like the need to search out properties, calculate potential rates of return, and choose the best investment.

Learn More: If you want to learn more about traditional real estate and investing in general, check out the AQRE Guide To Making Money in Real Estate.

With so many properties out there, this can prove a strenuous and time-consuming task.

However thanks to crowdfunding, the individual investor can find pre-curated investments.

Simply put, the hard work is already done for you by crowdfunding companies!

This means thorough analysis before presenting these to the investor (that’s you!).

But there is even more to the process. The best crowdfunding companies will also evaluate the credit and criminal backgrounds of both the real estate companies and their teams.

All this to help offer more protection and security to the investor.

Granted, no investment is ever guaranteed…

But the intense evaluation and curation by crowdfunding companies make this a more reliable way of investing in real estate than anything else available today.

Invest as little as $10

Crowdfunding for real estate allows anyone to have access to investments that were previously out of reach of the common joe.

Often an investor would need to write a check of $100,000 to $250,000. Now individual investors through crowdfunding can put as little as $5,000.

That’s all thanks to the fact that many platforms let you invest as little as $50 per project (or $1 in the case of AQRE App!). Even investors with less than $1000 to spare have the chance to:

• get in on real estate investments that would otherwise be too expensive,
• invest passively, providing funds while someone else does the actual work,
• diversify your portfolio, and
• have the safety that comes from diversification – after all, no one wants their entire savings to disappear into thin air over one bad deal.

Diversification, safety, and high returns on small investments are all great benefits of investing in crowdfunded real estate.

Earn a steady passive income

Thanks to crowdfunding, more and more people can benefit since they can now invest in real estate, and this method offers an excellent way to earn passive income.

It only takes 5 minutes to invest $1000 into a project, but you will receive dividends on your investment as high as 20% for its duration.

That’s a great return on your time!

Help yourself while helping the community

Real estate crowdfunding also allows you to fund real estate projects that would otherwise be difficult to get off the ground. Projects that:

• require a lot of starting capital, like hotels or student dorms
• develop rural areas without existing local investors
• are located in poorer areas without the local funds to pay for bigger projects…

You get the picture.

These deals not only benefit the individual investor, but also the locality in which they invest. Win-win!

It’s easy to see that real estate crowdfunding can work great for both individual investors and communities in need of large-scale investment.

The biggest question left to cover is…

What is the best real estate crowdfunding platform? 

Real estate crowdfunding is still a relatively new way to invest in real estate, so it’s inherently a little risky.

But that’s mainly due to the platforms that you use…

Real estate crowdfunding platforms tend to be smaller and newer operations that don’t have as much capital and haven’t proven themselves yet in the real estate market.

So this risk is easy to mitigate by taking the time to research and choose the best real estate crowdfunding platform.

In the US, the biggest and most reliable affordable options are:

•       Fundraise (Great for Beginners with $10 minimum)
•       PeerStreet (Invest in Loans with $1000 minimum)
•       RealtyMogul (Access REITs and Private Market Properties with $5000 minimum)

Some top Canadian crowdfunding options include:

•       Addy (Invest in Canadian Real Estate Projects with $1 minimum)
•       NexusCrowd (Access Professionally Managed Deals with $10,000 minimum)

Both Canadians and Americans also have access to many international sites like:

•       Estate Guru (Invest in International Loans with $50 minimum)
•         Bulkestate (Invest in International Real Estate with $50 minimum)

This is a shortlist of some great contenders to look into, but it is by no means the definitive list. Today, there are tens or hundreds of real estate crowdfunding websites that exist!

So how do you choose the best one?

What to look for in a good real estate crowdfunding platform?

While looking for the right real estate crowdfunding platform, it can be easy to get lost in the options.

But there are a few easy things you can look for that can help you decide if the platform is safe and a good investment:

1. How long has the site existed? Older sites that have stood the test of time will be a much safer bet than recent start-ups.
2. What reviews does the site get on TrustPilot or Google? Reviews can be a great way to weed out the scams. If your website has 3 stars or less, move on!
3. How does the site do its due diligence on each property? A good real estate crowdfunding website will have this info easily available on their site. If it doesn’t, that should be a red flag.
4. What is the rate of return for site users? If the rate of return is on the higher end, you can be sure that the site is offering riskier investments.

Once you take all this into account, it’s really up to you to make your decision. Are you willing to take a risk to get a higher return? Or are you looking for a safer bet?

You decide!

In conclusion:

Real estate crowdfunding is a relatively new way to invest, but it’s becoming increasingly popular with younger investors and those who want to diversify their portfolios to mitigate their risk.

If you think that real estate crowdfunding is for you, we hope this guide has given you all the knowledge that you need to get started!

Otherwise, if you are looking for a great traditional real estate investment, we have some great options for you at aqrehome.com.

See our properties and reach out to our team if you have any more real estate questions!