Have you heard of the concept of crowdfunding? If so, you probably associate it with raising investors for creating films, robots, gadgets, apps, or games. Nowadays, real estate crowdfunding is becoming increasingly common, turning into a trend in the investment business world. So what is it?
Real estate crowdfunding is collective investment in very large objects to generate passive income. Such objects are usually so expensive that a single investor cannot afford to buy them alone. And even if he has such funds, for greater security it is more advantageous to split this amount among different real estate objects via crowdfunding.
It should be noted that objects for this type of investment undergo strict selection, and only 2% of them are admitted to financing. The decision on which object to offer for purchase is made either by the main investor or the management company. Acquisition and ownership of real estate is carried out through investment funds. That is, investors put money into an investment fund, and through it the object is acquired. In one case, a separate investment fund is created for a specific object; in another case, the fund may own several objects. At the same time, an investor who has contributed funds, if desired, can sell his share to other owners of the object.
The management company is tasked with performing all the duties that the owner would perform if it didn't exist. That is: filling the object with tenants, servicing the object, making utility payments, performing current repairs, insuring, increasing the object's market value, and regularly paying dividends to investors.
The objects in which collective investments are made include: shopping centers, offices, other commercial real estate objects, as well as buildings with residential apartments. In some cases, funds are invested in objects under construction, while in others they go to already operating ones.
Usually the minimum investment amount starts at $5,000, although there are objects where you can invest with as little as one thousand dollars. The average return from crowdfunding is 10-12% per annum, and the object is typically purchased for 3-5 years.
So, what are the main attractive aspects of crowdfunding:
- unlike deposits, real estate does not lose value over time; it only becomes more expensive.
- the presence of a management company completely relieves owners of worries about managing and ensuring the prosperity of the object.
- by distributing funds across several objects, the risk of possible capital or income loss is reduced.
Note that in Ukraine, unlike the US and other Western countries, crowdfunding is still underdeveloped; however, global trends will not keep us waiting long, and likely this form of obtaining passive income will become popular here as well.
