To invest in real estate, you either need to have enough money to purchase real estate or have the ability to leverage your way in. This is a huge barrier to entry for many people and it’s the barrier that keeps many young investors out of the market.
However, there are multiple ways for new investors to get involved in real estate investing, like making hard money loans, joint venture, partnerships and private funding.
You may be familiar with how crowdsourcing works to fund startup businesses and medical expenses, but did you know that you can crowdsource real estate?
Crowdsourced Real Estate Online
Through crowdsourced real estate investment, you can make a portion of the 10.75 percent return on investment with only a portion of the upfront capital.
Thanks to the Jumpstart Our Business Startups (JOBS) Act, which was passed in 2012, you can find over a hundred websites online that offer the service.
Investing in Crowd Sourced Real Estate
Typically, the owners of the website select large-scale projects, like apartment buildings or strip malls, that allow all investors to make some sort of profit. You’re either paying to purchase a property or keep an already operating property from going bankrupt.
You can also choose to invest in one property or a portfolio of properties.
The websites take a portion of the profit as a commission and disperse the rest to the investors. The commission is taken because operators of these websites do all the due diligence that investors usually do. They check out the soundness of the investment and manage it for the investors.
These funds also have varying levels of liquidity. The often require that your money remain in their hands until the investment has run its course.
It’s important to note that many of these sites have investment thresholds. They require that you invest a certain amount to join in on a project.
While the amounts are substantial, they’re much smaller than what a typical real estate investment would be. I’ve seen these amounts range from $500 to $20,000.
So, the adage remains true, you need money to make money, but you can get away with having a lot less. Learn about different reputable crowdsourcing websites to figure out what entrance amount and management style is best for you.
Benefits and Drawbacks
You don’t have a lot of control over these investments, your trusting in the expertise of the real estate crowdsourcing website you are investing in. Granted there’s a lot less work involved, but you don’t get a hand in a lot of the individual decisions that are made. Therefore, you cannot fall back on your own grit and determination for this endeavor to be successful.
In a sense, it’s similar to the control you have when you play stocks. Aside from picking the stock, you cannot control how well that company does. The same is true for this type of real estate investment.
Nonetheless, the benefit is that real estate, unlike stocks, tends to hold it’s value. If the market dips, this property will one day begin to gain value again, whereas a stock can drop to no value with no means of resuscitation.
Crowdfunding is an intriguing way to start investments. You can make enough profit to begin investing on your own.
However, one drawback is that you get a lot of experience from researching your own investments. You learn which investments are good and which ones are bad based on researching them and making your own choices.
While you can potentially learn from the information that the investment site gives you, there’s nothing like learning from your own mistakes. They likely won’t give you information about the investments they passed over or why they passed them over either.