Advantages of Real Estate Crowdfunding
Crowdfunding can offer investors a way to participate in real estate deals that were previously unavailable. Unlike investing in publicly traded REITs, crowdfunding lets you invest in a specific property.
Real estate offers the opportunity for high returns.
Another pro of crowdfunding is that commercial real estate returns are typically less correlated with those of the stock market. This is important now, more than ever as we witness unprecedented stock market volatility and uncertainty. Additionally, the returns offer both steady income, from rents and potentially large capital gains when a property is sold.
Although we’re in a period of low inflation now, inflation is bound to increase at some point in the future. Real estate is widely accepted as a hedge against inflation.
Disadvantages of Real Estate Crowdfunding
Crowdfunding may be ideal for some investors, but not all.
When investing in a single property, risk levels rise. Plans to renovate, increase rents, and resell a commercial property may not go as planned, curbing potential returns. There might be an unforeseen economic scenario or difficulty finding a buyer or tenants, which might hurt potential profits.
Most real estate deals in crowdfunding are illiquid and require long holding periods. The deals state the anticipated holding period, generally at least three years, although crowdfunded REITs might be easier to sell. This suggests that investors must go into these types of investments with a long term view, using money they can afford to leave in the platform for long periods.
It might take a long time to realize the crowdfunded profits. If a property is being renovated before renting and selling, during the repair period, there’s no cash flow to investors.
Although there are real estate crowdfunded deals for small investors, most are designated for wealthier accredited investors.
Is Real Estate Crowdfunding Worth It for You?
Whether crowdfunded real estate investing is for you or not depends upon several factors: your net worth, your time horizon, your risk tolerance, your total investable assets, and your portfolio diversification preferences. Additionally, real estate crowdfunding is a newer investment class with less time for evaluation than REITs and real estate mutual funds.
To decide whether crowdfunding is for you or not, do your homework. Research the available real estate crowdfunded platforms. Evaluate the deals. Determine your eligibility for the investment opportunity. Ultimately, crowdfunding in real estate might be right for you if you have a long time frame, a diversified portfolio and the ability to handle a risky investment.