Real Estate Crowdfunding: An Unconventional Path to Investing In Commercial Real Estate

  • Author: Saphi Evangelarity Syiem
  • 5 min read
  • September 8, 2022
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You have seen people pour billions of dollars into the latest commercial real estate developments, purchase premium investment properties, or even close on multi-million dollar commercial property. It is easy to become disheartened and ignore commercial real estate investing as something only the ultra-wealthy can afford. The notion that commercial real estate is not within reach is a misconception. Because, as it turns out, there are new avenues for prospective investors globally to invest in pricy commercial real estate, such as crowdfunding.

What Exactly Is Real Estate Crowdfunding?

Real estate crowdfunding: Viable method for real estate developers to obtain financing for real estate projects and investors to invest in real estate.

Real estate crowdfunding is a method of investment in which a group of people invests a modest amount of money in a particular real estate venture. To engage a potential investor audience, the procedure is often carried out using an internet platform.

Crowdfunding provides developers with access to finance for real estate development projects. This method has shown to be a viable alternative to traditional methods of obtaining finance.

For investors, it allows them to become shareholders of properties that they would never be able to purchase as individuals.

The notion behind crowdfunding is that when a developer or real estate expert discovers an opportunity, they may not always be able to follow it on their own. As a result, they allow individuals to invest some of the funds required to complete the project. Do not miss How is Crowdfunding regulated in Indian Real Estate?

In actuality, how does real estate crowdfunding work?

Here’s an overview of how crowdsourcing works.

Meet Bill, a skilled real estate developer (sponsor) who has spotted a multifamily property that needs some TLC. The property gets located in a nice location, but it is outdated and misses the facilities that today’s renters expect. The structure is now 60% leased and gets listed for $4 million. In actuality, how does real estate crowdfunding work?

Bill has done similar transactions in the past, calculating the figures and using his real estate knowledge, he concludes that he can invest $2 million in repairs and enhancements, rent up the entire building, and increase the property’s rental revenue. He anticipates that after the property has stabilized in four to five years, it will have a market worth of $10 million, at which moment she will attempt to sell it.

This property needs $6 million in total investment (acquisition and renovations). But Bill can only acquire typical financing from banks for $3 million and wants to contribute $1 million of her funds to the project. In this case, Bill may use a crowdfunding platform like Assetmonk to market the project and sell the extra $2 million as equities to investors (you could be one of them!). Hundreds of investors can individually put up a few hundred dollars. Do not miss REITs vs Real Estate Crowdfunding – Here is the difference every real estate investor should know.

How Does Real Estate Crowdfunding Favor You As An Investment?

Crowdfunding allows you to diversify your portfolio, access premium properties, and achieve regional diversification, and passive income. 

  • Diversification: One of the most prominent advantages of crowdfunding for real estate is the ability to diversify your portfolio. By diversifying your portfolios, you essentially spread the risk associated with a single investment over many ones. If any of your properties fails, your investment portfolios will be divided among several alternative investments. To demonstrate the benefit, you might invest $100,000 in investment M in one lump sum or $20,000 increments across investments M, N, O, P, and Q. If you solely invested in investment M and failed, you would lose $100,000. However, if you spread that money among five investments and only one failed, you would only lose $20,000.
  • Accessibility: Real estate crowdfunding has made it much easier to get started in real estate investment. Previously, commercial real estate investments were only available to high-net-worth people with the appropriate finances and relationships. These are no longer barriers to entry, due to legislative developments and the advent of online crowdfunding services. The entrance hurdle to real estate investing is substantially lower than it ever was. Many real estate crowdfunding platforms, like Assetmonk, allow investors to deposit as little as Rs 25 lacs in commercial real estate deals.
  • Geographic diversification: Portfolio diversification is one of the most significant benefits of crowdsourcing real estate investments. But, you can also achieve regional diversification with your investments. Geographic diversity is vital since various parts of the real estate market might perform extremely differently from one another. While one city’s real estate market may be thriving, another city’s market may be experiencing a big decline. If you put all your wealth into one place, you may have a negative ROI due to challenges unique to that market that may not affect the larger industry. When you invest in real estate through crowdfunding, you may pick where you want to invest.
  • Passive Income: One intriguing feature of investing in real estate via crowdfunding is that it is a passive investment opportunity as opposed to traditional real estate investment methods such as direct ownership. Conventional investors must often oversee the property to verify that it is finished on schedule and to requirements, plus bear the associated dangers. You invest in crowdfunded real estate with a third-party real estate developer or an operator who handles everything. The developer or operator will do all of the necessary tasks on schedule and within budget. As a result, you won’t have to deal with the stress of property management.
  • Minimum Investment: If you’ve never been able to invest in property previously due to the large amount of money necessary for a conventional real estate investment, crowdfunding allows you to become a real estate investor due to the lower investment size requirements. Indeed, some crowdfunding sites like Assetmonk allow prospective investors to invest as little as Rs. 25 lacs. Investing in real estate means you no longer need tens or hundreds of crores, as is traditionally necessary to acquire a house. If you are fresh to real estate investing, the lesser investment size allows you to dip your toe in the water or obtain better diversity.

While real estate crowdfunding and investing may not be for everyone, it may be a terrific way to get started in real estate investment without spending a lot of money. Putting less money into the venture indicates that the risk will frequently be reduced. Real estate crowdfunding has grown in popularity due to the prospect of high returns in a low-risk environment.

People have made millions, if not billions, from real estate, so it’s no surprise that when fresh, more affordable ways to join the asset class emerge. Andrew Carnegie famously stated that “ninety percent of all millionaires become such through real estate ownership,” and many of today’s millionaires concur that real estate investment is a wise investment.

Okay, I am sold. Where do I begin?

Assetmonk is one of India’s top real estate crowdfunding platforms. We are a trustworthy and investment-friendly platform that everyone can use. An investor may invest as little as Rs. 25 lakh in commercial-grade properties with Assetmonk and get premium returns. Visit Assetmonk to learn more about real estate investing possibilities and begin developing your portfolio now.

Real Estate Crowdfunding: An Unconventional Path to Investing In Commercial Real Estate FAQs

What are the risks of crowdfunding?

One big danger of investing through crowdsourcing is that it is considered an illiquid investment. If the necessity comes, these investments cannot be quickly sold for cash. A buyer must be found for the property in which you have invested, which can take a long time and may cause the property’s value to fall over time. If an emergency arises, it may be difficult to liquidate the investment.

How much money can you make from crowdfunding real estate?

The combination of long-term growth and monthly or quarterly income renders crowdfunding real estate an appealing alternative. According to recent research, typical returns are 11% or greater, albeit this figure might fluctuate year to year.

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