Passive Income is a stream of wealth created with an initial investment of time, money, or skill to earn returns with minimal efforts for the long term. Working day and night on the job only provides you with hard-earned money. But with passive income, you can make money anytime, anywhere, doing absolutely nothing! Building multiple streams of passive income is a smarter way of managing financial health. Though passive income cannot be earned overnight, thoughtful income generating ideas like rent on real estate properties, monetizing a youtube channel or a blog, investing in bonds, etc can earn you decent returns which over time contribute to a sustainable fund. Such passive income can then be invested in assets providing higher returns or can even be useful during tough times.
One such stream of earning passive income without much hassle is Real Estate Crowdfunding. The idea of real estate crowdfunding is to generate funds and finance high-end real estate projects which require debt financing. On such an investment, a fixed percentage of return can be earned for a relatively long period of 8 to 10 years. Real Estate Crowdfunding enables investors to invest small amounts in real estate; thus, expanding the reach of real estate investments and at the same time making it more affordable for common people.
Also Read: Crowdfunding in Real Estate
Firstly, what is real estate crowdfunding?
Real estate crowdfunding is an exciting prospect for passive income investment. Crowdfunding participants can earn passive income from real estate by pooling their funds with other investors to sponsor third-party real estate transactions, which are currently available to accredited investors. Real estate crowdfunding returns will differ depending on the type of property investment and how the crowdfunding payout is structured. Some crowdfunding projects will pay monthly returns, while others will pay quarterly returns, and still, others will pay future profits from the final sale of a property.
Real estate crowdfunding is a relatively new industry. This strategy is ideal for investors who want to test the waters by making smaller initial investments. This strategy is also appealing to foreign investors, especially those looking for exposure to local real estate markets.
Why Should You Crowdfund Real Estate for Passive Income?
One of the most significant barriers to investing in commercial real estate is a lack of capital to invest on an individual basis. The average person does not have the capital or experience to buy a downtown office tower or a hundred-unit apartment building. Most people would never consider it. Crowdfunding enables people to invest in projects like these on a much smaller scale. Rather than owning a commercial property individually, someone can purchase equity shares in the deal for a fraction of the total equity required for the project. Consider it to be a type of fractional ownership.
Real Estate Crowdfunding also acts as a smarter way of earning passive income and tapping the real estate sector without a huge capital investment. It provides the investors to earn plenty of returns without much involvement in the whole process. Thus, making it more comfortable and affordable for investors to earn passive income. Here are the 4 best reasons why crowdfunding is a smarter source of earning passive income:
- No hassles of maintenance of the real estate property
In real estate crowdfunding, the investor doesn’t own actual property. The investor serves as a financier for the Realty Developers who procure the raised fund for the daily operations of the project. Thus, the investors don’t have to run errands to manage the tenants or maintain and overlook the property.
- Earn consistent returns on the money invested
The Realty Developer provides decent fixed returns of an average of 12% on the funds invested. Thus, a regular flow of passive income is generated through real estate crowdfunding. Since the duration of real estate crowdfunding roughly ranges between 8 to 10 years, the constant cash flows can be reinvested in compounding assets to earn a two-fold benefit.
- Eliminate the need for going through all the paperwork for purchasing a property
Since the investors of real estate crowdfunding are not the actual investors in the real estate property, it will eliminate rounds of meetings undertaken for purchasing a property and doing the paperwork. Investors can invest in real estate crowdfunding from the comfort of their homes.
- No active part in the process of crowdfunding
The main feature of real estate crowdfunding is that the investor need not actively participate in the process of crowdfunding. The crowdfunding platform, sponsors, managers, and trustees overlook the whole process making it more hassle-free for the investors. Therefore, investors can earn passive income even while enjoying a trip!
Though the concept of crowdfunding is intriguing, one must also carefully inspect the risk and rewards associated with real estate crowdfunding. For that, we bring you a 4-point Checklist to be done before investing in your desired crowdfunding property. This will ensure you a much safer experience of crowdfunding investment and also increase the safety of your passive income. So, let’s get started.
4-point Checklist before Investing in Real Estate Crowdfunding
- Choose a trusted Crowdfunding firm –
Since real estate crowdfunding is in its nascent stage, it is essential to choose a trusted platform that is an expert in the field and follows the regulations laid down by the SEBI. Moreover, the firm which acts as an intermediary should sustain itself in the market for the long term for the security of your investment. Assetmonk is the best crowdfunding platform in India and professionally operates in the real estate markets of Hyderabad, Bengaluru, and Chennai. Assetmonk provides smart crowdfunding investment avenues in real estate through carefully curated options with an IRR of up to 21%
- Conduct special checks on the Developer’s solvency and credibility –
Before investing in a project, one must also analyze the repayment capacity of the Developer of the project. From the due diligence undertaken by the crowdfunding platform, give careful attention to the records of the developer, legal proceedings, if any, solvency to pay the interest and timely repayment, and so on. This will ensure the safety of the timely inflow of passive income and less stress for the investors.
- Give due focus on Customer Service Quality –
The crowdfunding firm should be best in terms of customer service not only at the start of the investment but also throughout the tenure and ensure the generation of returns on time. They must protect the interests of the investors and give due attention to their needs throughout the investment tenure. Thus, it is wise to choose the best team that cares about its investors.
- Select the right property for crowdfunding –
The success of Real-estate Investments is significantly dependent on the type of property and the locality in which it is situated. Hence, look for properties in high-worth localities or having high potential demand in the future which can’t be much affected by demand cycles. Investing in properties having low demand can also impact the returns on the investments.
Thus, to put it in short, real estate crowdfunding opens up a new avenue for earning passive income and at the same time, provides indirect exposure to real estate with a low budget. For investors having little time to offer for maintaining the sources of passive income, real estate crowdfunding can provide a great start for earning passive income which is sustainable for the long term. Furthermore, real estate crowdfunding will gain more popularity in near future. Thus, more platforms will optimize the industry and build a robust system to facilitate more investors into real estate crowdfunding. To begin with their first step towards real estate crowdfunding, investors need to carefully follow the 4-point checklist to ensure a safer experience and maintain decent passive returns. If you are worried about investing in crowdfunding, visit us in Assetmonk and be assured of your investment!
Real Estate Crowdfunding: A Passive Income Source FAQ’s:
A real estate crowdfunding platform pools in the required fund from the investors and offers it to real estate developers for financing their upcoming projects.
The investment raised through crowdfunding acts as a debt for the real estate developers, who pay a decent percentage of interest on the same. Thus, the idle money of investors earns a consistent passive income for them through real estate crowdfunding.
Real estate can be optimized to earn passive income through investment options like crowdfunding, rental income, fractional ownership, REITs, and so on.
Yes, through crowdfunding real estate, one can earn an average of 12% of interest on their investment.
A decent return of 12% on average can be made through real estate crowdfunding.
The process involved in real estate crowdfunding is explained above with entities involved like Realty developers.
The profits are divided into two forms, one is through equity shares in the property or a fixed interest on the amount invested. However, in India, SEBI does not allow equity-based distribution of profit to protect the interest of the investors.
Investing in REITs is like investing in mutual friends, wherein you invest in the shares of a real estate investment company that then manage and generate returns from real estate properties. However, in real estate crowdfunding, people directly invest in real estate projects as a financer to earn returns through fixed interest.
To assess the risks of crowdfunding, one must follow the 4-point checklist mentioned in the article.
Yes, real estate crowdfunding is allowed in India only through certain forms like Reward Crowdfunding, Peer Peer Crowdfunding, and Donation Crowdfunding.