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      The Risks and Rewards of Investing in Real Estate Crowdfunding in India

      • 5 min read
      • Last Modified Date: May 12, 2023
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      Real estate crowdfunding India is growing increasingly popular in the real estate business. It helps you start real estate investing without spending a lot of money. However, there are certain risks and rewards to it. The following examines some of the risks and rewards of real estate crowdfunding. This will help you determine whether this investment instrument is suitable for you.

      Real Estate Crowdfunding Meaning

      Real estate crowdfunding is a type of crowdfunding in which investors can invest in real estate projects without needing big sums of money. Investors combine their funds to support a specific real estate project in exchange for a percentage of the profits earned by the project. This can include rental income, capital appreciation, or a portion of the profits from the property’s sale.

      How Does Real Estate Crowdfunding Work in India?

      In India, real estate crowdfunding normally comprises two types of participants: the crowdfunding platform and the real estate developer. The crowdfunding platform serves as a mediator between investors and developers, allowing investors to participate in real estate projects and developers to obtain a pool of funds for their projects.

      Investors may search through several real estate projects posted on the crowdfunding site and invest in one that matches their investing objectives. Typically, the platform will include information about the project, such as its location, size, and estimated profits. Investors can then put up a little money, which is usually less than what they need for traditional real estate investments.

      The real estate developer will utilize the cash to create the property after it has been completely funded. Investors will earn a piece of the project’s revenues. These will consist of rental income, capital appreciation, or a portion of the profits from the property’s sale. The crowdfunding site will normally levy a fee for its services, which will be taken from the project’s profits.

      Risks Vs Rewards: Real Estate Crowdfunding in India

      RisksRewards
      ScamsZero management issues
      Risks of Real Estate Crowdfunding PlatformsTransparency in investment
      Less ControlA diverse selection of options
      IlliquidityDeal Flow Access
      Low ReturnsDiversification
      Less barrier to entry
      Passive income

      Read about these in detail below.

      Risks of Real Estate Crowdfunding In India

      • Scams: The Sahara bond scam is an Indian example of crowdfunding turned into crowd fraud. Consider the Sahara bond fraud, in which over Rs. 20,000 crores was obtained from 22.1 million investors under the guise of a “private placement,”. It placed millions of average investors at risk who may not have had the know-how or ability to engage in such crowdfunding schemes.
      • Risks of Real Estate Crowdfunding Platforms: Because most real estate crowdfunding platforms are not cash flow positive, there is a danger that they may close down. Your assets should be safe if the platform goes down. The platform’s investors have no claim to your investments in your separate real estate ventures. You are a real estate investor, not a real estate crowdfunding firm. But some disruption is inevitable if individual assets are moved to a fund administrator. Coverage teams in charge of following up with sponsors may also be reduced.
      • Less Control: If you wish to have complete control over your money, real estate crowdfunding may not be for you. When you make a crowdfunding investment, the property’s development will be completely overseen by someone else. Traditional types of funding, on the other hand, give investors the power to oversee the project. If you’ve previously handled large projects and feel you can effectively manage a real estate project, a traditional type of investment will provide you greater influence over the development process, making it simpler to acquire the results you’re aiming for.
      • Liquidity: Real estate crowdfunding investments cannot be liquidated or sold fast. A buyer for the property in which you invested your money must be located, which might take a while and could lead the property’s value to decline over time. In the event of an emergency, it may be challenging to sell the investment.
      • Low Returns: One possible downside is that your return will normally be smaller than if you invested directly in real estate through ownership. This is due to the fact that the developer or operator in whom you are investing must also generate money. That aspect is usually factored into your investment return. The return you do receive, however, will be determined by a variety of circumstances, including, but not limited to, whether it is a debt or equity investment, as well as the investment’s final performance. If your real estate investment is a success, you can normally expect a return of 8%-10% for a loan investment and 18 %-23% for an equity investment.

      Rewards of Real Estate Crowdfunding In India

      • Zero management issues: If you don’t want to be a landlord, commercial real estate crowdfunding is a wonderful location to begin your financial journey. Maintaining homes and juggling renters may take time. Since you have no management responsibilities, you may devote all of your efforts to maximizing your assets.
      • Transparency in investment: Real estate crowdfunding provides far greater transparency and authority over asset selection and placement. If you own a REIT, you are probably aware of the fundamental types of assets in which the REIT invests. However, you will be unfamiliar with the individual properties. You may pick which markets and properties to invest in through real estate crowdfunding. You will also receive regular property updates.
      • A diverse selection of options: Real estate crowdfunding platforms provide a choice of contracts. It enables investors to assume only the amount of risk with which they are comfortable. Investors have the option of choosing between low-risk, low-reward loan offerings and higher-risk, higher-reward stock transactions. If you’re seeking established retail properties or new development projects, a real estate crowdfunding platform is likely to provide them.
      • Deal Flow Access: On an online real estate crowdfunding platform, investors pool their funds with others. As a result, individuals may have access to opportunities that they would not have had otherwise. Furthermore, because of crowdfunded funding, they may be able to engage in larger transactions. Online real estate crowdfunding platforms give as much information as possible on operating partners and assets.
      • Diversification: By investing in more markets than they would otherwise be able to, real estate crowdfunding helps investors to diversify their risk profile. In India, you can invest Rs. 25 lacs in 10 distinct real estate marketplaces.  Since other platforms have far lower minimums, you may spread your money over many investments. 
      • Less barrier to entry: Crowdfunding has made real estate investing much more accessible with just INR 25 lacs. Private real estate investments were previously exclusively open to HNIs with the necessary funds and contacts. These are no longer impediments to the entrance, thanks to changes in legislation and the rise of internet crowdfunding sites. The barrier to entry into the real estate investing sector is presently lower than it has ever been.
      • Passive Income: You invest in real estate crowdfunding with real estate developers or operators who perform all of the work. They 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. 

      Bottom Line

      Sure, real estate crowdfunding investments are not for everyone. However, it is an excellent approach to begin investing in real estate without spending a large sum of money. When you put less money into an investment, the risk is usually reduced. Before you start investing in real estate crowdfunding, it’s critical that you grasp all of the benefits and drawbacks. Using this information, you may develop a risk evaluation for your investment. Before investing, investors should undertake due research on crowdfunding platforms and real estate projects to guarantee they are making educated investment selections.

      Working with reliable alternative investment platforms, such as Assetmonk, may simplify and increase the profitability of real estate investing. Assetmonk offers a number of real estate investment options, including complete due diligence, open reporting, and trustworthy property management.

      Related Articles

      1. REITs vs Real Estate Crowdfunding – Here is the difference every real estate investor should know.
      2. .A Simple Guide To Understanding The Impact Of Blockchain On Real Estate Crowdfunding.

      FAQs

      Q1. What are the advantages of real estate crowdfunding? 

      A. The advantages of real estate crowdfunding are: 

      Zero management issues
      Transparency in investment
      A diverse selection of options
      Deal Flow Access
      Diversification
      Less barrier to entry
      Passive income

      Q2. What is the disadvantage of real estate crowdfunding?

      A. The disadvantages of real estate crowdfunding are:

      Scams
      Risks of Real Estate Crowdfunding Platforms
      Less Control
      Illiquidity
      Low Returns

      Q3. Is real estate crowdfunding legal in India?

      A. Real estate crowdfunding is permitted in India, but it is subject to strict rules.

      Q4. Is crowdfunding taxable in India?

      A. Recent Income Tax rules exclude non-profit organizations that raise cash through the crowdfunding process entirely from taxation. However, when an individual receives a gift through an Internet crowdfunding site, the donation becomes taxable.

      Q5. Which is the most trusted crowdfunding platform in India?

      A. There are many crowdfunding platforms in India like Ketto and Fueladream.

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