Evaluating Your Crowdfunding Real Estate Investment – A brief guide
Crowdfunding real estate investments have rapidly become popular among investors from all backgrounds. Yet, some investors might find the technicalities of crowdfunding real estate difficult to grasp, making it unreliable.
Crowdfunding real estate investment establishes itself in the market as a substitute for traditional real estate investments, hence, learning how to evaluate your investment becomes very important.
Here are a few points that you must remember while evaluating your crowdfunded real estate.
What is Crowdfunded Real Estate Investment?
Real Estate Crowdfunding is a modern-day investment method which deals with raising money for a real estate-based project or commercial properties by taking small sums of money from a large number of people. This way every investor becomes the owner of a share of the property.
Pros and Cons of Crowdfunded Real Estate Investment
Any form of investment has some disadvantages and advantages, depending on the user and how they weigh these two to come up with a perfect investment solution.
Pros of Crowdfunding Real Estate Investment
Crowdfunding is becoming an increasingly popular type of investment because of several reasons
- This investment is ideal for individual investors as with crowdfunding, you can enjoy investment experiences that you otherwise may not have had the knowledge, money, or time to invest in.
- Crowdfunding lets you invest amounts as small as Rs. 50,000 and enjoy the profits.
- Since crowdfunding involves investing in commercial real estate crowdfunding projects, the profits generated are also very high. If you invest through platforms such as Assetmonk, you can get assured returns of 14-21%.
- Crowdfunded real estate helps its investors diversify their portfolio, you can invest in locations anywhere in the world and never have to worry about it.
Cons of Crowdfunding Real Estate Investment
- Since most crowdfunding investments are backed by a single project, if the project suffers losses, you can lose all your hard-earned money. Therefore, while evaluating a prospect investment, it becomes very important to weigh your losses before the profits.
- Some commercial real estate crowdfunding deals (CREs) have very low liquidity, this can result in a loss of all rights on your money for 3-7 years.
Assetmonk only trades and invests in high liquidity assets because we understand how discouraging low liquidity and the chances of losing your hard-earned money can be.
- Some investors like to know everything about their money when they invest. But if you don’t invest through the correct platform or in the right project, issues related to transparency and projects not coming around in promised time can arise.
- Commercial Real Estates can be very vulnerable to market volatility and recession, so it is very important to research heavily before going forward with the investment.
Risks Related To Real Estate Crowdfunding
As we are weighing down the risks and performing extensive research before investing, our next point is, what are the risks of investing that you must keep in mind. Like all other investment classes, the risks in crowdfunded real estate also vary from project to project. This can depend on a lot of factors such as
- Execution risk
As an introspective investor, this is the first answer you need to look for. There is always a risk that the company’s plan of action may not be successful, in this case, you can lose all your money.
- The complexity of the project
The success or failure of a project is also determined by the level of its complexity and the vulnerability of any project is directly proportional to its complexity. But this doesn’t mean all complex investments will eventually fail, the execution and team behind the project also play a key role.
- Economic Sensitivity
A project is considered economically sensitive if the critical path of the project is very likely to change with changes and fluctuations in the economy.
While cyclical investment can suffer at the hands of economic fluctuations, such as a recession. The recession-resistant investments, such as office space on longer leases don’t suffer as much.
It is far safer to invest in projects dealing with already occupied real estates or properties at important locations instead of unoccupied real estates.
Selecting The Right Investment Platform
As the real estate crowdfunding platform acts as a middleman throughout the investment, the platform you invest through becomes very important in deciding the future of your investment.
A crowdfunding platform is supposed to ease your burden of overlooking the project at all given times, and if this platform is not a well-experienced, customer-friendly, and transparent platform, the investor will go under losses first and the company only after.
Some of the major roles that the platform undertakes includes:
- bringing the best deals to its investors.
- critically examining each deal.
- collecting capital and forwarding it to the project manager
- Overlooking the day to day operations
And so the profit you earn or don’t earn through your investment is directly affected by the platform you select. Some things to keep in mind while selecting a real estate crowdfunding platform are. The history of the platform is very important to consider the reputation of the platform, read the customer review, and learn about its past projects, why they failed, and what your platform does differently.
Not just that, while real estate crowdfunding is still in its early stages, getting solid results can be difficult and the lack of performance data can be a huge obstacle in analyzing the platform thoroughly. If that is the case, you must look at how the platform selects real estate deals, how they scrutinize and select the best deals for their investors, and how they deal with their investors sometime after the investment is made.
Learn More About Your Sponsor
Since crowdfunding real estate investments are massive undertakings, the experience of your sponsor plays a very important role as it is the sponsor who will be negotiating the prices, hiring contractors, etc.
Sponsors with a lot of experience never shy away from showing it, and so it is always better to go for platforms that have a vast online outreach and a great many happy customers.
Another significant but subtle hint that you can look for is how much is the sponsor investing in the project. This is called the sponsor co-investing, a co-investment of around 10-25% is seen as the average range. But the higher, the better, as the more money they put in, the harder will they work for the project to succeed.
It is also always a good idea to figure out their fees structure and return rates and whether they suit you or not. For instance, Assetmonk does not charge any hidden fee in their investment, and they also provide an IRR of 14-21% if offered by a company. This is one way to know if the sponsor is right for you or not. The ideal IRR you can expect in CRE deals is around 12-20% and anything below this isn’t very profitable, and above this could be a red flag meaning you should put in a bit more research before moving forward with your sponsor.
Also, try to compare the IRR and risks offered in one deal with those of another.
Investing Through Assetmonk
Assetmonk is a real estate investment platform that offers carefully curated and customized real estate deals to its investors. You can easily invest through Assetmonk if you have valid KYC and AML (Anti Money-Laundering) documents.
What do we offer?
We specialize in Residential, Commercial, Co-living, Senior Living, and Condominium assets. We also research very thoroughly when selecting the best non-commercial and commercial real estate crowdfunding deals for you. Our deals show high growth potential, promise attractive returns, and high capital appreciation.
Not just that, the assets offered by Assetonk have very high liquidity rates and you also get an IRR of 14-21%. Unlike many other investment platforms, Assetmonk has a transparent structure with digital security and secure transaction procedures. Assetmonk conducts a very strict due-diligence process to make your investment experience easier, by bringing only the best and safest offers to you only.
Evaluating a crowdfunded real estate investment is not a fixed set of steps that you need to follow for best results. Instead, as the name of the article suggests, these are just some tips that might help you understand the various aspects of the investment.
Real Estate Crowdfunding can be a great means of generating a passive income if you make a smart investment by thoroughly examining all the aspects of it. If you are an investor starting your investment journey, you can visit Assetmonk’s website for guidance as well as great investment deals.
Evaluating Your Crowdfunding Real Estate Investment FAQ's:
You can start evaluating your investment by weighing the risks and benefits you will be earning. It is a good idea to know more about your sponsors, and critically evaluate the IRR offered and fees charged.
Crowdfunding is a modern investment method of raising capital for a real estate project by pooling assets from different investors.
When you crowdfund a real estate project if your investment adds up to say 5% of all investment. When the project starts earning a profit, 5% of that profit will be your earning.