Real estate is without a doubt one of the best, money-spinning, methods of investing. It not only has the potential for significant returns but also shields the investor(s) from price increases. However, getting started with real estate investing may prove to be quite difficult when you need more than your savings for an investment and can’t access a loan.
There are several ways to finance your real estate investment depending on the project, timeframe, amount of funds required and more. Crowdfunding and private money lenders are two incredible tools for raising money for your investment. They both have their pros and cons, and different investors opt for different methods.
What is real estate crowdfunding?
Investors and sites are naming this the ‘new path’ when it comes to funding real estate investments. It is an alternative source of funding that typically raises small amounts of money from multiple investors using social media platforms for an improved reach. One of the biggest benefits is that it allows borrowers to reach many potential investors.
There are two types of Crowdfunding investment — equity and debt Investments. The former involves passive ownership as the investor gets their returns from rent and asset price appreciation. The latter deals with projects that use a loan(s) for funding. The project thus secures the loan in the given timeline.
Why should one use Crowdfunding?
Historically, real estate investment was dominated by investment trusts and private equity. The number of people able to engage was limited. Crowdfunding, on the other hand, is easily done online and provides access to a much bigger pool of real estate investors.Crowdfunding is fast, reliable and very resourceful as compared to the more traditional paths. There are plenty of real estate crowdfunding sites online and more coming into existence on a weekly basis. Before trying out crowdfunding it is wise to check the site’s reputation, learn from personal experience as an investor and be knowledgeable in the market and financial details.
Crowdfunding versus private money lending
Developers and investors can reap good returns or suffer some losses using any of the methods mentioned above. Crowdfunding is advantageous as investors can access the market without requiring a large sum of money. Additionally, one can select from the numerous projects to invest in those that align with their visions and goals. Some conventional lenders are not interested in smaller projects or loans as they can’t make the profit they want. Crowdfunding is a great way to go for smaller deals.
Unfortunately, every investment has a risk, and every investment plan has cons. Crowdfunding is not a sure way to avoid losses, and if the market has downs, the risks are equal to those encountered by any real estate investor.
Private money lending, on the other hand, is better for investors who have substantial financial resources and who mostly want to diversify or avoid the whole hassle of having to deal with tenants and properties. Fortunately, lenders can take hold of the deposit/collateral in case of default. On the downside, private lending does not have any tax advantages. Inflationary losses may also be incurred if investors are thinking of a long-term plan. Private money lending is great for big projects that one can afford and has the benefit of providing passive income.
Regardless of whether opting for private money or crowdfunding, an investment should not be driven by the need for short term gains but rather a steady, positive, long term cash flow. Whether you are a millennial looking for some change and diversity, or a retiree wondering what to do with all the retirement savings, with some good research and a good team, a real estate investment is a great way to go.
7801 E Bush Lake Rd, Minneapolis, MN 55439, USA