By Aubrey Hansen
One of the hottest aspects of the real estate market at the moment is the relatively new concept of crowdfunding.
Up until recently, we’ve seen real estate investment as the playground of the wealthy, with most US real estate investment companies looking for accredited investors, many of whom are required to possess a net worth of $1 million.
Well, those days are in the past, especially now we’ve seen the introduction of the Jumpstart Our Business Startups Act, which came into being in 2013, breaking down the doors for a whole new class of investor.
While this is undoubtedly a good thing, it’s still worth remembering why the rules that meant only accredited investors could get involved in investing in real estate were initially put in place.
The rewards are attractive in real estate crowdfunding, but there’s an element of risk that goes along with those potential rewards.
Before you get involved, here are a few things you should bear in mind.
Never risk a retirement fund
Like most investment opportunities, there is always a risk that you could lose your original stake, so make sure that any money you invest is a sum that you can live without if the worst should happen.
For most people, that does not include their retirement fund.
Don’t expect quick results
Many of the real estate crowdfunding platforms issue some form of return after a year or so, with some of them looking at two years. Often-times the longer you’re willing to invest, the higher the profits.
For example, GroundFloor offers an average return of 10 percent.
This isn’t a get rich quick scheme, like most investment opportunities it’ll take time to see results.
Look for experience
How long has the company you’re investing with been in the real estate game? Are they relatively new? Have they jumped on board following the aforementioned JOBS Act in 2013? Or do they have a history of successful real estate business?
Do your research, and don’t be drawn in by lower investment barriers and talk of higher returns.
Past results matter
You can find out just about anything online today, including how a company has treated former and current customers and clients.
In today’s internet world there really is no hiding place for bad actors, and before long the reviews and criticisms start to rise to the top.
Make sure that any platform you’re considering investing with has a track record of customers who have seen returns or who can vouch for the people involved.
Remember that it’s a changing industry
For many investors, the idea of crowdfunding in the real estate industry may seem new, but it’s actually been around in one form or another for quite a while.
We’re now seeing the emergence of blockchain technology into the space, coming in the form of more transparent, and more efficient ways to do business. The B11G project based out of Europe is a good example, which offers returns on a par with (and exceeding many) of the traditional crowdfunding real estate platforms. A 14 percent return over 24 months is highly competitive, and such projects offer new levels of transparency, and often-times a token that allows investors to not only reap the benefits of their long-term stake but to enjoy other benefits such as being able to trade their tokens on a decentralized exchange.
There’s also the UK-based CurveBlock, which allows you to invest using GBP, USD, EUR, and ETH while donating 5 percent of all profits to a charity of token holders choice.
The industry is always changing, so be sure to keep up to date with new technology.
Be honest about your limitations and position
There’s no point in researching a platform that only entertains accredited investors with a net worth of $1 million if you don’t fit within that demographic.
The likes of ArborCrowd isn’t really the place for a beginner investor who doesn’t have much to spare, but GroundFloor, for example, will accept investors who can invest a minimum of $10, while PeerStreet allows investment from $1,000.
If you’re new to the investment game, then don’t be afraid to start small and move up.
Just make sure to do your due diligence before handing over any of your hard-earned money.