As a novel venture, crowdfunding in real estate has a steep learning curve, even for seasoned investors. But when it comes to embracing, deconstructing, and understanding how it works, real estate investors and practitioners just have to keep four things in mind, according to RealtyShares CEO Nav Athwal. Here’s a quick look at the pointers he shared in his piece on Forbes.com out Tuesday:
Only accredited investors can gain access to crowdfunding. While crowdfunding is something that most small-time investors can be excited about, it’s scope is limited to accredited investors as JOBS Act provisions for universal crowdfunding are yet to take effect.
Crowdfunded real estate debts and equity investments are different. When investors put their money in crowdfunded real estate debt, they “act as a lender for rather than an owner of the property,” in which case, they could make money from interests and other monthly payments made by the property buyer, according to Athwal. If investors opt for equity investments, they basically own properties, but “indirectly.” In this case, the investor is not protected from losses should the property failed to produce returns. But with this greater risk, comes greater return, Athwal said.
Investing in real estate crowdfunding products doesn’t make you a property owner. Crowdfunding investors become a part of a limited liability company and benefit from its income.
Investing in crowdfunded real estate investments is not real estate stocks trading. Real estate investment trusts (REITs) are different from crowdfunded real estate investments in a sense that REITs actually put their money in portfolios of properties and similar assets, Athwal explained. REITs often trade in the stock market, while crowdfunded real estate investments are limited to its platform. Moreover, investors cannot choose the property that REITs will buy whereas crowdfunded real estate allow investors to decide on which investment (i.e. debt or equity) they’d want to channel their funds to.
Some investors have a lot to learn on the rigors of real estate crowdfunding, but as crowdfunding platforms and policies evolve for the better, they’ll be able to catch up in no time.
For now, investors on the sidelines and who are not ready yet to dive in deep into crowdfunded real estate investments can also explore investing in real estate companies that cater to the sector, say real estate technology providers. A number of companies in this space have proven well for investors; in fact, one only needs to recall Zillow and Trulia as proof of the revenue potential of this growing segment.
Realbiz Media Group, Inc. (OTCQB: RBIZ) is a digital company headquartered in Florida that is poised to grow in value as its multimillion-dollar peers Zillow and Trulia. Though still rated by market intelligence providers—by likes of Goldman Small Cap Research —as a speculative buy, the company could see its valuation jump to billions, especially because of its unrivalled video listings and virtual tour technologies and partnerships with big-name realtors and brokerage firms, as well as its recent acquisitions. Realbiz Media is a company worth looking at if you’re hesitant about investing in REITs or are taking a wait-and-see attitude as developments in crowdfunding are yet to unfold.
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