As new regulations on crowdfunding for investments are passed, more and more opportunities open up to those members of the general public interested in taking part in investment opportunities that were previously only available to professional investors. Real estate investment is one of the most prominent examples. The advantages for both developers and individual investors are enormous. Check some of the main advantages below:
- Bank loans become obsolete
The most obvious advantage is precisely bypassing banks altogether. Real estate developers who want to finance a single or multi-family building, a mall, a self-storage facility and other small to medium size endeavors can get their money directly from a large pool of small investors, each one committing small amounts of money (as low as $ 1,000 or sometimes even less).
Before crowdfunding, those types of investment (that allows smaller investment amounts) were often available only in large real estate development projects.
- Less risk to everyone involved
Small investments mean less risk. If the business goes sour and the real estate project turns out to be unprofitable, everyone involved loses less. Each individual loses less money and the developer does not have a loan to be paid off.
Having a negative record on real estate deals is certainly bad for any developer wanting to be crowdfunded, but failing to deliver the project and then having bank loans to pay back would obviously be a much bigger problem.
- No need for professional investors
Real estate investment becomes similar to investing in the stock market. Developers can simply launch a campaign (similar to an IPO) to attract investors of all types and raise between hundreds of thousands and a few million dollars in a relatively short amount of time. That is certainly easier than the hassle ridden process of pursuing professional investors and then convincing them to give six digit or higher figures to a project (while sharing the ownership with some other large investors).
- Developer keeps management of the enterprise
It is, again, very similar to investing in stocks. In crowdfunding real estate deals, the whole project’s managerial tasks are the developer’s responsibility. No need to share those with a pool of investors. All the developer has to do is to keep the accounting records in order and properly audited, so that investors know exactly how the project is progressing.
That’s because crowdfunding investors usually have no desire to be involved in the business management side of the project. They don’t want to work on it, they just want to put their money in a development project and reap the profits later. That’s usually not the case with large professional real estate investors, who’ll typically want to take part in the project or have a representative to be in the board.
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