Real Estate Crowdfunding is a method for raising money and an easier way to access business for investors. It utilizes the internet, Facebook, Twitter, and LinkedIn, to reach potential investors. The idea behind crowdfunding is that people are willing to invest. Large sums of money are raised as it offers companies access to capital. The investors have the ability to become shareholders in a company or real estate property.
Key Points to Know About Real Estate Crowdfunding
- Real estate crowdfunding uses social media to connect investors to property investments.
- In Real estate crowdfunding, an investor can buy into a property and become a shareholder.
- Crowdfunding offers access to capital that investors might never be able to raise.
- Crowdfunding offers the ability to become shareholders in a company or in a real estate property.
How Crowdfunding Works
Crowdfunding was commonly associated with equity transactions; companies would use the process to raise capital. Crowdfunding pools money together to use the funds to invest in the company’s future. Equity crowdfunding was only open to accredited investors including banks, pension plans, as well as affluent investors. For an individual to qualify: earning $200,000 and a net worth exceeding $1,000,000.
Benefits
To know about real estate crowdfunding, one of the benefits is a minimum of $1,000 to invest in a company. Also, if the company issues new stock, there could be an enormous potential for investment gains. One of the benefits for non-accredited investors is the low minimum investment amounts which are typically required.
Risk
One of the biggest risks to know about real estate crowdfunding is that money is put in an unknown company. In other words, it doesn’t have a financial history and investors could lose all of their investment. Since there are risks, the SEC has imposed investment limits for non-accredited investors.
Crowdfunding came about from the passage of JOBS, which allows aiding small and mid-sized companies. The SEC has since lifted the restrictions that banned non-accredited investors from investing in crowdfunding. Although there are limitations, they can participate in equity transactions as well as real estate transactions.
To know about real estate crowdfunding, an investor can buy a property and become a shareholder. The investor can earn a portion of the profits generated from the real estate investment. Revenue generated from the sale of the building will be paid to the investors. In some cases, investors can become shareholders for $5,000.
Investment Limits
Less than $107,000
If your net worth is less than $107,000 annually, you can invest up to the greater of either $2,200 or 5% of net worth.
More than $107,000
If your net worth is more than $107,000 annually, you can invest up to 10% net worth, but not to exceed $107,000. Real estate crowdfunding helps investors to diversify the risk in their investment portfolios by not having all funds in the equity market.
