Real Estate Crowdfunding : Another way to invest
You are an entrepreneur in the real estate sector and you have a project, but you do not have the necessary own funds to carry it out? Or do you have a certain amount of money and want to invest your money to make it profitable? It’s simple, in both cases, opt for real estate crowdfunding. The subject arouses your curiosity, so reading this article will clarify the concept of this new investment method.
What is real estate crowdfunding ?
Real estate crowdfunding consists in financing real estate projects by groups of individuals through an Internet platform. In return for their investment, the people who have invested in a project will receive a remuneration according to the amount of their funding. As for people with a project, real estate crowdfunding is an intelligent way to benefit from financial assistance to finance or refinance their own funds for the acquisition of land or the construction of a real estate property.
Three parties therefore play the main roles in real estate crowdfunding::
- the investor: the person who will invest his money,
- the real estate operator, promoter, merchant or project owner: the person or entrepreneur who needs money and who will then remunerate the investor,
- the platform through which exchanges are made.
How does real estate crowdfunding work ?
The investor will first have to register on a real estate crowdfunding platform to become a member. These platforms have the regulated status of Crowdfunding Advisor (French accronym CIP) or Crowdlending Intermediary (French accronym IFP). He will then have to complete his investor profile, providing the documents and information required to be validated. Once the validation is done, he can then invest in one or more projects in the amounts that suit him.
Crowdfunding is different from the crowdlending term you may have seen in blogs or some platforms. The difference lies in the difference between the verbs invest and lend. Investing provides higher returns with more risk. Lending is done on a loan platform k.a. crowdlending platform. The latter acts as an intermediary between a physical investor and a project leader. Both enter into a loan agreement. No advice is given to you.
On the other hand, only a crowdfunding or advisory platform can allow you to invest and is equipped with financial tools such as shares, bonds or certificates (called minibon in French).
The project sponsor must propose its project(s) to the platform. Several selection criteria will be taken into account before the project is accepted, put online and accessible to investors. Generally, real estate projects are located in urban or tourist areas with high potential.
The profile of the real estate operator (promoteur in French) will be studied according to the background and experiences of the operator’s manager. As well as its ability to build, sell and finance the operation. The company’s history, profitability and reputation will also be seriously examined.
Projects are selected according to the neighbourhood, the size of the program, the promoter’s track record, the progress of the building permit application, or the progress of the marketing of the lots.
The selection criteria depend on our platform, we select each project with the greatest care. Once all this has been verified and validated, the promoter will be able to submit his project for funding.
Real estate crowdfunding advantages
Real estate crowdfunding has many advantages, it is a short-term investment that promises a good return. Depending on the project, the benefits generated can vary from 5 to 12% per year. In addition, the average duration of an investment varies from 12 to 36 months. However, be aware that default risks exist as well as liquidity risk, credit risk – total or partial loss of principal and interest, dilution risk.
Real estate crowdfunding allows middle-income investors to choose projects and invest in real estate. Moreover, unlike a traditional real estate investment, crowdfunding is accessible to everyone.