Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
A Guide to Real Estate Investing through Crowdfunding in the US and Canada
July 13, 2023
Image: Unsplash/Chuttersnap
Real estate crowdfunding has transformed how people invest in real estate and given US and Canadian investors new opportunities. Let's dive deep into this exciting investment strategy and explore how it might benefit you.
Understanding Real Estate Crowdfunding
Simply put, real estate crowdfunding is pooling money from multiple investors to invest in a property. It's like joining forces with friends and family but on a much larger scale! This approach differs from traditional methods, as you don't need to manage the property or put down a significant amount of money—crowdfunding platforms present investors with various investment opportunities to choose from.
The Real Estate Market in the US and Canada
At the moment, the housing markets in the US and Canada are growing like never before
The Growth Spurt
What's the secret behind this skyrocketing growth? Well, a couple of things: low-interest rates and high demand for houses. You know, many people want homes, but they're way too costly. That's where investors come in.
Low-Interest Rates
Interest rates are super low. I mean, historically low! With such low rates, people are more motivated to borrow money and buy properties. Having low-interest rates makes more individuals interested in investing.
High Demand for Properties
Oh, and did I mention homes are in high demand? In both the US and Canada, everyone desires their own space. With so many people wanting to buy, housing prices just keep going up and up.
Decreasing Homeownership
In both the US and Canada, everyone desires their own space. Acquiring a home is harder than in the past. In fact, homeownership rates are dropping. A growing number of individuals can't pay for a house. It's getting pretty tough out there.
Opportunities for Investors
Despite the challenges, there's a hidden opportunity. The current market situation is excellent for investors. They can make some serious money without having to fork up a massive amount of cash upfront. Sounds like a win-win, right?
Benefits of Real Estate Crowdfunding
There are numerous advantages to investing through crowdfunding.
- Lower entry costs: With a smaller initial investment, you can own a fraction of a property rather than having to bear the entire cost.
- Diversification: You can spread your investments across various properties, reducing the risk associated with owning one single property. Crowdfunding participants can invest in student rentals, single-family homes, multi-family, and more.
- Passive income: You can earn income through rental yields without having to deal with the daily management of the property.
Consider Sarah, who contributed $5,000 to a crowdfunding campaign for a multi-family housing complex. She enjoys monthly dividends and potentially increased property value over time, all without having to manage the property or deal with tenants directly.
Risks and Challenges of Real Estate Crowdfunding
Like any investment, real estate crowdfunding comes with its risks and challenges.
- Market volatility: As property values fluctuate, so will your investment returns.
- Liquidity issues: It's harder to sell a portion of your investment compared to a traditional property investment; you may be locked in for a specified period.
To mitigate these risks, conduct thorough research, select reputable platforms, and diversify your investments. Remember, never put all your eggs in one basket!
How to Get Started with Real Estate Crowdfunding
Ready to invest? Follow these steps.
- Determine your budget and investment goals.
- Research reputable platforms, such as Fundrise (US) or NexusCrowd (Canada).
- Sign up and complete the necessary due diligence for each platform.
- Review available investment opportunities and select ones that align with your goals.
- Invest in and monitor your portfolio's progress over time.
Real estate offers various investment options. Purchasing a home isn't the only option! To kick off your journey, consider these ideas.
- Real Estate-Centric Investment Trusts (REITs) - REITs are like stocks for real estate. Basically, you buy shares in a fund that buys properties. Bypass the nitty-gritty and reap the financial benefits.
- House Flipping - Buy a rundown house, fix it, and sell it for a higher price. Sounds simple, right? It's definitely risky, but the payoff can be big.
- Renting Out a Room - Consider renting a room in your living space. It's an easy technique to make some additional income. Plus, you'll have company!
- Crowdfunding - Join up with other investors on crowdfunding platforms. Pool your money together, and fund a real estate project. You all share the profits!
Final Thoughts
Real estate crowdfunding is changing the landscape of property investing. With lower entry costs and increased diversification, it's an exciting opportunity not to be missed. However, make sure to assess the risks and challenges, do your research, and always invest wisely.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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