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Should I invest in real estate crowdfunding in Canada?

Guest Post | Dec 24, 2021

Investing in real estate crowdfunding - Should I invest in real estate crowdfunding in Canada?

If you're looking for a way to invest in real estate in Canada without having to pay high prices, crowdfunding might be a great idea. This is especially the case with more expensive cities like Toronto, Montreal and Vancouver, where according to strawhomes.com, home values are above $2 million dollars in some cases. This type of investment platform allows many people to pool their money and buy a property in a shared manner.

What is Real Estate Crowdfunding?

Real estate crowdfunding involves investing in properties through a crowdsourcing platform. As an investor, you can invest in single-family residences, multifamily units, and commercial real estate. The real estate crowdfunding platform makes all of the necessary investments and manages them. Unlike REITs (Real Estate Investment Trusts), crowdfunded real estate doesn't require the owner of the property to sell it immediately to investors.

The investors are then given rights to voting, distributions, and other rights that are inherent to investing in real estate. These investors also earn profit from property appreciation and rental income.

While real estate crowdfunding is a new way to invest in real estate, it has some advantages. For example, Canadian investors can choose a particular project or a specific location. Some crowdfunding platforms specialise in commercial real estate, while others only focus on single-family residences.

Additionally, different platforms may require specific investor qualifications. For instance, CrowdStreet, one of the many real estate companies, is only open to accredited investors. Addy Investments is another type of firm that offers alternative investments pathways. The majority of other platforms allow you to pick the property you are interested in investing in, as long as you meet minimum investment requirements.

real estate crowd funding - Should I invest in real estate crowdfunding in Canada?

Is investing in crowdfunded real estate a wise choice?

Crowd funding can reduce barriers for real estate investors who want to invest in property and lower the management of financial responsibility. Real Estate investment opportunities should be carefully selected. Are they equity investments, or debt with high potential returns? Are there investment minimum amounts, or do investors have to fork out the entire investment? These will all determine how wise each option is for you - and what your annual return will be, as well as your risk.

Should I invest in crowdfunded real estate?

Before you invest in crowdfunded real estate, you should do your own research and know the risks involved. As retail investors, it's best to find real estate that you already have knowledge of, rather than buying it from a stranger. There are a few factors you should consider before investing. While crowdfunded real estate is not for everyone, it is an ideal way to get started in real estate. It requires lower initial investment amounts, which means the risks are low. If you are not confident about your skills and knowledge, you should create a risk profile assessment and decide whether it's right for you.

How Can You Start in Real Estate Crowdfunding?

The initial investment required for crowdfunding real estate is typically $500 or less minimum investments. Many of the crowdfunded real estate platforms have automatic allocation options so you can make an investment whenever you have the money. The platform will also keep track of your investment properties and give you reports with pie charts. Depending on the rules of the investment committee, you can choose the type of investment opportunity property you are interested in and then invest your funds accordingly right from your online investment platform. You should also take the time to learn about the investment strategies and the properties, and their respective real estate market and to determine if it is a good or a risky investment.

investing online real estate - Should I invest in real estate crowdfunding in Canada?

One of the largest crowdfunding real estate platforms is Fundrise.

They have more than 170,000 investors and have over $4 billion in assets. Their investors own a percentage of each investment and receive quarterly dividends  and appreciation of their share price. The platform does all of the investing work into the diverse housing market areas, which helps keep the investment costs low. The average annual return is eight to twelve percent, and in some cases, even higher annual return - depending on the real estate companies' schedule and which real estate properties are being handled.

The most common type of real estate crowdfunding is auto-investing.

These platforms allow investors to invest in real estate without the need to perform a detailed analysis. These investment platforms allow investors to set their investment criteria and have funds allocated automatically to them and to their investment dollar. The majority of real estate crowdfunding is auto-investing, which makes it a popular choice for those with little or no experience in the industry providing better investment return (read safer returns on the entire investment). If you have no idea about the industry, auto-investing is the best option for you.

Can You Make Money from Crowdfunding?

This type of investment also gives you different opportunities to profit. Some deals are passive, involving renting out the property to tenants. Others are "flipping," requiring you to renovate and improve the property in order to increase its value. There are many benefits to investing in this type of real estate.

Earn passive income

The main advantage of real estate crowdfunding is the potential for long-term gains. Passive investors love this option. While many deals feature short-term fix-and-flip options, there are also long-term development opportunities that offer high returns. Some of these projects are designed to resell the properties as soon as they are completed, while others are meant to provide monthly income and hold on to the initial investment for a longer period of time.

See:  3 Trends in 2022 Predicted to Shape Investment Crowdfunding

In addition, you'll receive regular rental income from the property, and you'll also be able to rent it out to tenants. The prices of commercial properties and residential properties in British Columbia and Ontario are expected to increase over the next five years, making this a lucrative opportunity for both individual investors and accredited ones.

Potentially very high returns

Crowdfunded real estate investment is an excellent option for passive income, as it allows you to take advantage of double-digit returns, which are a combination of capital appreciation and rental income.

This type of investing allows people to accumulate wealth faster and more easily by all potential investors. You don't have to be a millionaire to take advantage of this opportunity. You can even invest in a project with very low minimums and enjoy the financial rewards for years to come, especially during a bull market like the ones we are experiencing.

What Type of Real Estate is Crowdfunded?

Most of the funds raised up to now have been used to develop residential properties, like multi-family structures as well as for "fix and flips." Markets like Arizona, Texas, California and Florida have witnessed a lot of investment interest from investors in renovations that are sold in relatively short periods to yield high investment returns. Does this continue to be the case in BC where the majority of value lies in the land rather than the structure? We'll have to wait and see.

Benefits for Investors

Another benefit of crowdfunding is the ability to diversify your investments. If you make a single investment, you may end up losing your entire money. With real estate crowdfunding, you can spread your money among several investments. By dividing your investment, you spread your risk. If one of the investments fails, you won't lose the entire amount. In contrast, if you have five investments, you'll only lose $100,000 if only one of them fails.

Risks

While crowdfunding offers a great way to invest in real estate, you should be aware of the downsides. For instance, you risk losing liquidity. In addition, if the economy is weak, the market may decline and your investments will lose value.

Remember that it is very illiquid. Even if the investment is not as risky as it sounds, it is important to know the risks of crowdfunded real estate. You should only invest in a property that you can afford to hold for a long time.

See:  Reg CF: Investment Crowdfunding Tops $1 Billion on Heals of Funding Cap Increase

As long as you know the risks and rewards of the investment, you should consider using this method to invest in real estate. There are many pros and cons to real estate investing, but it is important to remember to read about these before you commit your money.

Conclusion

There is little to no doubt from our research that the potential for crowd capital across all industries, including real estate is significant. Real estate is still lagging in the development of markets because of the strong traditional financing options regulations, and to a lesser extent our business culture of a conservative nature. The final size of the market will be determined by a variety of aspects, but the positive is that the critical mass is increasing within Canada to support equity crowdfunding.

Does culture kill the equity crowdfunding market in Canada? We believe that the answer is no. What are your thoughts? We would love to hear your thoughts and suggestions.


NCFA Jan 2018 resize - Should I invest in real estate crowdfunding in Canada?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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