Crowdfunding real estate, a way to finance real estate investments

Investments in real estate, as a component of a well-diversified investment portfolio, bring many benefits, in particular they are a capital investment, lead to an increase in its value, generate regular rental income and protect the capital against loss of value due to inflation. In practice, there are two basic methods of investing in real estate:

• Direct investment.
• Indirect investments.
• Crowdfunding of real estate

Direct investments can yield high rates of return, provide a high level of transparency in the investment process and allow you to maintain full control over the project. However, they are capital intensive and carry high risks that are difficult to diversify.

Indirect investments through investment funds make it possible to make investments which do not require high amounts of capital and which carry a lower risk. However, in this case investors have only a minimal level of control, face management costs, low project transparency and lower rates of return than in direct investments. An alternative method of investing in real estate that combines the advantages of direct and indirect investing is crowdfunding.

Real estate crowdfunding involves collective investment in real estate through online applications, crowdfunding platforms, from which you can purchase shares in real estate investment projects.

Advantages of real estate crowdfunding

From the investor's point of view, among the advantages of this form of investment are:

• Low transaction costs.
• Transparency of the investment.
• Maintaining control over the investment.
• Possibility to limit risk through diversification of investments.
• Low barriers of entry, possibility to invest capital of small value e.g. 1 euro.

In addition, real estate crowdfunding allows you to include short-term as well as long-term investments in your portfolio. This ensures income in the short term and an increase in the value of the capital invested in the long term.

Real estate crowdfunding participants:

• The bidder (project proponent), which is an individual or business entity seeking funds to finance a real estate investment,
• Investors who have decided to fund the project through a buyout,
• A crowdfunding platform that acts as an intermediary between the bidder and the investors.

Types of real estate crowdfunding investments:

• Land purchase.
• Annuity projects.
• Real estate development projects.

Land purchase projects are carried out by special purpose vehicles. They generally acquire agricultural land in locations that allow it to be converted and subdivided into building lots. At the end of the investment period, 5 - 10 years, the land is sold and the profit made is divided proportionally to the number of shares held and paid to the investors.

The process of financing the purchase of land through a crowdfunding campaign:

Creation of an offer on a special online platform.

• Investment Description.
• Crowdfunding campaign
• Acquisition of shares by investors.
• Acquisition of the planned amount of investment within a certain period of time.
• Acquisition of land.
• Change of land use from agricultural to construction land.
• Selling the construction land.
• Repayment of investors.
• Return of capital to investors.

The process of financing a development project through a crowdfunding campaign:

A developer, wishing to raise funds for project implementation through a crowdfunding campaign, must - first of all - create on the crowdfunding platform:

• An offer containing the details of the development project.
• Verification of the offer by the platform.
• Publication of the offer on the platform.
• The crowdfunding campaign.
• Investor investment.
• Obtaining the planned amount of investment in a specified time.
• Transferring funds to the developer.
• Redemption of shares plus the share of profits attributable to them.

The process of funding an annuity project through a crowdfunding campaign:

• An offer containing the details of the annuity investment.
• Verification of the offer by the platform.
• Publication of the offer on the platform.
• Crowdfunding campaign.
• Investor investment.
• Obtaining the planned amount of investment within the specified time.
• Transferring funds to a real estate management company.
• Buying a real estate.
• Adapting the property to the company's requirements.
• Leasing the property.
• Dividend, annual interest payments from investors' investments.