Real estate crowdfunding

Real estate crowdfunding

Crowdfunding models

Crowdfunding takes different forms. A distinction is made between:

  • Donation-based crowdfunding model - also called charity-based,
  • Reward-based crowdfunding model - model with rewarding participants, also called sponsorship.
  • Credit-based crowdfunding model - a loan model.
  • Equity-based crowdfunding model - - an equity model.

In the donation model, there is no return benefit, which is considered as one of the basic features of crowdfunding. In this type of crowdfunding, internet users financially support a project with a philanthropic purpose. Therefore, there are doubts whether this model can be considered a variant of crowdfunding or a type of financing non-governmental and charitable activities.

The model with rewarding participants is the most common type of crowdfunding. Its essence is a return benefit in a tangible or intangible form. These may be e.g. copies of video games, DVD films, albums with recordings which are handed out after raising funds for their implementation or meetings with their creators, or personal thanks for providing financial support. Therefore, it can be concluded that in this type of crowdfunding the person who finances makes a prepayment related to the purchase of a specific product or service, which in practice are subject to pre-sale.

The essence of loan crowdfunding is the possibility to take direct microcredits from investors - Internet users. Most often they are repaid after a certain period of time with a small interest. However, there are also platforms that offer such loans at no financial cost.

The most important type of crowdfunding - from the point of view of real estate investment financing - is equity crowdfunding. Real estate crowdfunding is a method of financing a project that consists in reselling a certain number of shares of a company to individual investors in an open-call format via an online platform. The purchase of shares entitles to participate in profits generated by the project.

The shares acquired during the crowdfunding campaign can be resold to other investors. However, they are characterized by a certain level of liquidity. There are platforms that, in addition to attracting investors, offer the possibility to sell investments in crowdfunding projects. The condition for the transaction is to attract another investor. The market lacks the infrastructure for trading these instruments.

Models of equity crowdfunding

  • Equity crowdfunding comes in three models:
  • Collective investment.
  • Investment fund.
  • Mixed solutions.

The essence of the model of collective co-financing of companies is to invest small amounts of capital in the development of the organization. In return for financial support, investors expect a share in the future income of the company.

The investment fund model involves collective placement of funds and collective investment. In this case, a crowdfunding platform can function like an investment fund. In this model, funders share in the profits or receive shares of the funded company.

In the investment model, shares are sold and ownership is transferred to online investors. In this case, the invested funds usually have a high value

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