According to a report by Arabian Business, a popular real estate crowdfunding platform in Dubai has recorded six times its investor base since the pandemic. This shows that the real estate market in Dubai and the world are taking a massive interest in real estate crowdfunding.
There are several benefits for investors who want to explore this real estate investment segment. From getting fractions of interest from various buildings and commercial spaces to diversifying portfolios, real estate crowdfunding is on the rise.
What Is Real Estate Crowdfunding?
Salvador Briggman, author of the book Real Estate Crowdfunding Explained, says that since the real estate industry began incorporating crowdfunding, it has become a hit. In simple terms, crowdfunding refers to getting many people to spend a tiny amount of money to build something big and beneficial for all.
In the context of real estate, multiple investors come together and invest in one property. Even though many new investors are new to the term real estate crowdfunding, the number of investors has only been rising over the years. The original vision of real estate crowdfunding was that investors could pool in to crowdfund a property or building.
Additionally, investors picked up on this trend, and instead of only focussing on crowdfunding for individual properties, they did it for certain sections of a city.
Why Is Real Estate Crowdfunding Picking Up So Quickly?
Briggman points out in his book that people want to hand over their hard work to someone else. This is why they choose real estate crowdfunding over traditional investment these days. They want to hand over liquid assets to someone else and let them manage them. Most investors opt for this form of investing to diversify their portfolios.
The companies involved are called non-traded REITs or private REITs. These platforms collect money from such investors, put it into different funds using regulation plus, and provide financial products.
Platforms for Real Estate Crowdfunding
There are a bunch of different platforms for real estate crowdfunding. They are Fundrise, Realty Mogul, Groundfloor, CrowdStreet, Roofstock, EquityMultiple, PeerStreet, and Cadre. However, there are plenty of platforms in the market apart from these, but these are the popular ones.
Before you start your crowdfunding journey, you need to know what type of investor you are. For example, ask yourself if you are a qualified accredited investor or a non-accredited investor. These terms will help those underqualified and newbie investors from taking too much financial risk.
An accredited investor can get access to certain offers that a non-accredited investor will not get. Moreover, they also get access to some platforms, types of funding, and properties that non-accredited investors don’t have access to.
How can you find out if you are an accredited investor? By definition, it is an individual or business that has permission to trade securities without registration from financial institutions. So when a platform does not have to register an offering with any financial authority, it reduces the burden when it comes to regulations and the cost of legal and compliance.
How Does Real Estate Crowdfunding Work?
There are three main players in the real estate crowdfunding industry. They are the platform that acts as the intermediary and provides all the necessary information about various deals. Secondly, there is an investor who is going to invest money and look for a return on their investment.
The investor must be an accredited investor so that they can take advantage of these crowdfunding opportunities. Only accredited investors can buy into the game because these are risky investments, and they must be able to afford the losses. And last but not least is the person or company putting up the real estate for crowdfunding.
These people are usually the ones responsible for managing the asset. They are primarily looking for debt or equity to fund their property. Therefore, as mentioned, the three key players are the platform, investors, and the people putting the property in front of the investors.
Role of Real Estate Crowdfunding Platform for Investors
There are five to six established platforms for real estate crowdfunding that most investors follow and use for research. Unlike other sites in different domains, these sites are very different from each other. Depending on your chosen platform, it will either have debt investments or equity opportunities.
Furthermore, experts say some unique investment opportunities are fixed and flip, and some only focus on commercial real estate. Some platforms have an e-read where, rather than just choosing individual properties, they will manage and select those properties for you. Again, there are three different categories.
Three Categories of Real Estate Crowdfunding for Investors
First is direct investing, where you, as the investor, use the platform as a marketplace to then directly connect with the sponsor. You form a direct relationship with the sponsor, with the platform simply being an intermediary.
The second model is indirect investing, where if you’re going on the platform, looking at different opportunities but not having a relationship with the sponsor. The crowdfunding platform is going to have a relationship with the sponsor and manage the investment. This way, only one cheque goes to the investor, and only one entity they have to deal with.
The indirect way makes the process easier for both the investor and sponsor. The third category is when trying to create your own real estate crowdfunding platform; some websites allow you to do that. This works well when both of you have access to new developing investors and properties.
Real Estate Crowdfunding for Your Next Investment
Real estate crowdfunding has been around for over a decade, and experts predict that the industry will grow into a multi-billion dollar. You can choose to start your own mini marketplace if you have access to investors and new properties in Dubai, or go to any of the sites and start diversifying your portfolio.
Additionally, if you want to invest in individual villas, townhouses, and apartments in Dubai, you can visit TopLuxuryProperty. They have great houses on their listings with convenient payment plans and are located in exclusive neighbourhoods.