What is real estate crowdfunding: learn about the concept

Have you heard of real estate crowdfunding? It is a type of investment that emerged as a disruptive innovation in the real estate market.

This modality, which has gained prominence in recent years, represents a significant evolution in the way people can invest and actively participate in the development of real estate projects.

It is a collaborative and accessible approach for those interested in participating in the real estate industry.

Let's understand more about what this type of is alternative investment, what are its advantages and how it works.

What is real estate crowdfunding?

Real estate crowdfunding is a type of collective investment and financing that allows investors to participate in real estate projects.

Rather than relying on a single investor or financial institution to finance a venture, real estate crowdfunding makes it easier to raise funds from a wider community of investors, often through specialized online platforms.

Real estate developments can include construction of residential, commercial, hotel and similar buildings.

Investors can participate in these real estate projects on online platforms specialized in the subject.

In the online environment, investors can choose between different project options, with different characteristics and risks.

And the returns obtained always come from rental income or from the sale of properties that have increased in value. They usually receive a share in the project in the form of bonds, shares and other instruments.

This type of investment allows investors to diversify their portfolios by investing in different projects, often with relatively small amounts. This can reduce the risk associated with a single venture.

Furthermore, crowdfunding is a way to ensure greater accessibility to real estate investments, as they can be cheaper since other people will participate.

How does real estate crowdfunding work?

Crowdfunding is a type of collective financing, a method of raising funds that brings together a large number of individuals to finance real estate.

And it works very simply, you participate in an online platform that will act as a bridge between you and organizations that are in need of resources in which other people are willing to invest.

Investors will be able to choose between different projects, each of which has different characteristics and risks.

Typically, developers will create real estate projects and advertise them on online crowdfunding platforms so that investors can find them.

And on these platforms, investors will be able to evaluate the project and decide whether it is a valid investment for them or not.

Investors contribute capital, which is then used by the developer to finance the development of the project. The project will then be built and delivered to buyers.

Once the funding target is reached, the money is released to the project promoters. They use the funds to develop the project, whether by building, renovating or acquiring properties.

After that, investors will receive their returns from rental income and property appreciation.

Once the project is complete and all returns have been distributed, the investment is closed. Investors can withdraw their funds and, in some cases, sell their holdings on the secondary market if the platform offers this option.

Advantages of this type of investment

Real estate crowdfunding offers several advantages for both investors and real estate project developers.

The first of these is access to real estate investments with minimum investment, this allows greater accessibility to real estate projects with lower values, providing greater access to the market.

With this accessibility, the real estate investment market becomes more democratized, allowing a wider variety of people to participate in investment opportunities that were previously restricted.

Additionally, investors can diversify their portfolios by distributing their resources across multiple projects, reducing the impact of poor performance in a single venture.

And if you are interested in this possibility, the investment process is usually facilitated by online platforms, making it more convenient and allowing you to do everything without leaving home.

Risks of real estate crowdfunding

Like any type of investment, real estate crowdfunding also presents its risks that must be taken into consideration before starting to invest.

The first of these is liquidity risk, that is, it may be difficult or take a long time for you to receive your share of the project's participation, which makes this liquidity much longer than other investments.

Liquidity may be limited, especially if there is no secondary market available, which is different from stock exchange.

Another risk worth mentioning is the credit risk of the developer. Your money was entrusted to this developer. If they have any type of financial problem that delays the delivery of a project, your investment may be at risk.

Real estate projects, especially those in the development phase, are subject to risks associated with construction, planning, permits, among others.

Delays, additional costs, or unexpected problems may arise during the development process.

Furthermore, your investment may also be at risk when we consider the market, especially talking about the financial market that faces fluctuations every day.

If the project is delivered at a time when the market is not in the best shape, your returns may not be what you expected.

And finally, the most common: the risk of fraud. Although these are rare cases, some frauds can occur on real estate crowdfunding platforms.

The company in question may be promoting a project with unrealistic returns just to attract investors, and they may also use false information to attract and deceive.

Some people even report cases where the developer simply disappeared with the investor's money. Therefore, it is necessary to be extra careful when using the platforms and always look for references.

Remembering that every investment has the possibility of ending in risks and difficulties for the investor, which is why it is so important to study the market and the area in which you want to invest.

Be careful, talk to experts or more experienced people and get the return you expect through real estate crowdfunding.