This guest post on real estate crowdfunding has been kindly provided by Peter Smith and PropertyTurkey.com.
Behind cash, stocks and bonds, real estate is the fourth largest form of asset type in the US. Investing in commercial property is quite common these days, and many investors strongly believe that this form of investment can be incredibly profitable. However, not all portfolios feature real estate holdings. As a matter of fact, for many people, real estate is an untouched market. Fortunately, with the help of real estate crowdfunding, a broader investor base can now benefit from this valuable sector of the property market.
A closer analysis of today’s real estate market
Commercial real estate is defined as any sort of property that was designed to generate income. In this category, we cover everything from office buildings and apartments to industrial complexes and shopping malls. Commercial property produces income as price appreciation when sold or as rent paid when leased to tenants. Investors witness returns that are directly linked to the value of their property; the value increases or decreases accordingly based on the conditions of the asset.
Commercial real estate – main characteristics
Unlike additional investments of the same sort, commercial real estate is different. That’s exactly why investors have high hopes that they’ll see substantial returns. Here’s why this form of investment outperforms similar asset classes:
- Volatility – as opposite to stocks, which have proven to be more unpredictable in the last few months – real estate offers a lot more stability. Worldwide, specific real estate markets in the US have turned into an ideal place for international investors searching to run away from the troubled financial markets in Asia. In contrast to stocks, real estate may provide more insulation as far as price movement is concerned.
- Inflation – inflation can feature many drawbacks in real estate. However, researchers emphasise that there’s an increased level of correlation when compared with additional asset classes, especially when the holding period is long.
- Returns – the global economic growth for 2015 was a bit of a disappointment for many asset classes. However, commercial real estate was an exception. NCREIF mentioned that investments in property generated a great total return of 12.71%.
What does crowdfunding have to do with real estate?
Commercial real estate was once reserved for private investors with established connections. Several US institutions with capital afford to invest big and allocate a sizeable portion of their money to real estate. Sadly, individual investors were not part of the equation. However, restrictions were lifted in 2012. This has made enough room for real estate crowdfunding. The new investment method is allowing individual investors to buy property with little money. RealtyShares, for example, is a well-known crowdfunding platform which is targeted at individuals looking to diversify their portfolio and invest in commercial real estate as well.
The rise of crowdfunding platforms
Crowdfunding platforms permit investors with all types of budgets to get in contact with private property deals online without having to stumble upon any financial or non-financial obstacles. It’s no longer necessary for someone to deposit £50,000 to invest in commercial property. Instead, they could participate in real estate deals and only pay up to £5,000. As far as diversification in concerned, crowdfunding offers investors a wealth of commercial investment types like self-storage units, office buildings, healthcare facilities, retail properties, and multi-family properties.
The good news is that not only top-tier investors with loads of cash will benefit from real estate crowdfunding. Small companies and entrepreneurs eager to invest in real estate will be given the opportunity to raise money more efficiently without turning to bank loans or turn to private money sources. Given that the recession forces banks to have stricter rules and credits are becoming tighter, property crowdfunding comes to the rescue with great connection for real estate entrepreneurs with a solid plan and a moderate investment capital.
Nevertheless, in spite of all the benefits of crowdfunding real estate, the niche does feature some drawbacks too. For instance, major platforms have limitations in terms of allowed investors; only accredited investors are permitted to sign up and begin investing. But then again, irrespective of these drawbacks, crowdfunding real estate is a step forward towards a better way of buying property and diversifying your portfolio.