Buying, selling and renting of properties is what all constitutes the real estate sector. The real estate investments have always benefited the investors with good rate of returns for a long time now. Although, people with strong capital backing or who have been able to raise funds from the traditional resources have been able to make benefits from these investments.
Crowdfunding that has gained popularity in the last months of 2013 is a way of raising funds for campaigns for non-profitable organizations, political funding, investments for a startup company or investing in a property. It is important to understand what crowdfunding is, what the benefits that the investors can take are and how it is different from the traditional way of financing.
Crowdfunding: What exactly is it ?
A non-traditional way of raising funds from a large pool of people usually made online or through a web portal for different activities. Crowdfunding has been gaining popularity lately and is believed to have far reaching results. Earlier most successful in the tangible consumer products, crowdfunding today has proved to be a better alternative than the traditional ways of raising capitals and has gone beyond the consumer products.
Depending upon the cause of raising money, broadly crowdfunding can be segregated into four types:
- Donation based: In this type of funding, the backers usually donate money for a cause and do not receive any returns.
- Reward based: This type of crowdfunding is usually used by startups and small businesses targeting a certain amount they want to raise. In return, the company gives the backers some incentive for participating in the project for which they had raised funds for. The incentives depend on the amount of funds they commit to.
- Credit based: More commonly known as peer to peer lending, are very similar to a bank loan. In this model of crowdfunding the backer receives a rate of interest in exchange to the money he lends.
- Equity based: This model is somewhat similar to reward based crowdfunding, just with different incentives. Here incentives are actually a part of the stake of the company the investors are investing in.
What are the benefits of Crowdfunding ?
Crowdfunding certainly has a huge benefits attached to itself when compared to the traditional way of raising funds. Also crowdfunding can give a generous rate of return on your investment. It also helps in:
- Reaching a huge lot of people seeking investments or ready to invest.
- Expanding networking.
- Successfully reaching a targeted goal.
Crowdfunding in the Real Estate: How it works ?
Crowdfunding has introduced democracy in the fund raising process which has allowed people outside the traditional investor group to join in the investing process. Crowdfunding lets access and a better transparency which was not a very common scenario when it comes to real estate investing. Property investments are known to be time consuming and unless an investor has a huge capital to invest in a single entity, real estate became not reachable to large mass of people. Crowdfunding on the other hand has reduced the time and effort and has made it easier for the investors to invest more quickly and allocate their capital across different properties achieving diversification in their investment options.
With the changing trends and more people adapting to digital media, the concept of crowdfunding is expected to grow worldwide with investors other than the traditional high net worth investors will look forward to participate in the property market.
Crowdfunding is beneficial to the investors as it lets them invest on the projects they feel are more attractive and can make decisions on the basis of criteria that they set for making the decision. Diversification and risk spreading are some of the major benefits that investors can have through this modern way of raising funds.
All in all, the crowdfunding process in real estate investment is shaking the traditional banking and investment players. The flexibility in the process is key point that is helping it grow at a wide scale. It will not be wrong to say that the success in the crowdfunding of real estate can grow to other industries and open doors for all types of investors.