Not making money sucks. But losing hard-earned money hurts even more. I recently lost over 45% of my capital in a real estate crowdfunded deal. This failed experience helped me develop a checklist on how to invest in real estate crowdfunding; and avoid losing money.
What Is Crowdfunded Real Estate Investing?
Real estate projects are capital intensive. Developers do not have all the funds to complete the project on their own. As a real estate developer, you can seek investors on real estate crowdfunding sites by sharing your project details.
1. If your existing asset allocation is only stocks and bonds, real estate crowdfunding provides the necessary diversification by adding a real estate asset class to your portfolio.2. It provides a hands-off method for investors to gain exposure to real estate without needing to be involved with the real estate project on a day-to-day basis.
* Earned income exceeding $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year OR
* Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence) OR
* Sophisticated investors such as individuals who have obtained Series 7, Series 65, or Series 82 licenses or “knowledgeable employees” of a private fund.
Equity Real Estate Crowdfunded Investments
- usually allow you to pick up additional appreciation when the property is sold.
Debt Real Estate Crowdfunded Investments
- Debt investment only involves the specified interest payment for the duration of your loan and the return of your capital.