Crowdfunding rather than the stock market?

Nov 10

Written By Pinnacle Real Estate Investment & Development

Real estate may act as a stabilizer for many long-term investors. While the returns vary and past performance is no guarantee of future results, commercial real estate has offered a positive return for over 20, except for 2008 and 2009, the leading provider of investment performance data for US commercial properties.

Real estate can provide some level of counterbalance to the ups and downs of the stock market while offering a combination of cash flow and appreciation. Although real estate has lagged the stock market some years, it has performed better than the market in other years. Real estate can therefore complement your portfolio by lowering volatility while offering the possibility of more predictable returns over the long-term.

Buying and investing in real estate can be a very profitable venture and can be much more satisfying than simply putting your money into the stock market and hope that is grows. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance and interest over time.

While a traditional real estate transaction requires a 20% to 25% down payment, you can become a landlord or flip your assets for a profit. These options can be very time consuming and requires making monthly payments on mortgages, insurance, maintenance etc. with an increased risk of loss. Another simpler option is investing through Investments Groups and Real estate “crowdfunding” platforms. Here a quick dive into both;

Real Estate Investment Groups (REIGs)

Real Estate Investment Groups (REIGs) are ideal for people who want to own residential & commercial real estate and rentals without the hassles of running it. Investing in REIGs requires a capital cushion and access to personal funds.

Some of the advantages of REIGs; they do not require hands-on or day-to-day monitoring of your investment. They provides income and appreciation while you are sleeping. However, some of the disadvantages are there is some risks with the fluctuation of the market and the vacancy rates. These REIGs have similar fees as mutual funds, and financial reporting by the investment club is typically easy to read and understand. They also provide interim monthly or quarterly reports as an aid for forecasting and future investments in the group.

REIGs are like small mutual funds that invest in real property. In a typical real estate investment group, a company buys or builds a set of multi-family developments, apartment blocks or condos, then allows investors to purchase blocks through the investment, thereby joining the group.

The company operating the investment group collectively manages all of the real estate units, handling land acquisition, construction, maintenance, advertising vacancies etc. In exchange for conducting these management tasks, the company takes a percentage of the sale and/or rental.

Online Real Estate Platforms

Real Estate investing platforms are for those that want to join others in investing in a bigger commercial or residential deal. The investment is done via online real estate platforms, also known as “crowd funding”. It still requires investing capital, although less than what's required to purchase properties outright.

Some of the advantages of the Online Real Estate platforms, it is easy to do and you can access the portal online when you are available 24/7. Also, you can invest in a single project or a portfolio of projects, and if you are interested on a specific geographical area, you can opt to invest in that specific area. However, some of the disadvantages are your investment tends not to be liquid with lockup periods, and it is important to understand in advance what the management fees are before you make your initial investment.

With Online Real Estate Platforms you can get a diversified investment with not much money required to initiate the investment. In most cases, online platforms connect investors who are looking to finance projects with real estate developers. These developers typically offer double digit returns and use the investment as a bridge to what their conventional banks and lenders do not fund on their projects.

In Summary

Whether real estate investors use REIG’s or Online Real Estate platforms, in most cases it should generate higher yields than conventional stocks and bonds. Also, there is a certain satisfaction that comes with watching your money grow on a project or portfolio that was personally selected by the investor. In addition, the investors can research the specific projects and decide if their investment is a good fit with preceptive and core values of the fund and/or Real estate developer. As with any investment, there is profit and potential within real estate, whether the overall market is up or down, and it is just a matter of what you are comfortable in doing in this environment.