What To Know About Crowdfunding Real Estate Investments

October 12, 20213 min read
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If you're looking to understand more about crowdfunding real estate investments, this short article has you covered.

Crowdfunding real estate investments could be a savvy way to diversify your risk in the real estate market. Crowdfunding means several investors putting up a small percentage of the total amount required to get a project off the ground. This is commonly done with art projects or charity events, and is no different with real estate investments.

Crowdfunding real estate investments could bring several benefits:

  • Investors only need to contribute a small part of the total amount required for the investment, which means they can gain access to deals they wouldn’t otherwise be able to take advantage of. 
  • Returns are proportionally shared between investors, so the more they put in, the more they could potentially get out. 
  • With a crowdfunded real estate investment, investors can profit from the double gains of both rental income, and capital appreciation if thee value of the property increases over time. 

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A Crowdfunding Real Estate Investment Example

Let’s say you want to invest in residential properties in Boston, since you think the concept of earning regular rental income sounds good and you have confidence that property prices in Boston are likely to rise over the next five years. 

You might be able to buy a property outright, but an average residential property in Boston costs in the region of $615,000. If you either don’t have a lump sum big enough, or you would prefer to diversify your exposure to risk, you might decide to look at crowdfunding your real estate investment. 

In crowdfunding, you would pool your capital with other investors who also want to invest in residential real estate in Boston. This avoids the high cost, some of the risk, and the lengthy process that buying individual properties involves. 

In this example, you might contribute $10,000 to a collective pot of money through a real estate crowdfunding platform. The real estate in Boston would be purchased through the crowdfunding platform for $235,000. After all fees and costs have been factored in, the rental income from this example property could pay you a net dividend of 3.5%. 

You would own a share of this real estate in proportion to the amount that you invested. You would also earn your proportional share of any rental income collected, and have the potential to capitalize on your proportionate share  r of any capital appreciation on the property. 

So, for example, let’s say you were correct in forecasting Boston property prices to increase over the next five years. You and your fellow crowdfunding investors might decide to sell the property, and you sell it for $305,500, which is 30% more than you collectively paid for it five years ago. In this example, you would  achieve returns of your initial lump sum investment of 9.5% per annum, or 47.5% over the five year duration of the investment. This would be because of both capital appreciation and the monthly dividend payment:

•Your investment of $10,000 would now worth $13,000 because real estate prices increased in Boston, which led to it being sold for 30% more than it was bought for.

•Your investment would have generated $1,750 in dividend payments over the five years, paying 3.5% of $10,000.

To learn more about real estate crowdfunding, and whether certain opportunities make sense for your portfolio, take a look at Yieldstreet’s real estate offerings here

1 This example is for illustrative purposes only.  The numbers used are purely fictional, and are not representative of any past or current client experience.  Actual costs and returns could be higher or lower than what is shown when investing in real estate.  Rental income is not guaranteed.   As with all investments, there is a risk of loss in real estate investing, including the loss of principal. Yieldstreet does not engage in crowdfunding real estate, but rather advises certain Private Funds and Special Purpose Vehicles as a SEC Registered Investment Adviser.  Registration with the SEC does not imply a certain level of skill or training.  Please read Yieldstreet’s Firm Brochure for more information: https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=701068.  Not all of Yieldstreet’s offerings may be available to you.