Real estate projects are always financed by investors who contribute large sums of money, although banking institutions also support them through bridge loans. Although today a new model of collective financing is being developed: crowdfunding, funding, or microfinance. This model contemplates the incursion of small and medium investors in the real estate market. If you want to know how crowdfunding works, we explain this mass real estate investment’s details.
What is real estate crowdfunding?
Crowdfunding or collective funding is the investment model in which several people at the same time contribute an amount of money so that real estate developers can build residential, mixed, and commercial projects. These group loans are made through crowdfunding sites specialized in the sector, which connect investors and developers. These portals collect information about the property to analyze the operation’s feasibility, risks, and costs. Likewise, they guarantee investors a percentage return for their contribution.
Unlike trusts, where banks authorize the borrowed resources’ destination, in crowdfunding, the capital goes to the project that the investor chooses. Besides, microfinance has medium and long-term liquidity, even before maturity – not immediately -, guaranteeing investors to obtain a profit with a fixed rate of return.
Benefits of financing a project by crowdfunding
- Investment monitoring: One of the main advantages is that the information is transparent and is available for consultation and monitoring of the collection obtained by your ad. You can see the daily contribution that new investors make and know when you reach the amount you need to finance the construction of the property.
- Exterior and Interior home improvement: When financing a rental home, it is necessary to know if you are going to need to make home improvement renovations. From painting the exterior of your home to following up with handyman home improvements around the house, it is important to keep in mind what you will need to add to your financing.
- Low dividend percentage: One benefit of this type of financing is that many small shareholders loan the money. When paying dividends, you only have to pay the amount they invested, plus their yield. All the profits you have obtained from the sale of the residences you built will be for you when you pay off the loan.
- Potential investors: Many of the people who decide to contribute an amount to your cause may be entrepreneurs interested in investing in the real estate sector. By having direct contact with your investors, you can generate a relationship with them. This can benefit you to get capital for future projects.
- Speed: Crowdfunding make loans faster than those authorized by banks. Although like a financial credit, you need a study of your credit history, it is more likely that a funder will approve your financing. They have less strict filters. As soon as they allow your ad to be published, you will begin to collect money. When you reach the goal of the money you requested, the total amount will be deposited into your account.