European real estate crowdfunding market now accessible to everybody
Real estate crowdfunding allows even ordinary people to participate in a large property market. Get to know online real estate crowdfunding opportunities now.
Although crowdfunding investment in real estate is only just starting to gain momentum, many small investors have already appreciated the attractiveness and returns on this type of financial activity. A growing number of online platforms are appearing on the market, offering to "put your money where your mouth is" in real estate, an asset class that until recently was out of reach for most of people. For a long time, real estate investment was only available to large investors, but crowdfunding has changed the real estate sector beyond recognition. Now, even people with very small savings can successfully participate in the real estate market, invest in developments and earn a stable return. So how are real estate projects developed and financed today?
Real estate crowdfunding for beginners - what is it?
Real estate investment is almost always characterised by a high and intense demand for capital, which is why crowdfunding has revolutionised the real estate sector. In essence, real estate crowdfunding is a way of financing a planned project in which a large group of different people contribute the funds needed for the project. Crowdfunding in real estate is based on modern technology, which allows people from all over the world to invest in projects. In other words, a real estate project is financed in small amounts by a large group of complete strangers, who then earn interest on the money.
Online investment platforms play a major role in crowdfunding. Real estate investment platforms act as intermediaries between property developers and investors. The platforms assess the real estate projects on offer and presents only the most promising properties for financing to registered investors. All top crowdfunding platforms in Europe operate on very similar principles, listing real estate projects already under development or in the pipeline that require investor funding. Investors registered on the platform decide which properties they want to finance by assessing the returns, risk and other indicators of the proposed projects.
All in all, real estate crowdfunding usually follows the following sequence:
- The property developer submits a funding request to the platform.
- The Platform's administration assesses the proposed project for funding and, if the project meets all the requirements, the funding request is approved and the project is presented to the investors.
- Investors finance the funds needed to develop the property.
- The money collected is paid to the developer of the property.
- The loan and the interest on the loan are repaid according to a pre-agreed payment schedule.
Types of real estate crowdfunding investment
In some ways, technology-based crowdfunding in real estate is very similar to investing in shares or bonds. After all, when we buy shares in a company, we become one of the owners of that company, and when we buy a bond, we lend money to the bond issuer. This is also the case with modern real estate, which can be financed by borrowing money or by becoming one of the owners of the property. Thus, crowdfunding for real estate projects is usually organised in the following ways:
- Crowdfunding as a debt method of financing real estate, where investors lend collateral to a real estate developer, who then repays the loan plus interest.
- Owner-occupied real estate investing is an equity-based method of financing real estate where investors, together with the project developer, jointly form an equity stake and all become co-owners of the real estate project.
Will crowdfunding remain popular in real estate?
Finally, real estate is one of the most popular areas of investment worldwide. On the other hand, not every small investor has the means to acquire one or more real estate investment properties. Therefore, it can be said that crowdfunding has opened up this asset class to ordinary people. Small investors can now participate in large real estate transactions that were previously simply out of their reach. And for large investors, real estate platforms have become another instrument for portfolio diversification. So, looking at the prospects for real estate crowdfunding, it is safe to say that this investment method will continue to be popular among many people interested in investing.