Cashflow investing with Real Estate crowdfunding

CrowdfundUP offers investors a wide variety of projects to participate in. In this blog we look specifically at cashflow investing with Real Estate.

So what is Cashflow investing?

Broadly speaking, investments can take two forms: those intended to generate predominately capital gains over the life of the project, and those intended to produce income over the life of the project. Many projects will offer a combination of both but will usually be oriented towards one or the other.

"Cashflow investing" refers to investing in those projects which are intended to produce cashflows over the life of the project: either in the form of interest payments, or dividends.

The role of cash flow investing

The most common form of managing risk is through diversification. One way of diversifying investments is to hold a mix of income and capital-oriented investments.

A little more detail

Real Estate cashflow investments may take one of two different forms:

• a project where an investor is lending funds to the project sponsor, or another party by investing in a loan; these funds may then, for example, be used to purchase a property with a view to refurbishment, or to fund a construction project. In these projects the investor is generally reliant on the sponsor or other party to pay interest.
• a project where the investor has an interest in a property which produces income, for example, an investment apartment or a warehouse. In these projects the investor's income is linked directly to the income produced by the property itself.

What to consider

Ultimately, income investing is about risk and reward: the greater the risk the greater the potential income, and vice versa. For investors, this means understanding the risks of a cashflow investment, and determining whether the income is appropriate for the level of risk.

You should therefore, do your "due diligence" before making an investment. So for cashflow oriented projects consider the following:

• Who is paying the income? Is it paid by the project sponsor or is it from rentals from the underlying property? If the interest is paid by the project sponsor, is the sponsor financially stable and secure? Do they have a successful track record?
• What are the risks to the income? In particular, is there a concentration of income from a single source? For example, a warehouse may have a single tenant; if that tenant leaves, there may be no rental income for a significant period of time.
• Are there any opportunities for the income to increase over time? Is the rental yield above or below the prevailing market? Can the property be refurbished or improved to increase the rental yield?
• What is the term of the investment? Some projects may have fixed-term. such as 12 months, while others may be indefinite. Does the term suit your investment objectives and profile?
• Have you considered liquidity? How and when can you exit your investment?

To conclude

Cashflow investments can play an important part in your investment strategy. The combination of capital stability and a regular income stream may be used to offset other more risky capital growth-oriented investments, or alternatively are attractive investments in their own right.

The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.