Crowdfunding is emerging as a new source of funding for major construction loans, including residential, apartment, commercial, hotel and renovation projects.
By listing a new development on a crowdfunding platform such as CrowdfundUP, the wider public has the ability to invest in these projects - providing a new source of funding outside those traditional methods such as banks.
A construction loan is a specialised lending option for property groups to help them through the process of constructing a new commercial asset or residential property. These can be construction loans or home loans that have a construction facility.
When doing a major renovation or building a new home, finance needs are different than when you are buying an established property.
Builders will outline how much money is required to build a commercial property development, segmenting expected costs into intervals of work.
Each progress payment throughout the construction phase is called a drawdown, and interest is only charged on the amount drawn down at the time interest is calculated.
For instance, if you have approval for a $250,000 loan but have only drawn down $80,000 – you’ll only be charged interest on that $80,000 until you make further drawdowns.
Depending on the loan and lender, at the end of the construction process your loan can either revert to principal and interest or you may be able to keep it as interest only.
Crowdfunding can provide new sources of funding to large and small construction companies and budding construction entrepreneurs but could open up enormous new opportunities for the industry to engage with communities which have traditionally been seen as a risk to the construction industry rather than an opportunity and asset.
Most crowdfunding websites will provide loans for new commercial builds, such as apartments, residential, commercial or hotel development projects.
The products range from permanent loans to smaller, mezzanine loans, or preferred equity and debt loans. Often a group of different investors might contribute to a single 'crowdfunded' loan ranging from a half million to several million dollars.
Crowdfunding also provides equity through platforms including CrowdfundUP. This works a lot like private equity funds. Participating equity investors receive a “preferential return” from any profits produced by the property.
For example, a commercial property or a retail development in Sydney, secures over AU$XX million in funding from a range of investors who receive a percentage return on their investment.
In Australia, it has been estimated that by 2025, the value of crowdfunded construction projects could grow to be over $3 000BN, driven by recent legislation which allows projects to be funded by non-secured investors.
The benefits of crowdsourcing are vast - for businesses looking to access new sources of capital, or previously locked away 'offline' and readily accessible resources.
In Australia, it has been estimated that by 2025, the value of construction projects in real estate crowdfunding could grow to over $3000BN, driven by recent legislation which allows projects to now be funded by non-secured Investors.
Commercial construction financing for a real estate project is much faster when investors choose an established, alternative finance platform like CrowdfundUP to facilitate the construction loan process.
The current process involved with obtaining council approvals, entering into contracts and changing title is long, technical and there is limited access to the process as it takes place offline. Blockchain technology can make this process more accessible, transparent and timely:
Understanding which property development loan is the best one for your project and for your financial circumstances is vital to ensuring it's best chance of success.
Real Estate crowdfunding platforms have clearly established themselves as a new source of funding for property developers, and as more property developers and investors turn to the crowd to fund developments, crowdfunding in real estate continues to evolve.
Raising capital for a real estate project is much easier when accessing capital via extensive online network.
Our technology allows for the real estate crowdfunding platforms to match your project or construction loans to the most suitable source of funds.
Get access to our crowdfunding loans for your property development.