In modern times, if you want to start a business or raise funds for a project, a preferred method of raising funds to avoid getting into debt is to crowdfund the funds to get started.
Crowdfunding has low overhead costs and removes the bank’s margin, therefore is considered a better alternative to traditional bank loans. It is a faster, simpler process and borrowers do not need to provide a guarantee or security.
A recent study by CLSA, a Hong Kong based investment bank, estimated the total crowdfunding market size would reach US$90 billion by 2025, with 51% of this market size coming from China.
It used to be that only people with connections and/or wealth, could invest into real estate. And those looking to raise cash for such investments either had to have a great existing relationship with the banks for really big deals, or tap family and friends for smaller deals. Syndication, or gathering money, was always a thing, but today, syndication is becoming “crowdfunding.”
Through real estate crowdfunding, previously “unconnected” people and people with smaller amounts to invest into projects, can engage in transactions that used to be inaccessible. These people now have the ability to choose the type of real estate investments that align with their goals, and track the performance of those investments—all from a laptop or phone.
On the other side of the market, crowdfunding can be a smart, easy and efficient means of financing real estate transactions for borrowers and sponsors. For this, in particular, there are some key benefits to working with a reputable crowdfunding platform.
Investors can choose between debt and equity investments in real estate transactions such us commercial development, residential, shopping centre.
For example, you will get a flexibility and more options as a borrower or sponsor—you can raise joint venture or preferred equity for a term of 1-10 years for your project, or finance commercial projects with short- and long-term bridge and mezzanine loans.
Crowdfunding platforms streamline the process by allowing startups to post their pitch or property groups present their projects in one spot, where it can be viewed by a broad range of qualified investors on all online.
On the investor side, people can choose the projects they want to invest in, evaluate due diligence materials, and track how their investment is performing on all online.
Because of regulations and higher costs put in place after the 2007-2008 financial crisis, some of the big banks have had a tough time making money on smaller deals. This has caused an estimated $200 billion-a-year commercial small balanced market to be served.
Real estate crowdfunding in Australia is still in its infancy, but there are several platforms you can use to participate in crowdfunding.
CrowdfundUP lets individual investors buy shares in property projects that suit their investment strategy and portfolio needs.
It's important to always research the projects available and decide which one looks most attractive to you. While most crowdfunding projects will give investors an idea of the rate of return they can expect on their investment, it always pays to do independent research on the properties or areas available for investment.
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.