What are the trends and predictions for crowdfunding in real estate?
Crowdfunding has revolutionised the way we invest in real estate in general so it is very important to stay on top of the trend and predict the future as this could impact the profitability of deals in the future for investors.
In the past, investing in property was limited to those with significant financial resources who wished to allocate their money to produce a return on investment without doing much hands-on work.
Nonetheless, in recent years, crowdfunding has democratised the industry and made it accessible to a wider audience because of the increase in platforms that you can crowdfund on and the increase in the range of development available to the everyday investor.
In fact, crowdfunding for real estate has grown exponentially, and many industry experts predict that it will continue to do so in the coming years. But how will this exactly pan out?
In this article, we will make predictions for its future so that no matter if you are a developer or you are an investor you can understand the future of crowdfunding in real estate to make informed decisions and stay ahead of the competition.
What is the current state of crowdfunding in real estate?
It is popular for investors who wish to access a wider range of real estate investment opportunities to take part in crowdfunding and the industry is certainly growing.
The industry average return for investors who venture on a crowdfunding opportunity is between 10% and 12% which makes it a popular option for those who want to make a return on their money without necessarily having to do much.
In addition, it provides a way for investors to promote the developments of buildings they not only are invested in from a monetary perspective but also on a wider socio economic level. It could be that investors know investing in a property could influence further businesses down the line or add to the appeal of an area they have interest in.
Example of a successful crowdfunding campaigns in real estate
As an example to help you understand the process of crowdfunding, a campaign could be launched to raise a figure of $18 million for instance.
With this money, developers promise to investors that they will perhaps acquire a large piece of real estate like a resort or maybe a large housing development.
The developers would head to a crowdfunding platform to make their proposal and share details about the deal and may attract anywhere from a few to hundreds of investors.
If the campaign is a success, the acquisition will go ahead, the money will be raised and all the investors will gain a return on their money that is proportional to the amount they invested as the resort of housing development runs and produces a profit.
What trends are likely to happen in the future of real estate crowdfunding?
In the crowdfunding industry, there is likely to be a lot of change as the world modernises and there are differences in how investors look at their money.
An increased influence from environmental laws
Throughout the world and particularly in the most developed parts of the world, there is a greater demand for environmentally friendly projects. This is because as society becomes more environmentally aware, there may be a greater demand for projects focused on sustainability and reducing the harm done to the environment.
This may result in more crowdfunding campaigns for environmental causes and projects that promote sustainability. New environmental laws, on the other hand, may open up new investment opportunities in areas such as renewable energy, energy efficiency, and sustainable agriculture.
This may lead to the trend of an increase in crowdfunding campaigns focusing on these topics, as well as increased investment in environmentally friendly projects and perhaps a reduction in investment towards developments that don’t display some kind of environmental consideration.
The rise of niche platforms
While many real estate crowdfunding platforms have been in operation for several years and have established a track record of successful investments, helping to build trust among investors.
There has also been a large increase in the competition amongst crowdfunders as these platforms become saturated with opportunity which has led to there being niche platforms with a specialisation in a certain type of property.
For example, Fund That Flip found here is a real estate crowdfunding platform that focuses on providing short-term loans to real estate investors who are looking to rehab or flip properties. The platform allows accredited investors to invest in loans that are secured by real estate, with typical terms ranging from six to twelve months.
Fund That Flip works with experienced real estate investors who have a track record of successful rehab and flip projects. The platform performs due diligence on each project and borrower, including an analysis.
Because of modern emerging technology such as blockchain technology, crowdfunding may become inherently less risky. Currently, crowdfunding platforms are not as heavily regulated as other investment vehicles such as stocks, bonds, and mutual funds so it can be easier for fraud to be committed than scam investors.
Smart contracts are one possible way that blockchain technology could help regulate crowdfunding and reduce risk for investors.
Smart contracts are self-executing contracts in which the terms of the buyer-seller agreement are directly written into lines of code. Because these contracts are stored on a decentralised blockchain network, they cannot be altered or manipulated after they are created.
Furthermore, by providing investors with a transparent ledger of all transactions and investment activities, blockchain technology can enable greater transparency and accountability in crowdfunding campaigns. This would help to reduce the risk of fraud and give investors more confidence that their investments are being properly managed.
Overall, the use of blockchain technology and smart contracts in crowdfunding has the potential to lower investor risk by increasing transparency, accountability, and enforceability of investment terms.
What does this mean for investors?
Overall, this is good news for investors as they can have a wider range of investment opportunities than they otherwise thought through new deals coming on to the market through niche platforms. In addition, the increase in security would lower the barrier of entry for those looking to get in on some profit.
However, because of the increase in environmental laws, it could be the case that there is simply less opportunity for investors. As time goes on, it should be made clear as to whether there is a general trend for more environmentally friendly projects or not.
What does this mean for developers?
Developers will have to tailor the investment opportunities they bring to market to favour the trends that are being pushed by the government and are favourable regulated.
It is quite likely that these types of property will be less heavily taxed in the future and perhaps will be more profitable for investors in the long term, making them more desirable.
It is in a developer’s best interest to therefore plan for the future and make predictions for their development that align with the future demand for real estate. Investors taking interest in a property through crowdfunding is a vital part of their business model so they should tread carefully with building real estate for the future, especially if a property is likely going to be in function for decades to come.