Investing in real estate is one massive milestone that can make several real estate investors with low capital lose out on big projects. Therefore, real estate crowdfunding was introduced to garner resources for small and non-accredited investors alike.
As of May 16th, 2016, anyone can invest through crowdfunding platforms, not just accredited investors. Real estate crowdfunding for non-accredited investors has made raising funds for investment by pooling small amounts of funds from different investors to finance real estate assets and properties easy.
It provides opportunities for non-accredited investors to invest in areas that were previously available to only accredited investors. Get to learn everything about this approach and make utmost use of it.
What Is Real Estate Crowdfunding?
Real Estate Crowdfunding is one way to raise money for investment in real estate by reaching out to multiple investors who contribute varying amounts of funds (small and large) towards a project.
This process, otherwise known as property crowdfunding, is a quick and scalable means for small real estate investors to fund big projects.
Merits and Demerits of Real Estate Crowdfunding
Pooling funds for real estate investment through crowdfunding creates practical benefits for both the investors and the ‘borrowers.’ Here are some of the merits and demerits of real estate crowdfunding.
Merits for the Investors
- It provides opportunities to make short-term investments, which could be between 3 to 48 months.
- It provides access to low-level investment with some projects offered at bargain prices.
- Legit real estate crowdfunding provides adequate information and transparency about funds’ utilization.
- Real estate crowdfunding also gives room for diversification of investment to various asset classes and countries.
Merits for the Borrowers
- Real estate crowdfunding increases funding sources while you grow your network of investors.
- Successful projects from peer-to-peer lending platforms promote clients’ loyalty.
- It helps in direct marketing while promoting your real estate business.
- Also, by using a user-friendly platform, you get to save time and money.
Demerits for Both the Investor and Borrower
- Real estate crowdfunding can cause less knowledgeable investors who do not understand the risk and rewards presented in a deal to lose out along the way due to the sophistication of real estate investments.
- Legit real estate crowdfunding provides adequate information and transparency about funds’ utilization.
- Choosing a competent real estate crowdfunding platform could be pretty daunting for new investors.
- Negligence by investors who do not digest details of a real estate investment deal, especially the fine prints, can result in huge losses.
Who Is a Non-Accredited Investor and an Accredited Investor?
A non-accredited investor fails to meet the income requirements or net worth defined by Security and Exchange Commission (SEC).
Non-accredited investors are also called retail investors who can only invest in certain types of equities, bonds, real estate, and other securities. One of the best ways to invest is by engaging in real estate crowdfunding for non accredited investors.
On the other hand, an accredited investor meets certain income or net worth requirements to invest in the investments that the non-accredited investors can’t access.
What Are the Roles of Non-accredited Investors?
Following the 1929 financial crisis, the Security and Exchange Commission (SEC) was formed to save general investors from investing in areas they have little or no knowledge about or take high risks that they cannot afford. It created investments peculiar to accredited investors, as well as those for non-accredited investors.
The best investments for non-accredited investors involve using real estate crowdfunding to source for real estate project deals. Alternative investments for non-accredited investors in real estate include direct ownership and Real Estate Investment Trusts (REITs). Investors can choose to invest either through debt investment by receiving repayment of mortgage and interest or through an equity investment by earning the ownership stakes of a property.
What Are the Limits of Real Estate Crowdfunding for Non-accredited Investors?
Non-accredited investors are limited by the Security and Exchange Commission (SEC) from specific investment opportunities for their financial safety. Also, regulations govern the documentation and disclosure of investments available to investors.
Non-accredited investors are limited to only investing in mutual funds.
This investor category can only invest a certain amount. According to the Security and Exchange Commission, those with a net worth or annual income below $100,000 are limited to investing no more than $2,000 or up to 5 percent of their net worth or annual income.
What Are the Top Ranking Real Estate Crowdfunding Platforms?
Here’s a list of a few popular crowdfunding platforms with excellent real estate investment opportunities for non-accredited investors.
Holdfolio: This firm is a leading online platform for real estate non-accredited investor crowdfunding, allowing investors to invest in high-yield, income-producing real estate. It has strong partnerships and world-class proprietary technology that offers reasonable ROI and professionally managed real estate for passive investors.
Likewise, Holdfolio makes real estate investing more straightforward, more transparent, and accessible to individual investors. Interestingly, you can become a partner for as low as $20,000. Many of its real estate investments have significant tax reductions, which results in an over 80% tax shield.
Groundfloor: This platform offers investors short-term debt investments with high yields. It focuses on non-accredited investor crowdfunding and not high net worth and accredited investors. Their assets are as low as $10, and they boast of average returns of 10% per annum.
Realty Mogul: This platform uses updated securities exemption regulations. It gives opportunities to both accredited investors and non-accredited investors to invest in real estate investments available there. Here, the minimum investment for real estate crowdfunding projects is $1,000.
Roofstock: This platform, launched in 2015, works basically with single-family properties. They offer a 30-day money-back guarantee, in addition to guaranteed rent on vacant properties.
Conclusion
Investment in real estate can be somewhat challenging and could become difficult for even the most seasoned investors. While going for the option of real estate crowdfunding for non-accredited investors, avoid tricky and complex deals. Consider your financial future and your connection with prospective investors. Make the most out of it to prevent misguidance by signing up with a reputable real estate crowdfunding firm.
