Crowd funding strategies are expanding access to profitable real estate opportunities. Companies that create and manage these projects offer private investors the chance to earn extra income while also supporting local businesses and development projects. These exciting and innovative market solutions are resolving social problems while also moving the economy forward.
How Does Crowd Funding Real Estate Work?
A real estate investment company does all of the hard work of evaluating and managing the properties. Shares of ownership are offered to individual investors. Properties are managed for a predetermined length of time before they are sold. Investors receive a return on their initial purchase of shares depending on the structure of the program.
In a debt financed investment, the investor is essentially a lender. They are entitled to a percentage of interest and the principle of their investment once the transaction has concluded. This makes it easy to establish the value up front, but the investor does not receive any of the benefits of property’s real estate appreciation when it sold.
In an equity investment, the lender owns a portion of the equity. When the property is sold, they receive a return based on the sales price relative to the size of their initial investment. These are the most common deals.
Crowd funding is very similar to investing in REIT shares. The ownership is democratized, but there is one very big distinction. Instead of owning shares in an investment firm, the private parties own shares in the actual property itself. The company decisions made by a REIT firm are outside of the control of investors. With a crowd funded deal, individuals put their money towards projects that they personally support.
Social Benefits of Crowd Funding
While many of these deals offer excellent returns on their initial investment, crowd funded investments also provide a mechanism for the socially conscious to support their local communities.
Supporting Local Farms
Crowd funding takes the concept of community supported agriculture to a new level. Beyond simply purchasing locally grown produce on occasion, an individual has the opportunity to financially back the agricultural practices of organic farmers while also turning a profit. The liquidity created by these structures allows small farmers to compete against larger industrialized agricultural companies.
Creating New Local Businesses
Investing in commercial properties moves the economy forward by creating access to affordable locations where small businesses can establish their operations. Hotels, restaurants and specialty boutique shops have a better chance of competing in an economy when appropriate retail and office space is available.
Older abandoned buildings are more than just an eye sore. They can be a public hazard. Some crowd funded projects generate revenue for renovating these buildings. Renovating an abandoned building to create new apartments impacts the local economy by creating affordable housing and eliminating a dangerous element from the community.
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