Introduction 

Real estate investment is one of the four most common types of investments, alongside cash, bonds, and shares. Of the four, real estate has been the best performing investment in modern history. Though through lack of access to sufficient funding, most people have been excluded from getting involved and enjoying the benefits. Real estate crowdfunding has democratized investing in property and allows smaller players to invest alongside the biggest ones, often on the same terms. For the Black community, real estate crowdfunding allows many of the small flip and fix investors, real estate brokers, and agents the opportunity to pool their resources with other community members that are not real estate professionals to raise anywhere from $100K – $5 million dollars. 

A Message to the Fix and Flip Investors

Investing in real estate on a personal basis still usually consists of either buying a property to rent out, or buying one in need of repair, improving it and selling it at a profit – a “fix and flip.” Each method is time consuming, restricted to people with access to a “critical mass” level of funding, and is quite a singular activity. Though as with many other areas of business and trading, communication technology has enabled creating new and disruptive business models. In this case, real estate crowdfunding enables crowds of investors, who are most likely complete strangers to each other, to pool their resources and access new market opportunities.

How Real Estate Crowdfunding Works

Real estate crowdfunding is a creative investment strategy that is becoming more and more popular. Numerous specialist crowdfunding platforms are online marketplaces where real estate management teams, or maybe property developers, aim to raise money to complete construction or refurbishment projects through showcasing them as investment opportunities. Individual investors gain access to numerous projects to choose from that offer attractive returns on investment that were previously available only to institutional backers, and they can each invest affordable sums that are way below the full purchase price of an individual property.

The Usual Investment Strategy

The investment strategy usually works in one of two ways. The first is that money is invested in bonds issued by the developer with fixed interest rates and repayment dates. This is effectively a case of peer-to-peer lending. The second strategy is that a company is formed for the lifetime of the real estate project, and backers buy a slice of equity in that company. In the equity route there are no fixed returns, but no cap on returns either. This means investors share more of the risk and reward. Experts oversee the projects, there are no call-outs to fix a flooded kitchen or a power failure, and no construction or repair bills to cash flow. And if something prevents project completion, the real estate can be sold to mitigate losses (subject to debts incurred and perhaps  preferential rights of other classes of investor or lender).

Crowdfunding Unleashes The Small Dollar Investor

Through these methods, people can invest small amounts of money alongside, and frequently on the same terms, as accredited investors. It’s easy to do, small investors don’t need a lot of income to get started and don’t have to take on any long-term responsibilities. Investing alongside accredited investors also gives them the buying power that comes with having crowdfunded a record-setting amount of money measured in the hundreds of millions of dollars. We as a community suffer gravely under the double edge sword of a lack of access to traditional capital sources and an immense racial wealth gap driven by a history of systemic racism in the financial system. Real estate crowdfunding provides a new and innovative path to raising capital for developers and wealth-building through inclusive investing. For more information on the benefits of real estate crowdfunding grab your free eBook by visiting Crowd-Max.com.