Investing in real estate is a great way to fund a lavish lifestyle and save up for a comfortable retirement. Having said that, you need money to make money, which is where many people fall short when it comes to getting started. Real estate investing is pricey. Sure, some types of investments are less risky than others, but as with any type of investment, risk is part of the game if you want to make a profit.
So, what are you to do if you’d like to get into real estate investing, but don’t have the cash upfront to get started? You could try to get a loan or borrow from friends and family or, you could consider crowdfunding.
What is Crowdfunding?
Crowdfunding is simple. It’s a method of raising enough money to fund a specific venture. In real estate, it gives investors a way to access the money they need to buy properties.
Crowdfunding takes place online using the various social media platforms to reach a group of potential investors who might be interested in putting money toward a specific purchase. The idea is to get several people to invest small amounts each to raise a large amount of money quickly.
Through crowdfunding, investors and companies have the ability to raise substantial amounts of capital they wouldn’t have otherwise been able to raise. Investors become shareholders in the properties they buy together through a crowdfunding effort.
How Real Estate Crowdfunding Works
Real estate crowdfunding works by allowing investors to buy shares in a property rather than buying the entire property themselves. By doing so, it decreases the risk involved in owning said property. Any income generated by the property – monthly rent or the sale of the property, for example – is paid out to the investors. It’s a great way for an investor to get into real estate investing without taking a lot of risks or having to put much effort forth. All of the work such as dealing with tenants, maintenance, and taxes is taken care of by a property management company.
Investing in a crowdfunding effort usually requires very little money. Some investors get started with as little as $1,000. Having said that, the Securities and Exchange Commission (SEC) places limitations on the amount you can contribute to crowdfunding based on your net worth. If you make less than $107,000 a year, you can only invest 5 percent of your income or $2,200, whichever is greater.
If you make or are worth more than $107,000, you can invest up to 10 percent of your net worth or income, whichever is lesser. This amount cannot exceed $107,000.
These amounts are for any consecutive 12-month period.
Even though there is risk involved in any kind of investment, crowdfunding is a good way of getting into real estate investing without needing a large sum of money up front to do so. It also carries less risk than other types of real estate ventures, so don’t overlook this niche for your next investment opportunity.