You probably have heard a lot about the property crowdfunding lately - this innovative financial model has grown rapidly and now it shows extremely good results as the new investment tool of the 21 century. So what is property crowdfunding, really? According to the Real-Estate Crowdfunding Review, real estate crowdfunding is an investment model which allows individual investors to pool their money with other investors, and invest them in the property at a fraction of the previous cost.
In general, property investment crowdfunding appeared in the past 5 years as an alternative real estate investment opportunity. The main objective of the property crowdfunding was to eliminate the disadvantages of traditional RE investments. The main downside of the traditional RE investment model was extremely expensive prices for the property. As a result, only selected wealthy individuals were able to make investments in the real estate. Ordinary middle class investors had no opportunity to purchase property due to its skyrocketing prices and had to find other, more affordable investment opportunities. Other disadvantages of traditional RE investments included less volatility, worse liquidity and limited opportunity to diversify the investment portfolio.
Currently, there are three main property crowdfunding models available in the market:
- property crowdfunding platforms that are connecting investors with RE developers.
The investment opportunities offered by such property crowdfunding models are RE development projects. This model is extremely beneficial as the service is a two-sided marketplace and the platform provides services to both sides. However, RE development projects are relatively risky because of their complexity and uncertainty. Investors are exposed to the risk of the failure of a particular project due to the underestimation of costs, delays or even the insolvency of the developer. The returns are usually coming after 2-4 years, and there are no dividends and yields until the project is concluded. - property crowdfunding platforms that are connecting investors with a single yielding residential asset.
This model is less beneficial, as the assets are offered by the platform operator himself. This means there are no supply chain companies, and the platform operator stands with a clear conflict of interest with the investors by selling them their own assets (which are usually overpriced). The liquidity is limited as it is only possible by selling shares between investors on the secondary market. - RE funds which are often called RE Investment Trusts (REIT’s).
In this model, the fund manager is making dynamic decisions on managing a portfolio of assets and projects. It is a relatively good model, as it provides investors with good liquidity. However, the offers here are made by only one operator and it is not a two-sided service that provides services to both sides.
Property Crowdfunding with RealtyBundles
RealtyBundles aspires to improve the existing property crowdfunding model and overcome the limitations mentioned in the above existing solutions. How do we plan to do it? We plan to adopt the two-sided marketplace from the first model (developers), the turn-key ready and less risky solution from the second model (single yielding asset), and the dynamic portfolio concept from the REIT`s model. As a result, we want to combine the strongest features of all 3 solutions in one model.
We have a unique market position as there are no other platforms to the best of our knowledge which suggest turn-key ready and yielding opportunities offered by competing companies as the supply chain. This is also one of the reasons why local RE agencies are the best partners in our service.
As you already understood, RealtyBundles connects investors with local real estate agencies (REAs). These agencies work on behalf of the investors. They are looking for high-quality pre-existing properties for purchase. Such an approach eliminates the major risks characteristic to real estate development. The risks include delays in building, mismanagement of development, insolvency of the developer and so on. By working with local real estate agencies, RealtyBundles offers an improved property crowdfunding model which has great potential. And here`s why.
As the properties brought to the platform are owned by third party sellers and not by the real estate agencies, there is no conflict of interest between the two sides of the platform. The value of a good deal can be fully realized by the investors. This, consequently, leads to the higher return to investment (ROI). In our model the compensation of the agencies is linked to the ROI realized by the investors, therefore the interests of the two sides of the platform are aligned. By changing the game and involving the middlemen we intend to create a non-competing service that will eliminate the conflict of interest and will provide the transparency which investors need so much. As you can see, property crowdfunding offered by RealtyBundles is an extremely viable business solution with great potential and clear goals. As for the question that article poses in the headline, yes, property crowdfunding is indeed a good idea.
Learn more about the opportunity to invest in Property Bundles on our property crowdfunding platform and about the advantages of investing via our platform. You can request more information by clicking the button "Learn more".
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