31. Real Estate crowdfunding. Should I invest?
Many people wonder when they should start investing and almost always, the answer is now. After you’ve saved enough cash to cover a few months of living expenses, think about your financial goals. Everyone hopes to retire someday and the sooner you start saving for it, the better off you’ll be. If your employer offers a 401(k) plan, you should enroll, and if you’re already participating, try increasing your contribution until you reach the maximum allowable. One strategy is to increase your deferral every year after you get your annual raise. At a minimum, you should contribute enough to maximize the amount your employer matches. Employer matching is essentially free money and you don’t want to miss out on that. Remember, as a young investor, time is your greatest asset and even small increases in your annual contribution compound by the time retirement comes around.
In the shorter term, your financial goals may include buying a home of your own. Buying a home is the biggest financial decision most people ever make and how to determine when to take this step is beyond the scope of this piece, so let’s assume you’ve made the decision to buy in the next few years. As you save toward your goal, remember, the sooner you need the money, the less market risk you can afford to take. You might consider allocating a portion of your investments to crowdfunding real estate.
No doubt you’ve heard of crowdfunding and may have participated in campaigns within your social network, but now crowdfunding has entered the real estate world. Crowdfunding lets investors own an interest in real estate with as little as $1,000 and unlike Real Estate Investment Trusts (REITs), investors can choose the exact properties they want to invest in. Virtually all categories of real estate are available through crowdfunding, including single family, multifamily, office and retail.
Is crowdfunding real estate right for you? In the past, crowdfunding real estate was open only to accredited investors, but increasingly, crowdfunding platforms are offering investments to unaccredited investors as well, opening this opportunity to many more people. These investments offer growth or current income, often for terms of two years or less. Of course, no investment is without risk and you need to understand the terms fully before committing any of your capital.
It’s important to find a crowdfunding platform you trust. Read the bios of senior management and look for real estate expertise. After all, crowdfunding may be relatively new, but real estate isn’t and it’s an industry where experience really counts. Make sure the website is informative and easy to use. Are the investments clearly explained? Is there enough information for you to make an informed choice? Is there investor support if you have questions?
After you’ve found the platform, examine the investment offerings. While the type of property, expected return and investment period are all important to consider, don’t forget the most important item: fees. In other words, how much will it cost to hold this investment? Fees reduce your investment return and set you back before you’ve begun. Some crowdfunding real estate platforms charge a 2% property acquisition fee, so for every $1,000 you invest with them, only $980 gets invested in real estate. This might not sound like a lot, but it means the first 2% the property earns doesn’t benefit you, it just gets you back to where you started.
If you decide that real estate could help you meet your investment goals, look for a reputable crowdfunding site with an experienced real estate team. Look for solid investments with low – or NO – fees. As with any investment, make sure you understand it fully before investing. With so many investment choices out there, it’s easy to be paralyzed by indecision, but that won’t get you closer to your goals. Real estate has always been a way to build wealth, crowdfunding just brings it into the 21st century.
If you want to make investment your business’ main area of work, real estate can be an attractive niche. But owning real estate is not exactly a hands-off business idea.
Real estate crowdfunding enables you to invest in real estate through online platforms, without the responsibility of directly owning property.