What is Crowdfunding Anyway?
There is no doubt that we live in a technological world. From the comfort of our homes we can purchase items, sign up for events, make reservations, donate money- the possibilities are endless and growing. Crowdfunding is a more modernized way to raise money for a specified venture or project from people who want to support the final product. Raising money through people eliminates some of the red tape that financial institutions require for financial ventures. Access to crowdfunding opportunities, for the most part, can be found online and are quite easy to navigate through. The following topics outline how real estate crowdfunding deals are put together, how much a typical investment amount is, the associated risks to a deal, and the importance of diversifying your portfolio.
1. More Deals, More Access, More Money
Prior to crowdfunding, access to bigger and better deals was mainly available to people with large amounts of capital. Those who had money to invest, just not enough, did not have access to those better deals. By pooling individual investments, Crowdfunding gives investors access to many bigger and more promising deals. Today, people who wish to invest small, medium or large amounts can participate in a crowdfunding venture with access to thousands of deals. At CityVest, we provide a tremendous amount of information about the assets, financials, management, and summary of the investment all through our website for you to review. As a result, investors have transparency into an investment and the potential to maximize the best possible return based on how much they choose to invest.
2. Minimum Investment Amounts
Before the age of crowdfunding, anywhere between $50,000 - $100,000 was necessary to just scrape by with access to a deal. The mechanisms of crowdfunding today allow people to invest smaller amounts (i.e. $5,000), so borrowers have access to large amounts of capital without traditional bank loans. Instead of limiting the access, crowdfunding allows investors of all sizes to participate in the same arena while tethering return packages to the investment size. Essentially, you get what you put in. A major investor who puts up $50,000 will have a higher return compared to an investor who puts up $5,000, however both will have access to the same real estate investment ventures.
3. Varying Risk Opportunities – or "In This Case, It is Worth the Risk"
Risk is an inevitable factor in any type of investment, but today risk can be scaled to fit investment amounts of all sizes. Calculating risk in real estate investments is not a one size fits all formula. While there may be similar factors required of most real estate investments, each deal is unique with varying degrees of associated risk. Please see the article titled, "How to Calculate Risk vs Return" for more information. Crowdfunding puts the power in the hands of the investor. For instance, if one were to invest in a property development project they could choose a lower risk, lower reward option or vice versa. Real estate investment risk can be classified into the following areas :
- Structure of the Investment aka "The Capital Stack" i.e. Debt, Equity, Preferred Equity
- The Real Estate Asset Type i.e. Multifamily, Apartment, Commercial, etc..
- The Project Phase/Term/Life
At the end of the day it is your investment, so you should leverage real estate professionals and platforms for what the appropriate amount of risk should be, as there are thousands of deals available.
4. Portfolio Diversity is Key
Why is it important to diversify investments? Simple, the idea of having all your eggs in one basket is one you want to avoid. Keeping a diversified portfolio strengthens your chance of collecting high returns and minimizes the risk of losing on an investment that does not pan out. CityVest crowdfunding assists both the beginner and seasoned investor in diversifying portfolios. Please see the article titled "Benefits of Investing in Real Estate" for more information regarding real estate diversification. Real estate is a hot item on the investment front today. Not only does it offer a factor of tangibility, but supply is vast in that anywhere you go there are properties being bought and sold. We urge you to consider real estate investing through crowdfunding, as it is a promising investment route to grow wealth.
Are you thinking about growing your wealth through a real estate investment? Let CityVest provide you with the best deals and options for your investment today!