By Waleed Esbaitah, CEO of the Middle East-based real estate crowdfunding platform,Durise and CrowdfundBeat Guest Editor,
Real estate crowdfunding has recently emerged as an extremely lucrative investment opportunity for a large number of real estate investors. Massolution, a research and advisory firm estimates that the global market for investments in property through this route was $2.5 billion in 2015 and is conservatively expected to touch $3.5 billion in 2016.
Why is real estate crowdfunding such an attractive mode of investment? The answer is simple – it allows individual investors to buy into a real estate opportunity for a relatively small amount of money (as low as $5,000) while offering the potential for high returns.
But that is not the only reason real estate crowdfunding has seen exponential growth in the last few years. Let’s examine some of the other reasons for this emergence.
The draw of real estate crowdfunding platforms:
1. Low barrier of entry + maximum opportunity
An individual with as little as $ 5,000 can own part of a residential or commercial property using a crowdfunding platform. An affordable investment amount is not the only attraction for investors though. A good platform will also offer a range of properties that have been vetted and checked. This ensures the potential investor gains a very clear understanding of the merits and risks of the transaction.
2. An Alternative to REITs
The only other way a small investor can get into the property market is through a real estate investment trust (REIT). But the crowdfunding route has several distinct advantages over an investment in REITs. A REIT is essentially a company that owns properties. By investing in such a company, the individual is indirectly buying into a pool of residential or commercial properties. But there is no ownership established over any of the real estate assets that the REIT owns. A crowdfunding platform, on the other hand, gives the investor a share certificate for each specific investment.
3. Ease of Use
The ease of dealing with a real estate crowdfunding platform is one of the major draws for the new generation of tech-savvy investors. The entire transaction is completed online. Investments are tracked online through the platform’s website and investors receive regular updates regarding the status of their property. Add
● property rental capabilities
● collection of rental fees
● management of the property for a nominal fee
Essentially, the investor gets all the benefits of owning real estate without having to deal with complicated legal documents or conducting time-consuming and complicated due diligence on the property being purchased.
Evolving Investor Profiles
itionally, a well-run platform offers a host of other benefits, including:
This year, two real estate crowdfunding trends will likely emerge as far as the investor profile is concerned. Both are linked to the fact that the new breed of investors are technologically savvy, and they’re looking for a platform that offers the same.
1. Millennials Moving Up
Millennials, the demographic which consists of those born between 1980 and 1999, are an emerging force in the property market. While many in this generation are keen to acquire real estate and benefit from the capital appreciation that it can generate, high prices have kept them away. The low investment threshold offered by real estate crowdfunding platforms is the ideal solution. Additionally, Millennials favor digital transactions over physical ones, which is a perfect fit for the technology offered by crowdfunding sites.
2. International Investment Boom
A greater number of international investors will emerge in 2016, and crowdfunding platforms are the ideal vehicle for this emergence. They allow an investor in China to buy property in Dubai without any extra effort. Well-informed investors know it’s prudent practice to diversify their portfolio among asset classes and geographies. They know that real estate offers a stable investment opportunity along with the scope for capital appreciation. Additionally, they recognize the prospect of monthly returns in the form of rentals. Previously, it was not possible for many investors to diversify into the property market, especially in other countries, because of the high investment involved and the logistical constraints. Real estate crowdfunding platforms have removed these impediments, so it’s safe to assume there will be a surge in the number of international investors in real estate.
Growth will accelerate in 2016
The crowdfunding industry touched a record $ 34.4 billion in 2015. The corresponding figures for 2013 and 2014 were $ 6.1 billion and $ 16.2 billion. Based on this trend, the figures for 2016 are expected to rise much higher.
The real estate crowdfunding sector, which is a part of the overall crowdfunding industry, is also expanding at a rapid pace. A number of new platforms are entering the fray and investors would do well to do a thorough check of the history and antecedents of the company that they propose to deal with.
Crowdfunding opportunities in the real estate industry offer the perfect match between an asset class that every investment portfolio should have and the convenience of online investing. Till recently, only high net worth individuals and institutions had access to these investment opportunities. Now, small investors can also reap the benefits that buying real estate has to offer.
— ABOUT THE AUTHOR: Waleed Esbaitah, founder of Dubai-based Real Estate Crowdfunding platform Durise, has a passion for entrepreneurship, venture capital investments, and the tech industry as a whole. Waleed’s responsibilities at Durise involve strategic expansion of the regional and international partnerships, underwriting deals to expand the business, Marketing & PR as well as Setting long-term strategy and goals for the company. You can read more about Waleed’s views of crowdfunding, real estate, and entrepreneurship at his personal website.