{"id":3661,"date":"2023-02-28T12:26:22","date_gmt":"2023-02-28T12:26:22","guid":{"rendered":"https:\/\/www.fundraisingscript.com\/blog\/?p=3661"},"modified":"2026-10-15T12:10:49","modified_gmt":"2026-10-15T06:40:49","slug":"real-estate-crowdfunding-for-beginners","status":"publish","type":"post","link":"https:\/\/www.fundraisingscript.com\/blog\/real-estate-crowdfunding-for-beginners\/","title":{"rendered":"Real Estate Crowdfunding For Beginners"},"content":{"rendered":"
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According to marketing gurus <\/span>Statista<\/span>, The Crowdfunding segment globally is projected to reach a staggering US$1.29bn by 2027.\u00a0<\/span><\/em><\/p>\n

So it\u2019s unsurprising that many entrepreneurs want to add to their real estate portfolio through crowdfunding<\/a>.\u00a0<\/span><\/p>\n

Our crowdfund platform experts here at <\/span>Fundraising script<\/span> have compiled a guide to real estate Crowdfunding for beginners. So join us as we give you the lowdown on what you need to know.\u00a0<\/span><\/p>\n

We will cover, what is crowdfunding, the pros and cons, and regulations, and discover the two types of real estate crowdfunding, plus best practices.\u00a0<\/span><\/p>\n

So to get started, let\u2019s briefly overview what it is and how you can benefit from crowdfunding real estate deals.\u00a0<\/span><\/p>\n

What is Crowdfunding?\u00a0<\/span><\/h2>\n

In its simplest terms, real estate crowdfunding is a type of property investment where many investors or \u2018crowd\u2019\u00a0 pool together their funds.\u00a0<\/span><\/p>\n

Once the funds have been gathered, they are used to buy a property or given to developers as a loan to finance a property development.<\/span><\/p>\n

Usually, the investors only contribute a portion of the amount required to purchase the real estate.\u00a0<\/span><\/p>\n

A quick way of raising funds to purchase property\u00a0<\/span><\/h3>\n

It\u2019s an incredibly quick and efficient way of raising the sums necessary for buying property.\u00a0<\/span><\/p>\n

So if you are looking at starting a crowdfunding\u00a0<\/span><\/p>\n

Also, it means that investors can have a stake in property with a smaller amount in deals they wouldn\u2019t have access to using other methods of raising funds.\u00a0<\/span><\/p>\n

Once the real estate has been purchased, the investors divide any returns equally.<\/span><\/p>\n

So what do you own if you use crowdfunding for real estate?\u00a0<\/span><\/p>\n

Read on to discover more.\u00a0<\/span><\/p>\n

What will I own?<\/span><\/h3>\n

There is quite a wide variety of how each crowdfunding platform structures investments, which will affect what the investor will own.\u00a0<\/span><\/p>\n

It may be that some real estate software platforms will create a separate company in terms of an <\/span>LLC<\/span><\/a>\u00a0 ( Limited Liability Company) for each property deal.\u00a0<\/span><\/p>\n

The LLC is interested in the entity that owns the real estate at the center of the investment.\u00a0<\/span><\/p>\n

Any investors will then hold shares in the LLC, resulting in limited liability alongside some tax benefits usually associated with pass-through entities.\u00a0<\/span><\/p>\n

Payment dependant notes\u00a0<\/span><\/h3>\n

When you invest in debt or certain types of preferred equity, you’re investing in notes linked to the success of a real estate loan or project investment.\u00a0<\/span><\/p>\n

Crowdfunding platform subsidiaries make these investments. You own the note, and so do your earnings if the venture does well.<\/span><\/p>\n

There are two ways of raising real estate funds using crowdfunding.\u00a0<\/span><\/p>\n

The first is property equity investment. This is generally rental income on any real estate purchase and includes the capital generated by the property’s value.\u00a0<\/span><\/p>\n

The second is a property-backed loan investment, where you effectively \u2018loan\u2019 the funds to the developer.\u00a0<\/span><\/p>\n

So let\u2019s find out a little more about these two types.\u00a0<\/span><\/p>\n

Equity Investments<\/span><\/h3>\n

Investors essentially become shareholders by using the equity investment method of crowdfunding for real estate.\u00a0<\/span><\/p>\n

By choosing this type of real estate crowdfunding, your returns will be calculated on the property’s rental income. With any crowdsourcing fees calculated at this point and paid.\u00a0<\/span><\/p>\n

In general, this is the way most real estate crowd funders conduct their property deals.\u00a0 This is because it usually has a higher return than simply debt investing.\u00a0<\/span><\/p>\n

Pros of equity investments\u00a0<\/span><\/h3>\n

Another benefit of this type of investment is that investors earn shares in the property\u2019s appreciation when the property is sold.\u00a0<\/span><\/p>\n

With this investment, you can often see a very profitable return. Often it can be as much as <\/span>20 – 25%.<\/span><\/p>\n

In some cases, this can even be more because equity investments aren\u2019t capped. These payouts are usually paid quarterly.\u00a0<\/span><\/p>\n

Cons of equity investments\u00a0<\/span><\/h3>\n

So although equity investments can offer higher returns, it\u2019s worth knowing that you will fail to get any return if no profit is gained on the property.\u00a0<\/span><\/p>\n

It\u2019s also worth understanding that you will be second in the payout queue.<\/span><\/p>\n

There is also a longer holding period for this type of real estate crowdfunding, whereby the holding period is usually between five to ten years.\u00a0<\/span><\/p>\n

Debt Investments<\/span><\/h3>\n

The main difference between debt investing and equity investment for property crowdfunding is that you are essentially the lender to whoever owns the property.\u00a0<\/span><\/p>\n

Pros of debt investing\u00a0<\/span><\/h3>\n

This type of real estate crowdfunding works because you will get a <\/span>fixed return <\/span><\/i>from the amount you have invested, alongside the interest rate of the owner’s original mortgage loan.\u00a0<\/span><\/p>\n

In this type of investing, you will take priority in any payouts, with payments usually arriving monthly or sometimes every quarter.\u00a0<\/span><\/p>\n

Cons of debt investments\u00a0<\/span><\/h3>\n

Debt investments are worked out based on the owners\u2019 specific mortgage interest rate on loan. So, for this reason, any returns will be limited.\u00a0<\/span><\/p>\n

When using the debt investment method of real estate crowdfunding, the platform will often take a percentage of your payout. So make sure that you do your research thoroughly.\u00a0<\/span><\/p>\n

Now that you have seen some of the benefits and the downsides of each type of investing, you might be wondering how real estate crowdfunding is regulated.\u00a0<\/span><\/p>\n

How is crowdfunding regulated?\u00a0<\/span><\/h3>\n

In 2012 The JOBS or <\/span>Jumpstart Our Business Startups Act<\/span><\/a>\u00a0changed crowdfunding regulations.\u00a0<\/span><\/p>\n

Before this, it was far more difficult for investors to advertise their opportunities.\u00a0<\/span><\/p>\n

However, since the changes, investors can advertise directly to larger audiences via various methods, including social media and other online methods.\u00a0<\/span><\/p>\n

This change allowed investors to gain crucial access to far more funding sources for property deals.\u00a0<\/span><\/p>\n

So as with every type of investment, risks are involved and important factors to keep in mind. Let\u2019s take a look at a few below.\u00a0<\/span><\/p>\n

Best practice when crowdfunding real estate<\/span><\/h3>\n

Before diversifying into the unique world of real estate crowdfunding, follow our tips to ensure you have everything covered.\u00a0<\/span><\/p>\n

Keep a close eye on the risk.\u00a0<\/span><\/h3>\n

Diversifying your real estate portfolio is always a benefit, but along with the benefits, there are always risks associated with any type of investment.<\/span><\/p>\n

As we\u2019ve seen above, there are differences between the two types of investing, so carefully weigh any potential risks to determine whether debt or equity investing is right for you.\u00a0<\/span><\/p>\n

Understand real estate liquidity.\u00a0<\/span><\/h3>\n

It\u2019s crucial for any investor to understand how long they will be locked into a property deal using <\/span>crowdfunding<\/span><\/a>. So it\u2019s vital to ensure you are fully aware of those details before making any decisions.\u00a0<\/span><\/p>\n

It\u2019s worth understanding that each investment has its specific liquidity schedules and length of time for paying out on any returns.\u00a0<\/span><\/p>\n

Liquidity is the trade-off between the price at which an asset can be sold and the speed at which it can be sold.\u00a0<\/span><\/p>\n

Take control of your investment.\u00a0<\/span><\/h3>\n

Before getting involved with any real estate crowdfunding platforms for investment deals, it\u2019s crucial to understand they are not investment advisers.\u00a0<\/span><\/p>\n

However, some of the best real estate crowdfunding platforms will vet each deal before allowing investors to participate.\u00a0<\/span><\/p>\n

It\u2019s always worth enlisting the advice of a fiduciary or financial advisor before going ahead.\u00a0<\/span><\/p>\n

Getting control of your investment is essential, and you may be comparing it to other ways of real estate investment.\u00a0<\/span><\/p>\n

In our other helpful article, find out more about how crowdfunding stacks up against private equity funds.\u00a0<\/span><\/p>\n

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