Real Estate Crowdfunding and Everything You Need to Know About it
In the new wave of investments, which includes crowdfunding, investors are gaining more ways to invest in things they typically would not have the chance the invest in, like real estate.
The whole idea behind crowdfunding, in general, is to create a platform to connect people who need capital with investors they typically would not have access to and vice versa.
Through crowdfunding, a wider range of investors are given the opportunity to hold stakes in real estate developments or fund large commercial projects.
Why real estate crowdfunding?
Real estate as an investment class is always a good choice. Despite volatility in the general economy, real estate tends to hold its high demand.
However, there is a barrier to entry for real estate investments (especially when buying a physical property) because of the large capital required.
On top of that, buying the physical property would entail many other fees and takes up quite a bit of time. That, and you will have to find the right property to invest in, in the first place. This applies to both local and overseas investments.
With real estate crowdfunding, there are lower barriers for entry.
What is a real estate crowdfunding platform?
Similar to crowdfunding platforms like Kickstarter, real estate crowdfunding platforms give investors the opportunity to look at various types of products before investing.
In the case of real estate crowdfunding, the investors are looking at different types of real estate projects to invest in. These projects are typically picked out by the platform providers.
The first step in understanding the risks behind real estate crowdfunding is to research the background of the platform operators. If you’re investing in a platform that is run by people who have years of experience in the real estate industry, then you can be assured that they have done their due diligence.
In fact, some platforms have an entire team of legal personnel to help them understand the ins and outs of the industry.
Beyond that, according to the co-founder of InvestaCrowd, Julian Kwan, as an investor, you should be looking at the development itself. For InvestaCrowd, Julian and his team ensure that the developers themselves have at least 20-30 years of track record backing them before listing them on their platform.
“When investors invest through our platform, they are investing directly into a real estate developer. They are not loaning money to us (the platform), the money goes straight to the developer, so it is important to know who you’re investing in,” Julian adds.
InvestaCrowd ensures only developers with a trustworthy history are listed on their site in order to give Asian investors the opportunity to invest in high-quality real estate projects in Sydney, New York and London.
“We do this to ensure our investors are protected,” Julian adds.
Understanding the risks of real estate crowdfunding platforms
However, this may not be the case for all real estate crowdfunding platforms. Investors should note that most real estate crowdfunding platforms in Singapore are not regulated by MAS.
Real estate crowdfunding platforms can hail from many different countries, so investors should also note that they are subject to the laws of the locality that it is based in.
“It’s not a problem when the investment goes well. But when an investment in a real estate developer tanks, a common problem in Asia is that investors won’t know when to exit and they may not be fully aware of the locality laws,” Julian explains.
Not all that glitters is gold
Real estate crowdfunding is commanding quite the hype as more platforms pop up and more money is being poured into it. But it comes with its fair share of risks.
As an investor, you should properly assess the risk of each investment made and if the returns will sufficiently compensate the risks.
Always check if the returns are fixed or variable. And if it’s fixed, where is the “guaranteed” money coming from? Do not be shy to ask questions. Investors need to make sure of their risks and what the chances are of the fundraiser not being able to pay the “guaranteed” returns.
Investors also need to conduct their own due diligence in researching and reading up on all the legal terms of the project, as well as carry out a thorough background check of the crowdfunding operator to ensure that they are reputable with robust track records.
Getting started in real estate crowdfunding
Investors can gain exposure to several commercial and residential projects from just S$25,000 through certain crowdfunding platforms, while others like InvestCrowd requires their investors to be accredited.
Through the InvestaCrowd online platform, investors may pick a project that matches their risk and reward profile as well as review the related information about the project and its developer. After picking a project, investors can then review the required legal documentation and if they are accepted, they can start making their investments.
In the case of InvestaCrowd, the real estate crowdfunding platform ensures investors that they will be constantly kept updated on their investments via emailed investor reports. Apart from that, the online platform has integrated an investor dashboard for members to track their investments and to manage all their investment project reports and information.
InvestaCrowd’s CEO, Julian Kwan, and General Counsel, Alice Chen, who are also the founders of InvestaCrowd frequently post up videos and articles that educate the general public, as well as investors on crowdfunding.
Other players in Singapore
EthisCrowd is a Singapore based Islamic real estate crowdfunding platform and offers the world’s first Shariah-compliant crowdfunding service. Shariah-compliant funds are prohibited from investing in companies whose income is sourced from selling haram items, such as alcohol, pork, pornography, gambling, military equipment and weapons. EthisCrowd focuses on projects in Malaysia and Indonesia while ensuring that all projects are guided by universal Islamic ethics. Investors can start investing in the projects from as little as S$1,500.
CoAssets is Southeast Asia’s first public listed crowdfunding site and with offices in Singapore, Australia, Malaysia, China and Indonesia. In the last two years, CoAssets have in excess of S$43 million worth of transactions that took place through the online platform, matching developers, businesses and investors together. CoAssets proud themselves in being a vested stakeholder in the crowdfunding industry and have launched Crowdfunders.Asia, a magazine that educated the community on all things related to crowdfunding.