By Manuel Cornejo | Bricksave
May 18, 2023
There’s no doubt that real estate looks like one of the most attractive investments out there right now. Real estate has historically been a difficult investment to acquire, thanks to the high purchase costs involved. But the use of crowdfunding means that is no longer the case. This article explains how Bricksave’s investments in global real estate are structured.
Bricksave gives investors a way to make investments in residential real estate projects currently happening around the world. Thanks to crowdfunding, our investors can collectively finance the purchase of a property and enjoy the benefit of rental income. The value of the property may appreciate over the lifetime of the investment, and those gains are returned to the investors after the property is sold.
Before we look at how Bricksave’s investments are structured, let’s provide some background on the world of crowdfunding. Crowdfunding brings together several like-minded investors interested in owning a stake that can be used to help fund larger investment projects. By pooling their small investments, the ‘crowd’ can afford to get involved with bigger projects that would otherwise be out of their reach.
Real estate is a great example of the power of crowdfunding. One investor with $10,000 cannot afford to buy a property valued at $110,000. But if that investor joins forces with 10 other investors, each with $10,000 to invest? Together, they can make it happen!
But there’s another important element of crowdfunding to consider. When a crowdfunding investor commits to funding a real estate project, they effectively own a share of the equity in that property. This is the key difference between crowdfunding and peer-to-peer lending. Whereas real estate crowdfunding is an investment, with the potential for returning a rental income and a capital gain once the property is sold, peer-to-peer lending is a loan where the borrower may or may not be able to repay the loan. In other words, using peer-to-peer lending means you become a lender, whereas if you use crowdfunding, you become an investor.
Here’s a step-by-step example. Let’s take an investor, Isabella with $10,000 to invest. She can use the Bricksave platform to buy a stake in an apartment in Philadelphia, USA. Isabella is also interested in owning shares in other apartments offering high rental yields, including other US locations such as Chicago.
Isabella knows that all the properties on the Bricksave platform have been sourced and researched in advance and have been targeted due to Bricksave’s focus on low risk-Bricksave even ensures that long-term tenancy agreements are in place.
After careful consideration, Isabelle chooses to use $5,000 to invest in the Philadelphia apartment and use the second $5,000 to invest in another apartment in Chicago. To purchase the Philadelphia property, a special purpose vehicle (SPV) is created. An SVP is a registered company, created specifically with the sole purpose of purchasing the designated property. A similar SPV is created for the Chicago property.
This SPV will become the official buyer and manager of the property, and Isabella – along with her co-investors – will own shares in the SPV. Once the purchase is complete, clients then sign a term sheet that specifies the percentage ownership of the SPV.
Isabella will then start receiving a share of the rental returns from the property (minus relevant costs). Returns are credited directly into Isabella’s client wallet. She can choose to withdraw her returns or reinvest into other properties, by looking at other projects currently being funded. Thanks to compounding, Isabella can increase her wealth by getting an increased return from the money reinvested, on top of her initial investment. By investing her returns, Isabella can grow her wealth faster and get closer to her financial goals.
Getting a regular return on her investment is one of the main reasons why Isabella chose Bricksave. Rental income is a key component of real estate investment, and investing in residential properties can generate consistent rental income over time.
Residential properties in fast-growing cities or popular destinations are often in high and constant demand, giving investors a stable and predictable income stream. Also, residential properties often have long-term leases, giving investors more certainty over their long-term returns.
The other main reason why people invest in real estate is for capital appreciation. Property values can appreciate over the lifetime of the investment, and those gains can be returned to the SPV’s shareholders once the property is sold.
Isabella knows that with Bricksave, after four years, or if annual returns from the property exceed 20%, the property is sold. The sales process usually takes on average between one and three months, but as there are no guarantees when it comes to selling real estate, a sale could take longer.
Once the sale is complete, the wallets of Isabella and the other SPV shareholders will automatically be credited with their fair share of the proceeds, which can either be withdrawn or used to fund another project.
Thanks to the affordable, lower-risk solution offered by real estate crowdfunding, Investors like Isabella are joining the Bricksave community and investing in residential properties in much-desired locations around the world. Find out about available investment properties here.
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