Let’s say you’re interested in investing in property in Chicago. Historically you would have had to buy the property outright, rent it out and perhaps sell it at a later date. Assuming a property value of $100,000, that would require significant amounts of money, let alone the time and know-how required to manage it. That all equates to significant amounts of risk.
Through real estate crowdfunding you team up with other individuals and invest what you can into the property. The opportunities on offer will likely be managed by real estate professionals, meaning you don’t have to worry about repairs, finding tenants or chasing rent. This is one of a number of the benefits of real estate crowdfunding.
You decide to invest $10,000 into a $100,000 crowdfunded property. That means you technically own 10% of the property. If it generates a net rental yield of 6% that’s $6,000 over the year of which 10% - $600 – comes to you.
Let’s say the property gets sold 4 years later for $120,000. That’s 20% capital growth - $20,000 in total of which 10% is yours. Naturally, your original investment amount is returned to you at the end of the investment term.
Your original $10,000 has generated $4,400 profit – that’s $2,400 from rental returns (4 x $600) plus $2,000 capital growth. Your investment has generated a total return of 44% or an annualised return of 11%.