Real estate crowdfunding is where a group of individuals pool their financial resources together to invest in property. These resources are used to buy a property outright or to help real estate developers in the form of a loan.
Crowdfunding seeks to raise a determined amount of capital. That amount can be raised from a small number of individuals investing larger amounts of money, or a larger number of individuals contributing a small percentage of the total raise.
When an investor contributes funds to an opportunity, they effectively own a share of equity in the property. This is a key difference between crowdfunding and peer-to-peer lending.
When the property is purchased, all returns are divided between the individual investors according to their percentage of the total sum invested. The returns generated will be in the form of rental yields and capital appreciation, or pure interest if the investment is in the form of a loan.
The smaller investment amounts mean the benefits of real estate crowdfunding can be felt by both the investor and the recipient of the funds. It’s a fast way of raising large amounts of money and it allows individuals to commit smaller amounts of money to investments they wouldn’t otherwise be able to participate in.