Crowdfunding and the real estate market are a natural fit. In a word, crowdfunding makes use of the easy accessibility of vast networks of friends, family, and colleagues through social media websites like Facebook, Twitter, and LinkedIn to get the word out about a new business and to attract investors. Crowdfunding has also the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives, and venture capitalists.
And it is here where the Real Estate crowdfunding platforms stand out: to connect these two far but not too far worlds.
In this business model there are two parties involved: the investors and thereal estate developers. Let’s have a look at the advantages they can both benefit of.
Pros for the investors
Investors are key for a Real Estate crowdfunding platform, as, using a metaphor, they represent the engine for this kind of business. Subsequently, they have many pros by adopting this investment method comparing to the traditional one. The main advantages are:
- Democratization of investments: it allows everyone to make an investment, no matter their economic disposal. For example, you can invest through Housers starting with 50 euros only.
- Vast choice of projects to invest in: investors can minimize the risk by investing in distinct opportunities which can differ by type of projects (in Housers we divide them by fixed interest opportunities and partecipative loans), by the city they are located in and even by the country.
- You don’t have to be a real estate expert: investors don’t have to have a knowledge of the sector as they can rely on the real estate crowdfunding platform experts. They select the different types of projects in order to minimize the potential risk for the investors.
- Diversification means less risk: like any other investment, even those in the Real Estate crowdfunding are not risk-free. However, it is possible to minimize them by diversifying in different opportunities.
- Reduction of bureaucratic processes: clearly, the timing is shorter comparing to traditional investments, as the investments are made online. In addition, the crowdfunding platform takes charge of the mediation between the bureaucratic processes as well as the users’ subscription.
Pros for the real estate developers
The counterpart of the investors are the real estate developers. Contrary to what many people may think, the advantages that the real estate developers have by using a Real Estate crowdfunding platform to fund their projects, are quite a lot. Just to name a few:
- Complementary and/or alternative to the bank: real estate crowdfunding platforms are an alternative to traditional financial service as they are more flexible and faster when it comes to asking for a loan.On the other hand, they are also complementary to traditional ways of getting funds because normally the capital that real estate developers are asking for funding their projects does not derive completely from the fund raising collected by the platform; the bank often intervenes in the last phases of the fund.
- Marketing and communication: getting visibility is key for project developers who want their projects to be funded. In fact, when they ask a loan to a Real Estate crowdfunding platform, they implicitly ask for advertisement. Indeed, they have a marketing department at their disposal that works in order to make them more known and visible in a large number of media. Just to give an example, the project developer of an Housers’ opportunity named Castellero Resort, gained exposure in many important newspapers, all thanks to Housers. Among the most relevant ones, he was even mentioned in El Mundo.
- A faster way to collect the capital: funding a project through a real estate crowdfunding platform is certainly less time consuming than doing it through other ways. The speed in collecting the capital is due to the fact these kind of platforms rely on an online business model which leads to an increment in the capital as well.
- Gaining a broader customer base: this last point is related to the second one. Thanks to the exposure that the project developers get when they are advertised by the marketing department of a real estate crowdfunding platform, they also gain a broader customer base.
At the beginning of this article we said that the actors involved in the real estate crowdfunding process are the investors and the real estate developers, but it would be wrong to mention only these two. Who needs to be included is the real estate platform which, in fact, represents the star of this business model, the connecting the investors and the real estate developer.
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