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What is crowd funding in realty?

Now-a-days, crowd funding has become a very popular method of investment in real estate sector. Many websites mushroomed on the Internet popularizing this method of fund raising. They put forward innovative ways of raising funds by realtors. It facilitates one to pool money from small investors to finance realty projects. Even if a person does not have a sound fiscal background, the person gets investment opportunities which are hitherto not available to that person. It is a method or a game of investment that facilitates easy entry of the new as well as experienced investors. The novel method of investment diversifies one’s investment. Moreover, it provides huge profits to investors. Unlike other real estate investments, crowd funding is not totally risk-free. If you choose a right investment plan using the right platform, success is possible.

Until a decade ago, real estate crowd funding was limited only to the rich. But everything has changed. A real estate crowd funding platform allows you to invest your money with others. As it turned out to be very attractive, many experienced investors are also inclining towards it. Real estate crowd funding allows anyone to start with small amounts of money and participate in large projects. This platform also allows investors to interact with other investors, property developers, and earn fees for consulting, management, and sales.

How does it work?

For example, suppose there is a commercial property worth around Rs.10 crores in a prime area of Hyderabad. A real estate developer spotted it. However, there are no proper facilities in the project. In these situations, if some amount is spent on the basis of market research and other requirements and the property is brought into use, its value will increase further. However, the problem here is how to raise the necessary funds to restore it. In these situations it can be converted into a real estate crowd funding prospect rather than trying to get a loan. In which a consortium of investors or individuals invest.

Real estate crowd funding provides necessary funds to the real estate developer and serves as a viable alternative to traditional ways of borrowing funds. Other aspect of this method is investors becoming shareholders in properties which they would not be able to buy as normal individuals. It widens the portfolio of the investors.

The profits in this method of investment vary depending on the investment strategy. If the approach is equity-based, they get returns based on the rental income of the property or the profits made depending on their ownership percentage. In a loan or debt-based approach, investors do not receive shares of the property, but returns on their investments basing on the investment they make and the interest rate they pay

How does the investor benefited?

One of the advantages of crowd funding is the reduction of the amount invested. In some cases only Rs. 25 lakhs is also enough. Earlier this benefit did not exist. Moreover, you have wide opportunities to invest, greatly reducing the risk. For example, if one wants to invest Rs.25 lakh, one can do so amount in different projects across the country. Moreover, there will be no land tenure problems.

There are vast differences between crowd funding and the Real Estate Investment Trust (REIT). In addition to the above benefits in crowd funding there is adequate control over asset selection and placement. In crowd funding one has the flexibility to choose markets and properties one want to invest in. In REIT, one knows about the properties one is investing but would not have preliminary understanding about them. One gets low income with low-risk contracts and higher income with high-risk contracts so that investors can invest in the deal that suits them