How Fintech Is Shaping The Future Of Real Estate Crowdfunding
It’s no secret that the real estate market is booming. Commercial and residential property prices are predicted by experts to experience a 7.8% increase in the United States between July 2022 and June 2023. And with interest rates on the rise, it’s expected to get more expensive for buyers and renters alike.
So how can you get in on the action? One of your options is to invest in real estate crowdfunding.
What Is Real Estate Crowdfunding?
Real estate crowdfunding is a type of crowdfunding that allows people to pool their money together to invest in a property. It works like equity financing, where each investor owns a piece of the property. In this business model, you investing in real estate without being a landlord, hence the term “crowdfunding.”
And one of the keys to making real estate crowdfunding convenient and accessible is Fintech or financial technology. In this article, we’ll explore the many ways Fintech is shaping the future of real estate crowdfunding.
1. Diversifying Investments Have Been Made Easy
Diversification is an essential aspect of any investment. For one, it allows you to spread your risk across different asset classes and sectors. And so, if one investment goes bad, you’re not wiped out completely.
Fintech has made it easier to diversify your portfolio with real estate crowdfunding. Now, platforms offer fractional ownership of properties, so you can invest as little or as much as you want. This allows you to build a well-rounded portfolio without breaking the bank.
For example, suppose you want to achieve the 7 streams of income. In that case, you can invest in rental income, where you’re paid monthly, commercial income from businesses that lease space in the property, and value-add income from renovating and selling the property. This then makes crowdfunding worthwhile, less risky, and more manageable.
2. It Allows Access To More Deals
In the past, real estate crowdfunding was only available to accredited investors. These individuals earn an annual income of USD$200,000 or more or have a net worth of USD$1 million or more. This meant that the average person couldn’t get involved in these deals. However, fintech has changed this by enabling non-accredited investors to access deals through online platforms.
This is considered a huge benefit for the industry and investors because it allows anyone with a few hundred dollars to start real estate investing. It’s also a great way to learn about the industry and get into it without putting down a lot of money. Moreover, as there are many assets to invest in, you can search for more favorable deals. This could be done by looking at the location, the type of property, or the expected return on investment.
3. More Investors Per Property
Another advantage of real estate crowdfunding is having many investors per property. This was not possible before as it was logistically difficult to track all the people involved. But fintech has made it easy for platforms to keep track of all investors and their contributions due to a central database that features real-time updates.
This is great news for investors, who can pool their money together to buy a property. It also means that each investor has a smaller financial stake in the deal, so the loss isn’t as significant if something goes wrong.
4. It Allows For Faster Deals
Another way that fintech is shaping real estate crowdfunding is by allowing you to do deals much faster. The reason behind this is you’re not relying on banks for financing, so you don’t have to go through the traditional buying process. Fintech has enabled platforms to offer pre-approved loans, so you can quickly get the money you need.
This can benefit investors as they can take advantage of opportunities as they arise. It also means you’re not tied into a long-term loan and can sell your share of the property if necessary. By offering investors more convenient entry and exit routes, fintech allows them to enter and exit the market as they please and as the market favors.
5. It Promotes A More Transparent Process
In the past, real estate crowdfunding was a very opaque process. This is because there wasn’t much information about the different deals and how they performed. Fintech has made it possible for platforms to be more transparent with their data. This includes showing you the expected return on investment, the fees being charged, and how the property performs.
This is extremely beneficial for investors, allowing them to make more informed decisions. It also builds trust between the platform and the investor, which is essential for this industry. Moreover, it allows you to compare different deals and see which one is right for you.
6. Better Risk Management
Another way that fintech is changing real estate crowdfunding is by allowing platforms to offer better risk management tools. This includes things like insurance, reserve funds, and diversification. Insurance protects you from unforeseen events, such as damaged property or tenant not paying rent. Reserve funds are used to cover any unexpected repairs or vacancies. And diversification helps to spread the risk by investing in different types of properties.
These tools are extremely important for investors as they help provide peace of mind that their investment is safe. It also means that you’re more likely to get a positive return on your investment as they make decisions based on these risk factors, such as where to buy a property, what type of property to buy, and how much to invest.
7. It Offers A More Efficient Process
Lastly, another way fintech changes real estate crowdfunding is by making the process more efficient. This includes things like automating paperwork and using artificial intelligence to find deals. For one, automating paperwork saves time as you don’t have to fill out forms manually. And using artificial intelligence to find deals means you can quickly identify properties that match your investment criteria.
Investors can significantly benefit from this as it saves them time and effort. It also allows them to focus on other things, such as their day job or family. Moreover, it makes the whole process less stressful as you don’t have to worry about making mistakes.
Fintech is changing the way we do real estate crowdfunding, and there are many benefits for investors. These include a more transparent process, better risk management, faster deals, and more efficient processes. If you’re thinking of investing in real estate crowdfunding, the insights above can help you gain an understanding of the various changes in the industry brought by financial technology.