Fund an artist, help people in distress, grant a loan to an SME, finance the development of a new technology … so many projects that have emerged thanks to crowdfunding. Since the launch of Good Finance in 2007, crowdfunding has invested and continues to invest in many sectors of the economy. One of the latest is real estate!
For more than a year now, several platforms have emerged and offer the opportunity to invest in real estate from USD 1,000. Several types of investments are proposed and the possibilities offered by each platform may differ both in terms of profitability and the objectives pursued.
Capital financing of real estate developers
To finance a real estate program, a promoter must mobilize equity in order to meet the costs generated by the communication expenses, the launching of the works … For this, the developer commits a part of its own funds and finances the rest with a credit contracted at a bank at often quite high rates.
Good Finance startup has duplicated the concept of crowdfunding to meet the needs of developers, namely fund equity by offering individuals to invest in real estate programs.
Simply put, by investing in this type of project, you are lending money to a real estate developer.
Profitability is interesting (around 10%) but the risk goes hand in hand: if the promoter goes bankrupt, then you risk the full amount of money committed. Projects usually last 24 months, the duration of a real estate program.
Invest in real estate
Investing in real estate was inaccessible for most French, and yet it is their preferred investment! Good Lender started from this observation to launch the first crowdfunding platform dedicated to real estate investment in autumn 2014.
The concept is simple, Good Lender offers to invest in real estate from USD 5,000 by dividing a property into several parts. Specifically, with this solution you own (on the one hand) a property and you will receive rents based on your contribution. There is no minimum or maximum investment period, it’s up to you.
So you are building a wealth that brings you regular income and can eventually generate an added value when you get your share. The other benefit of the concept is that you can diversify your real estate portfolio by investing in more than one asset. You can create your custom GFIC in a way and reduce the risk.
The profitability displayed is lower (around 5%) but has the advantage of being safer because you invest directly in the stone. Be aware that this type of investment and like any real estate investment, it is considered in the medium / long term only if you want to consider a capital gain (at least 5 years).
Invest in merchant property transactions
The model is similar to the previous one, that is to say that you are offered to invest in real estate directly but the difference is made on the condition of the property which is, in general, to redo completely. From your investment, one part will be allocated to the purchase of the property and another part to the financing of the renovation works. The objective being to resell the property directly after the works is about 6 months to 1 year after the acquisition.
The announced profitability is around 7%, which is between the two previous solutions. However, it must be kept in mind that to carry out work it is better to contact a competent professional who will respect both the deadlines and the budget. No such operation has yet been fully funded.
Since the launch of these two pioneers, many platforms have emerged, proof of the dynamism of the sector. There are about twenty today on the whole market and with such a competition, few platforms pull the pin of the game for the moment. Nevertheless several of them reach there and testify of the craze raised by these new types investments.
What was initially just a fad in which individuals gave money without waiting for a return, has become a real alternative to traditional financing schemes through which individuals invest and in return can receive a share of capital or profitability.
Real estate is not outdone with more than 1.5 million Euros collected in 2014 and very strong growth according to the Barometer Finance Participative France produced by Good Finance. In 2014, the crowdfunding in France collected 152 million Euros and forecasts for 2015 are excellent since according to experts, the market should still double this year.