Investing in the real estate market is now something everyone can be part of thanks to Real Estate Crowdfunding, a combination of digital platforms applied to real estate.
Crowdfunding is a form of collective financing. Applied to real estate, this formula makes it possible for investors, private individuals or legal entities to take part in financing a real estate project in exchange for remuneration.
In this article, we will explain what it is, how it works, its advantages for investors and potential partners.
Real Estate Crowdfunding: who could be interested?
There are many people who have a small or medium amount of capital who are interested in investing in the real estate market. Almost certainly, until now, they refrained from doing so because, while on one side, real estate investment requires a medium-high budget, on the other, making a return on your investment can hide pitfalls and complications, especially for those not expert in the sector.
The alternatives for investing small and medium sums of capital (starting from a few hundred euros) are: the stock market—increasingly unpredictable and not recommended for those who are not thoroughly versed in its rules and how it works—or mutual funds and treasury bills whose earnings are generally low, often close to zero, or even negative.
Thanks to real estate crowdfunding, investors do not need to worry about market trends because they are investing in projects with specialist companies and/or professionals with proven experience in the real estate market who have proven their ability to valorize their projects.
The needs of players in the real estate sector
The professional or specialist company in the real estate sector has the expertise to invest by managing the complexity of the operations involved but, often, has difficulty raising funds from banks. The amount of time required for authorization is not in keeping with this activity. A more flexible, rapid and simple means of gathering funds is required.
The new opportunity for professionals and specialist companies is that of proposing their projects on online crowdfunding platforms, thus increasing their investor portfolios and receiving funds from around the world. Generally, these platforms also offer the benefit of simplifying management and relations with investors by providing real-time updates.
Real Estate Crowdfunding: the various types of platforms
Let’s take a look at how the various platforms manage the funds of investors who decide to take part in the development of a real estate project.
Equity platforms are based on the subscription of venture capital shares of the company itself by individual investors who decide to take part in entrepreneurial funding.
Lending platforms are based on granting a loan to the promoters of a real estate project. The funds gathered on the platform will then be reimbursed through fixed or floating-rate remuneration. These are the most common. Simply put, investors take part in real estate development projects by lending capital (like a bond) which is returned at the conclusion of the set period, plus the interest accrued at the end of the investment period.
As could be expected, these combine the equity and lending models.
The advantages of Real Estate Crowdfunding for investors
- The ability to invest small sums of money,
- expected returns generally much higher than bank, treasury bill and bond rates,
- short-term, low-risk investments,
- the opportunity to also invest in foreign real estate projects,
- the ability to diversify one’s investments.
Crowdfunding real estate platforms declare that they carefully vet the projects they propose, generally with the aid of sector experts. Nonetheless, as in any other type of investment, risks for the investor remain.
Specifically, here are some of the major risks in crowdfunding lending:
- fluctuation in the real estate market. Although the projects involved are to be completed over the short-term, exceptional events such as market or global crises can impact on the value of the property which, for this reason, might not yield the expected return.
- longer time required to complete the project. In this case, the result could be a longer period for a return on capital than expected.
- lengthening of the period required for sale or failure to sell. In this case, the platform sets the rules for restitution of the capital by the company or the financed project, but the risk of delay is inevitable.
In the case of equity funding, investing in risk capital means becoming a true partner of the company and sharing the business risk.
Whom to invest with: Real Estate Crowdfunding platforms in Italy
Currently, in Italy, various platforms are available within a dynamic scenario. We have created a list of twelve that work using the two business models described above: equity and lending.
All platforms make available to investors a Q&A section which should be read carefully to invest in an informed way.
Build Around is headquartered in Milan and offers residential, commercial and hospitality investments. The minimum investment is €1,000.
Concrete applies the equity model. The opportunities proposed are selected using criteria defined by the portal and vetted by an independent source. It offers residential projects, including long-term (3-4 years). Investors must pay a commission that ranges from 1% to 3%. The platform also offers a blog with interesting analysis. No minimum investment is specified.
CrowdEstate, founded in 2014 in Estonia, offers the possibility of financing lending type real estate projects. In Italy, it has financed a number of projects in the Milan area. It declares that its investors have an annual yield of 16.95%. It has over 48,000 registered users in Europe and has already financed more than 250 projects.
House4Crowd launched its first operation in the Milan market. It hosts residential, commercial and tourist project proposals with annual yields of up to 15%.
Housers is a Spanish lending crowdfunding platform that has been active in Italy since 2017. It has already financed more than 200 projects. It is the only platform that offers a secondary market for the exchange of shares and it also has an ample and very detailed Q&A section. The minimum investment is not given for those who are not registered.
Italy-Crowd started operations in January 2015. It offers real estate investments in exclusive areas and investment in each project is limited to a maximum of 20 people.
MyBrix is a very new platform and it is already possible to register, but it is not yet operational, and the e-mails sent to new users state “we are working to be online soon”. Currently, the website does not give information about the platform managers.
Rendimento etico is one of the newest platforms. The focus of its operations is the restructuring of mortgage debt held by individuals or companies in financial difficulty. The minimum investment is €500.
Trusters, an all-Italian platform in operation since December 2018, offers short-term projects (maximum 12 months) and with a very low average target (ca. €50,000). Investments start at €100.
Re-Lender is a crowdfunding platform based on the lending model and dedicated to industrial, real estate, ecological and technological reconversion. It hosts residential- and industrial-type projects oriented towards environmental, social and economic sustainability. All its projects pay out interest on a monthly basis, with the first payment 30 days following the funding closing date. The minimum investment is €50.
ReCrowd, is a lending crowdfunding platform. It offers 4 project types, differentiated by risk, investment, duration and ROI. The minimum investment is €500.
Walliance is the first real estate crowdfunding platform to have begun operating in Italy. It is headquartered in Trento and offers equity type projects. The minimum amount for investors to take part in projects is €500. It makes available interesting resources to allow investors to deepen their knowledge of this topic.