Crowdfunding is a new 2.0 financing concept allowing individual investors to invest alongside promoters.
Understand how real estate crowdfunding works
Participatory financing or crowdfunding, which is very much in vogue today, has not stopped attracting investors since its appearance. Yes, crowdfunding is already an integral part of the French economy. This type of financing has already proved its worth in many areas, including real estate of course, hence real estate crowdfunding.
An overview of how real estate crowdfunding works
Real estate crowdfunding is a concept allowing those who wish to invest in real estate to group together on a specialized online platform in order to proceed with the financing of various real estate transactions. As far as the real estate developer is concerned, real estate crowdfunding is a good alternative to bank loans. This is because with the bank, in addition to the constraints which are rigorous, the project owner will probably not be able to benefit from the totality of the sum he needs to start his project. Whereas with crowdfunding, he will be able to collect the necessary funds from individual investors. Then, once the programme has been completed and marketed, generally estimated at between 12 and 24 months, the promoter is required to return to the investors all the capital borrowed, including interest, which can range from 8 to 15% depending on the nature and maturity of the project.
How can the promoter raise funds?
As far as the project owner or promoter is concerned, he normally has two possible ways of raising the funds he needs via the online crowdfunding platform: either by inviting investors to become shareholders in his company, or by issuing bonds to which investors can subscribe. Unlike a share, a bond is the result of crowdlending. It is more like a financial loan. As a result, investors will not be able to govern the company that issued the bonds. In this sense, the promoter is obliged to remunerate its investors. The bond will therefore not be impacted by the profitability of the program. Profitable or not, by subscribing to bonds, investors can benefit from interest rates that are fixed in advance. What’s more, the capital will be repaid at the end of the term, i.e. exactly on the maturity date set in advance.
Real estate crowdfunding is a win-win situation!
Developers and the investment community can find their own interest in crowdfunding! The developer can quickly obtain the requested funds, while investors can benefit from a particularly attractive capital gain once the project is completed. What’s more, the borrower is not obliged to present a guarantee when requesting funds from individual investors. And since the investor will not become the owner of the property, no management effort is required to generate income. Of course, he does not buy the property but rather the debt securities.