Real estate crowdfunding is a great way to make passive income without having to deal with real estate investment properties directly. If you’re looking for an alternative to real estate investing, real estate crowdfunding can be a good place to start.

You may have heard about real estate crowdfunding and wondered if it’s worth your time and money. This article will cover what real estate crowdfunding is all about, how it works, and whether or not it’s the right investment for you.

What Is Real Estate Crowdfunding?

Real estate crowdfunding is when investors pool their money together to buy or build a property. The property is then managed by a professional and the profits are divided among the investors based on their initial investment. It’s similar to investing in stocks, but instead of buying shares of a company, you’re buying shares of a piece of property.

The primary benefit of investing in real estate via crowdfunding is that you do not need huge amounts of capital to get started. Most platforms allow investors to start with as little as $500. Real estate crowdfunding has become very popular because average investors can now participate in real estate investments that used to be reserved only for wealthy investors or banks.

How Does Crowdfunding Real Estate Investing Work?

There are two ways that companies aggregate investments for real estate projects: equity-based and debt-based crowdfunding.

Equity-Based Crowdfunding

In equity-based deals, also known as direct investment, investors provide capital in exchange for a share in the property or project. This enables investors to participate in the appreciation of any asset and receive a share of the income it generates. As with all equity investments, this type of investment carries risk. While there’s no guarantee, an investor may be able to generate long-term returns if the property performs well and is sold at a profit (or if it continues to generate rental income).

Debt-Based Crowdfunding

In debt-based deals, investors provide a loan that’s used to fund the real estate project. In exchange for their money, they typically receive monthly payments along with a return of their principal when the project is completed. This type of investment also carries risk since borrowers can default on their loans; however, returns are generally more predictable and less volatile than equity investments because they’re typically not tied to the appreciation of an asset.

Because of this distinction, debt-based real estate crowdfunding is sometimes referred to as peer-to-peer lending. The main difference between these two types of crowdfunding is that with peer-to-peer lending, you’re not an owner of the property — you’re just providing a loan. However, there are some platforms that offer both equity and debt investments in real estate.

The first step in real estate crowdfunding is choosing a platform that meets your needs. There are dozens of options out there, so take some time to do your research and find one that fits your goals and objectives. Make sure to check reviews and testimonials from other users so you can get a feel for what you can expect from the platform before you commit to it.

Crowdfunding real estate investing offers five benefits:

• Most investors create a portfolio with multiple properties, but crowdfunding makes it easy to diversify across dozens of deals in a single transaction.
• Access to quality deals. Real estate crowdfunding sites vet their deals and only approve the ones that pass its investment criteria. This means investors are presented with high-quality deals that may have otherwise been out of reach.
• High investment minimums. These sites typically have higher minimums than other passive income streams, which can be a good or bad thing depending on your goals. While some people like to grow their portfolio slowly, others wish to start earning passive income as soon as possible.
• Hands-off investing. There’s no need to be a hands-on landlord with real estate crowdfunding because each deal is professionally managed by an experienced company or real estate investment trust (REIT). This allows you to sit back and collect your share of the rent without worrying about maintenance, vacancies or tenant problems.
• Passive income. The goal of most passive income strategies is to earn money while you sleep, and real estate crowdfunding accomplishes this by paying dividends based on the cash flow of each property in your portfolio.

Crowdfunding real estate investing is not for the faint of heart. It can be a great way to diversify your portfolio and generate passive income, but it comes with significant risks.

The most important thing to remember is that you need to do your research before you invest. Make sure the company you’re investing in has solid management, a good track record, and is transparent about its operations. And be sure that you understand the investment and what it entails.

If you stick to these guidelines, you should have no problem converting your capital into passive income through real estate crowdfunding.

And if real estate isn’t your thing? Don’t worry. There are plenty of other ways to generate passive income.