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Why real estate crowdfunding is the future of property investment

08/06/21  by Igor Gorbatsevich

Investing, Technology
WE TAKE A LOOK AT HOW REAL ESTATE CROWDFUNDING ORIGINATED AND WHY THE FUTURE IS BRIGHT FOR ONLINE PROPERTY INVESTMENT PLATFORMS.

Real estate has always been a popular investment choice for those looking to put their money to work. Traditionally, it is less volatile than the stock market and provides investors with something that shares cannot– a tangible, ‘real world’ investment that provides a predictable and long-term income stream. ‘Safe as houses’ has become a well-worn phrase in the British language for this reason. 

However, for most of recorded history, investing in property has been out of reach for the majority. The high baseline prices of real estate created insurmountable barriers that only very wealthy individuals and institutions could overcome. It was not only investors who were kept out of the market, either – developers and project owners without the right contacts also found it difficult to get schemes funded and off the ground. 

All of this changed with real estate crowdfunding, introduced off the back of the 2012 Jumpstart Our Business Startups (JOBS) Act in the United States. The JOBS Act allowed non-accredited investors to invest in properties, and for project owners and developers to market their projects publicly to a larger crowd of investors and benefit from other, previously inaccessible, sources of funding.

Since then, the real estate crowdfunding space has gone from strength to strength, and is expected to reach a sector value of around $868,982 million (i) – with a compound annual growth rate of around 58.3% – between now and 2027. We take a look at how real estate crowdfunding originated and why the future is bright for online property investment platforms.

WHAT IS REAL ESTATE CROWDFUNDING?

Real estate crowdfunding puts the power back into the hands of the ordinary investor. By allowing individuals to combine their money, property can be invested in at a fraction of the total cost. This lowers the barriers to entry and provides countless opportunities for investors to diversify their portfolios with property. 

Crowdfunding also offers fast liquidity and optimal efficiency for developers, while investors can enjoy the benefits of real estate from their laptops and mobile devices anywhere in the world. 

In recent years, European legislation has looked to solidify and regulate the market in which crowdfunding platforms operate. This allows investors to participate more easily and with more security, leading to an enormous rise in the number of platforms and projects available.

Despite the challenges that Covid-19 posed to the economy in 2020, real estate crowdfunding still returned an average of 8% per annum with 80-95% of the beneficiaries being passive investors (ii). This stability in times of turmoil will surely be of interest to investors looking to cement predictable returns on capital and to diversify their portfolios.

THE BENEFITS OF REAL ESTATE CROWDFUNDING

Real estate crowdfunding is a fast and effective way to put your money to work. Not only has it made real estate more accessible as an investment vehicle, it has also added a layer of security that did not exist in the traditional model. 

One of its biggest strengths when compared to traditional real estate investing is that it does not require you to put all of your eggs in one basket. The lower costs and abundance of projects means investors can diversify their portfolios across the globe, in many different areas of real estate, thereby minimising risk. Investing through the right platform also means working with experienced professionals – no day-to-day project management is required. 

That is not to say that projects cannot go wrong. Money can be lost and investors do need to be aware of the risk – but the combination of simplicity, affordability and diversification makes it a fantastic option for any investor.

WHY SHOJIN IS A LEADING ONLINE REAL ESTATE CROWDFUNDING PLATFORM

Shojin provides access to institutional-grade investment opportunities in the UK real estate sector to investors around the world. All of the projects we decide to take forward and offer to our members are handpicked by our analysts and subject to extensive due diligence. For every one project we offer you as a viable investment, we have rejected 100. 

As a growing platform, we invest with you in every project. We think it is important that we have ‘skin in the game’ along with you, and our track record speaks for itself. 

Our team has decades of experience in this space, with talents ranging from investment banking to risk analysis. As a result, we have investment products and projects that suit all finance levels and risk profiles. It is our mission to democratise real estate crowdfunding, and we hope you will join us. 

Similar to many business sectors, 2020 was a challenging year for the real estate crowdfunding industry. However, despite the unprecedented economic environment, which is thankfully beginning its recovery, demand from investors has only grown. In the following years, it is probable we will look at the events of 2020 as having a ‘forest fire’-like effect on the nascent crowdfunding industry – burning away the platforms that were not ready and could not offer value to their investors. 

We are now at an important stage in the development of real estate crowdfunding. The building of investor trust and extensive due diligence on investment opportunities on behalf of the investor – values that Shojin embodies and puts into practice – will be increasingly important, and the growth we see will be immensely rewarding for both investors and developers alike. The floodgates are now open for new types of investors to reap the benefits of bricks and mortar. A rising tide raises all ships, as they say. 

If you would like to learn more about our products, and how we can help you, download our Enlightened Investor Guide.