A new trend is noticed amongst the people who try to raise capital for all kinds of ventures. This is known as crowdsourcing or crowdfunding. In this, people tend to invest their money for supporting projects of all types ranging movies, book and any other creative endeavor to the internet and software development. This means pooling money for diverse kinds of works.
Now, quite evidently, the entrepreneurs will like to draw this fund raising effort towards real estate private deals. In fact, the entrepreneurs are fortunate because modifications in the federal laws regarding raising capital have opened crowdfunding opportunities for real estate investing to business.
However, now the concern is – whether investing your hard-earned income in crowdfunding real estate deals will be a safe and smart way of putting all the capital? Will this option earn you any money? Well, it is feasible, but the odds are very much against you.
Experience is what matters
Firstly, investing in real estate and especially in development deals involve very high risk factor. The real estate market is never stable, and it can face a downtime situation any time. The market for real estate is very fluctuating. So, there is a high chance of facing considerable financial losses and pain on the part of the owner. Moreover, these types of crowdfunding deals mostly have relation with commercial investments, which are the greatest risky zones.
Here, a very crucial thing that you must always keep in mind is – Good investors and developers having an effective track record can only qualify for quality acquisition or development projects. They are only liable to get finances at a cheap rate from the banks which vigorously compete to have such deals. This will provide investors with immense profit, which is the ultimate goal of any investor.
So, which category of investors or developers will be chasing crowdfunded capital from public in general? These should be the inexperienced investors and developers or the ones who have limited financing choices left with them because of highly risk deals or low quality deals.
Proof lies in the detailing
You might have made the crowdfunded deal with the help of an experienced investor or developer; still there is the chance of striking a bad deal. In certain cases, the developer takes a huge amount of fees from your invested amount, or it might happen that your capital get stuck in some deals for years, if not for a decade or so. There are also scammers in the market who will be thankful to you since you have put your money in their wealthy lifestyle.
The road to private real estate deal is pretty promising. Therefore, in case you are planning to invest on some private real estate agreement, you must take the help of a ‘sponsor’ pitching your deal. He must be able to present you with the following details:
- A report showing the amount of risky equity he has into the deal.
- An analysis showing the way the deal can earn income for you and how is the project suitable to a particular area.
- Detail proof and documentation revealing the past record of the sponsor involved in your deal. You can review his credit reports.
So, be wise and make a deal with professional assistance. It is not an intelligent act to gamble your capital in some real estate deal until you are able to afford any financial losses.