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Real Estate Crowdfunding is a relatively new way to invest in real estate. Real estate platforms focused on crowdfunding allow you to participate in deals alongside many other investors, each of which contributes to the real estate deals. The platforms do all the hard work, the legal stuff, finding the deals, doing the necessary due diligence, running the platforms.
There are four key advantages, the first is the potential for passive income, the second is the avoidance of managing the deal and the third is investing in low amounts and the last is the ability to quickly diversify. There are also some disadvantages including the need to analyse each deal individually and the lack of regulation regarding the accounting of real estate crowdfunding platforms. On these platforms, investors need to read and analyse each deal while with a REIT all this is done for you by the management team.
There are rules around real estate regulation and it is very difficult for European investors to invest in US-based Real Estate Crowdfunding platforms and vice versa.
There are various types of Real Estate Crowdfunding
- Crowdfunded Bridge loans
- Long Term mortgages
- Real estate development
- Buy to Let (BTL)
- Buy to Sell (BTS) or flipping
Each platform tends to focus on or more of these types of deals.
The crux of each deal is the LTV and the location of the real estate. The LTV is the loan to value, meaning how much money is being borrowed compared to the value of the real estate. Since the property market is not very liquid this valuation is arbitrary; there is no guarantee that it will be valid if the time comes to sell the real estate. The second part is the location of the property; the location determined the value in both residential and commercial terms, if the property is in a desirable area then there will be buyers at your doorsteps otherwise the selling process might take months or years.
The order in which the platforms are listed is random
RealEstate Equity CrowdFunding
Reinvest24 allows you to become an armchair landlord, you can invest in rental properties with a few clicks. Equity ownership means property ownership. With a p2p loan, all you have is an IOU instrument. Property cannot default it should always retain some value. When you invest in Reinvest24 as an owner you are entitled to a share of the rent being paid, this means passive income in your account every month. Most of the investments are in Tallinn, Estonia.
The rent yield hovers around the 7% mark. The capital growth depends on the supply and demand of this market, the trend has been of around 7% a year. Which could give you a combined profit of between 12% to 14% a year! On their platform, they have both commercial and residential property, which makes it easy to diversify across the Estonian property market.
Two issues with Reinvest24 is first, they do not have an auto-invest function which means you need to login and invest in each deal manually. Secondly, there is no secondary market thus loans need to be held throughout their lifetime.
EvoEstate is becoming my favourite p2p property investment platform! They are a p2p real estate platform market place. Audrius Višniauskasand, EvoEstate CEO had a frank review of the EvoEstate platform. The platform sources property deals including both loans and property equity from many different sources. They also include properties from Germany and the USA, two markets which so far have been inaccessible to foreign residents, directly.
EvoEstate staff review the deals from all these platforms and only present a select and list few on their platform. In addition, they have a feature called “invest with us”, in this list they show which investments they have invested in personally. The auto-invest tool allows you to invest a minimum of 50 Euros per deal and you can also choose a property which EvoEstate has skin in the game. It is easy to diversify across deal types and geography, with this platform. Some good platforms have not yet been on-boarded on this marketplace. The loans offered on EvoEstate have no additional fees, EvoEstate makes money from commissions which the origination platforms pay.
3. Property Partner – UK
Property partner is a UK based real estate investment platform, the whole design of the site is very slick. Its focus is on the buy to let model; investors buy a share of a real estate and rent is paid out monthly. The deals focus on properties which encompass multiple apartments or larger commercial premises. Shares in each SPV can be sold or bought on the secondary market. There are various formulas to how one can invest, whether manually or automatically.
Investing in the UK real estate market at this time has the additional risk of Brexit. Learn more about the Brexit and the prime UK property market and Weakness in the UK property market. This applies to all the investment platforms based in the UK.
4. Property Moose – UK
Property Moose was a real estate investment platform which focused on the Buy to let Model; they allowed investors to select properties to invest and then investors collected the rent as passive income from each one the property where managed under a separate SPV. Property moose had to change the business model and essentially become a REIT. According to them the costs of maintaining each SPV made the whole system not profitable. The properties have since been grouped under a new LLC: Uk Diversified property. As of the time of writing it is still not clear if the original valuations have held, i.e. to what extent have investors lost money.
5. The House Crowd – UK
House Crowd is a property crowdfunding based in the UK; the investments are denominated in Sterling. Several of their initial Equity Property Crowdfunding investments are returning less than 2% profit for investors per annum. They have expanded their investment opportunities to
- Equity real estate Crowdfunding
- Peer to Peer Lending
- Real estate Development investing.
The minimum Investment is of 1,000 Sterling, 5,000 Sterling are needed to use the auto invest tool. Investments are visible online however there is no online wallet system for cash and support need to be contacted to check the cash balance.
6. Brickowner – UK
On BrickOwner investments start from £100. The platform provides access to professionally managed real estate investments. They offer both equity and debt investments, in different property sectors. There are different proeprty managers handling the equitpy based crowd funded investments.
RealEstate Debt CrowdFunding
7. EstateGuru – Estonia
Estateguru is an Estonia real estate investment platform, it has lent more than 92 million Euros across 603 Loans. 3.3% of the loan book is in default, and 6.5% of loans have late payments. Most loans yield around 11%. Minimum investment of 50 Euros per project, meaning it is easy to diversify. There is a basic auto investor tool. The advances settings of the auto investor are unlocked when investing a minimum of 250 Euro in each loan.
Estate guru has a reputation of being more conservative and of having higher deal flow than other real estate platforms. The EstateGuru stats are a good place to start your own research.
8. CrowdEstate – Estonia
CrowdEstate is platform based in Estonia focused on investing in crowdfunded real estate and corporate loans. You can start investing with as little as 100 Euros and in 100 Euro increments thereafter. It has exited over 40 deals successfully. It has around four new investment opportunities every month.
An auto-invest feature allows investors to set their filters; this will allow them to invest without having to invest in each loan manually. A secondary market allows investors to sell their loans before they are paid off, most loans are sold higher than the original purchase price.
CrowdEstate has 25,000 registered investors; this means that loans are usually filled up quickly. Crowd Estate statistics page can give insights on whether this investment is compatible with your financial situation.
9. FundingSecure – UK
Funding secure is a p2p lending platform which features some real estate loans. It is also facing some customer complaints according to the website Trust pilot. There is no auto-invest feature, investing in the good loans on this platform requires surgical timing when these loans are launched.
Mintos is a peer 2 peer crowdfunding and lending market place. They act as intermediaries between investors and other crowdfunding firms. There are four loan originators which provide property-backed loans on the platform, some of which have a buyback guarantee. Mintos provides an internal risk rating to these loans. Mintos is probably the platforms which offer the easiest diversification in debt crowdfunding. All Mintos loan originators have invested themselves in each loan they issue “skin in the game”.
Viventor is a crowdfunding marketplace similar to Mintos, however, it has a much smaller number of loan originators. Viventor offers mortgage-backed loans which are pre-funded loans, this means that the loan originators have already funded the investments. The advantage for investors is that loan originators are much more careful because their own money is at stake.
Regulation on Real Estate Crowdfunding management companies makes these investments less transparent than stocks. The accounts of these companies are not open to the public. This increases investments risks, and investors need to be extra careful when investing on these platforms. This p2p investment risk reduction guide might is also applicable to crowdfunding sites About the risks of Crowdfunding and the warnings by the UK FCA and the investor bulletin on crowdfunding from the USA SEC