By Sofia Gancedo | Bricksave
September 29, 2023
News > Blog Article > Democratising real estate investment: how crowdfunding …
For centuries, the ownership of land and property has been considered the best way for people to accumulate wealth. In the words of Andrew Carnegie: “Ninety percent of all millionaires become so through owing real estate”. Even today, the amount of capital required to fund the buying and developing of real estate means it is a form of wealth building really only available either to high-net-worth individuals or institutions with deep pockets – such as banks, hedge funds, and private equity firms.
But there are plenty of other traditional barriers to entry when it comes to owning real estate. For example, Buying and selling real estate can be inefficient. Unlike other forms of investments – like stocks and shares – where you can buy and sell smaller amounts to suit your budget, it has traditionally been not possible to invest in real estate without buying the property outright. Also, the real estate market is notoriously slow, transactions can often take months to complete and there’s no pricing transparency. Lack of knowledge means that many potential real estate investors can be put off in case they end up stuck with a property with a lower value than they paid for it.
But the landscape is changing, thanks to advances in technology that are dragging the real estate market into the 21st century. These innovations are helping to democratize the buying and selling process, making real estate investment more accessible than it has ever been before. In our view, the most significant technology advancement for the real estate sector has been the rise of crowdfunding.
Put simply, crowdfunding is a way of raising large sums of capital from a large number of individuals, typically via online platforms. Instead of expecting one investor to use all of their money to buy one asset, instead thousands of investors join forces to each pay a fraction of what an asset is worth, and their combined resources buy the asset, meaning they all get to own a share.
Real estate crowdfunding is fast becoming the investment of choice for people in Latin America, and the rest of the world. According to Custom Market Insights, the global real estate market crowdfunding market was valued at an estimated USD 10.8 billion in 2021, and is expected to grow to a staggering USD 250 billion by 2030.[1]
Real estate crowdfunding online platforms have made it possible for a wider range of investors, including those with limited capital, to participate in real estate deals. More importantly, instead of being forced to only invest in one particular property due to lack of capital, crowdfunding platforms make it easy for investors to own stakes across a variety of properties in different locations.
Thanks to crowdfunding, it is now relatively easy to own a well-diversified real estate portfolio where the risk of owning property is effectively spread across several different properties and potentially even different regions of the world.
As we previously mentioned, one way of keeping real estate out of most people’s reach has traditionally been through a lack of information and transparency. Experienced realtors, developers, and institutional investors had access to vital data about property values, market trends, and potential developments, information that was outside the reach of the average person. This imbalance gave an edge to those ‘in the know’, helping them to make more informed decisions and grab the best opportunities.
But thanks to online platforms, a potential real estate investor now has access to information and key insights into different properties. This includes highly detailed real estate data and analytics, including expected returns, potential risks, and other critical factors that have levelled the playing field for investors of all sizes, making it possible for them to make well-informed investment decisions.
This availability of information via online crowdfunding platforms also means that the pricing of real estate has become much fairer. In the past, property pricing was often wildly unpredictable, and all depended on the negotiations between the buyer and the seller. This routinely led to situations where two would-be buyers would pay very different amounts for similar properties. But crowdfunding is helping to change all that, by navigating the potential minefield of negations between buyers and sellers. Instead of leaving it to the investors to negotiate the price, crowdfunding platforms have a set price for properties which has been reached after careful market research, appraisals, and project evaluations. All the potential investors are given a much clearer picture of the property's value, potential risks, and expected returns. With this transparency, crowdfunding investors can trust that the price set for the property is fair, reasonable and in line with market conditions. Real estate is no longer a path to prosperity that only a select few can travel down. Real estate crowdfunding allows multiple investors to collectively pool their resources together to invest in property, thereby ‘democratizing’ access to an asset class that perhaps would be out of their financial reach individually, or where the risks involved with making the investment would potentially overshadow the rewards.
Real estate crowdfunding is transforming the wealth management landscape, making it more accessible, diverse, and transparent. In other words, crowdfunding really is about giving ‘power to the people’, financially speaking.
Investing carries risks, including loss of capital and illiquidity. Please read our Risk Warning before investing.
