Investing in real estate is certainly one of the best choices you can make, but there are many variables in this market. In today’s article, we will address real estate crowdfunding risks, how it works, what it is and the opinions on this new form of real estate investment.
Real estate crowdfunding what is it?
Let’s go now to see, specifically, what real estate crowdfunding is, also known as Real Estate crowdfunding.
Basically, it is a fundraiser that gives all those who want to finance certain business projects in real estate the opportunity to make financial donations through crowdfunding platforms, which allow them to invest in real estate lending crowdfunding.
What are the crowdfunding platforms?
The platforms for investing in brick with crowdfunding are divided into two specific types:
Equity crowdfunding platforms, are those on which those interested can subscribe certain shares of risk capital, supporting companies that want to grow
Lending crowdfunding platforms, those defined as lending are based on the loan of capital to the promoters of the real estate project, the latter being then repaid through a fixed or indexed fee.
If desired, there are also hybrid crowdfunding platforms, which usually use the characteristics of both the previous ones
Real estate crowdfunding projects can, in turn, be divided into as many different types, let’s see what they are.
Buy to Sell
The first we find is the Buy to Sell, or the acquisition of one or more building areas with consequent construction or renovation, with the final idea of selling the properties.
Buy to Let
Then there is the Buy to Let, in this case it involves buying one or more properties from which income is obtained by renting the latter, often after the same properties have been renovated or refurbished.
Rent to Rent
Finally, we find the form of Rent to Rent, i.e. the companies rent their own structures, which in turn are sublet to third parties.
All of these operations allow investors to receive dividends on an annual basis.
Buying a house with crowdfunding
However, we would like to underline that for those interested in buying a house with crowfunding, the best choice is lending-based crowdfunding, since it allows individuals to have direct interests from the financing, and consequently to those who want to repurchase the property of not having to take out the mortgage.
If we are talking about investing in a company, it is better to move towards Equity Crowdfunding, because through this choice the investor will be able to obtain earnings directly from the project or from the company itself.
Real estate crowdfunding Italy
But to what extent is real estate crowdfunding present in Italy? Let’s go and find out together.
This new crowdfunding Italy legislation came into force with the Legislative Decree of 18 October 2012 n. 179, in which it was equated to an instrument to finance innovative startups, integrated again by the Legislative Decree of 24 January 2015 n. 3 (so-called “Growth Decree”), which has included real estate crowdfunding also for small and medium-sized enterprises, especially for equity crowdfunding that allow you to hold a share of the company in which you decide to invest.
In Italy, about 72 million euros were raised in just one year, handled through real estate crowdfunding in Italy, an excellent result but very far from the levels reached in the rest of Europe.
How does real estate crowdfunding work?
As seen previously, with the best real estate crowdfunding, companies can present their own property acquisition project directly to those who intend to invest, and real estate crowdfunding platforms basically act as authorized intermediaries, through which funds are raised for the project in question.
For those who decide to believe in a particular company, they can register on the crowdfunding site and open a wallet, where obviously, later on, they proceed to deposit their money.
We specify that the best real estate crowdfunding sites do not keep the money invested, but use companies specialized in guaranteed deposit management.
The crowdfunding proposal is usually made up of specific key points, on which it is impossible to postpone, under penalty of failure. The points are:
- The main objectives of fundraising for real estate investments
- The duration and return of the investment in question
- The minimum amount of such investment
Once the set goal has been achieved, the entrepreneur gets the amount that was collected and a fee goes to the intermediary.
Is real estate crowdfunding worth it?
Let’s now analyze what the advantages of real estate crowdfunding in Italy can be.
First of all, a project financed through crowdfunding exempts the lender from managing the product he is going to buy and the related costs, and gives the possibility to private lenders to obtain good returns, even on non-exorbitant sums of money, by investing in the real estate market, up to currently the exclusive prerogative of insurance companies and banks.
It is a type of investment that has been able to reach a very large audience of interested parties and which offers good earning opportunities, with excellent potential for future returns, especially if we are talking about the real estate sector.
Real estate crowdfunding taxation
Let’s see what real estate taxation crowdfunding consists of.
As with all sectors, the returns of real estate crowdfunding are also taxed, in this case, gross of expenses and at a rate of 26% based on the income from investments.
Real estate crowdfunding taxation takes place automatically upon formalization of the gain and, on this, the tax base is calculated based on the amount resulting from the difference between the revenues and the cost of the investment.
Real estate crowdfunding risks
We come now to the painful part, namely real estate crowdfunding risks.
Lack of liquidity
Let’s start with the first crowdfunding risk, that is, the lack of liquidity.
When you decide to make an investment, you may temporarily not have access to your capital; and to get them back, you may have to wait at least 6 months.
Devaluation of the property
Another critical point is undoubtedly the devaluation of the properties, given that the property that you decide to acquire could decrease in value, based on unpredictable factors.
The devaluation, unfortunately, can happen at any stage of the purchase, for example, if a financial crisis should occur, that’s it.
Last, but not least, we find the insolvency of companies; if you decide to focus on an unreliable company, there may be a real risk of not having the money invested returned, even if the operation is successful.
To conclude, we can say that one of the most significant risks of real estate crowdfunding is that of construction, compared to the property renovation sector, the latter undoubtedly remains safer to invest.
For example, the houses to be built can prove to be more problematic and can run into a series of unexpected events during the works. Furthermore, there can also be difficulties in the final sale.
Perfect dear friends of Financial Empires, now with this guide on real estate crowdfunding risks, you have at your disposal all the useful material to choose the best way to invest in real estate to derive excellent economic revenues.
Financial Empires, The Editorial Staff
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