In the United States, making a purchase in the biggest real estate markets on your own can seem daunting. If a lack of finances hinders your first real estate buy, how do you create an empire?
Well, this question is the catalyst of what we’ll be reviewing in this article. In times past, owning real estate properties were reserved for the affluent class. Middle-class individuals and economically disadvantaged persons all saw the real estate market as an unattainable venture.
But guess what? The times are changing, and every industry, including real estate, has adapted to these changes.
Compared to what was obtainable in the days gone by, it’s now easier to enter private real estate contracts without having to take out a massive loan. How? Real estate crowdfunding.
In comparison to what we established earlier about the market being saturated with costly options, real estate crowdfunding for non accredited investors is making the seemingly impossible task of buying real estate properties possible.
That said, most people don’t know about real estate crowdfunding for non-accredited investors and how it works. If you’re among this individual set, there’s no cause for concern.
In this article, we’ll take you through the concept of real estate crowdfunding and how accredited and non-accredited investors come into the mix.
That’s not all:
Reading the subsequent paragraphs will also give you pointers towards the inner workings of online real estate investing platforms and how they affect crowdfunding activities. With so much material to cover, let’s head right in!
Real Estate Crowdfunding: What Does This Term Mean?
As the name suggests, real estate crowdfunding can be defined as a method investors use to purchase a real estate property or structure. Here, rather than an investor going the solo path, they poll resources together to make an actual buy possible.
This form of real estate investment is commonly used as a medium of passive income for non-accredited investors. Instead of one person taking home profits, investors share dividends, either in cash or equity.
So, how does one follow this path of investment? Whether you’re an accredited or non-accredited investor (one aspect we’ll give credence to later), all that’s required of you is to sign-up for a crowdfunding site. It’s that easy!
One primary reason why crowdfunding has become increasingly popular is that real estate companies looking to raise capital can do so without having to register with the US Security and Exchange Commission (SEC). Also, as an investor, you’re protected by several laws.
Why are these provisions in place? To give you (the investor) a limit on what amount you can place on numerous crowdfunding deals. Depending on what the offering entails, there are two groups of investors: the accredited and non-accredited.
So, how do these investor classes weigh up against each other in real estate investing? Let’s get some context in the following lines.
Accredited VS Non-Accredited Investors: Key Differences to Note
While this article is aimed at real estate crowdfunding for non-accredited investors, it’s essential to see what this investor class involves and how it measures up to the accredited variation. Let’s take a look.
As an accredited investor, you can participate in every crowdfunding deal in the United States. However, acquiring this “VIP” investor status boils down to specific requirements. They include:
An Individual Investor
As an individual investor, you must meet one of the following requirements:
- You must be able to garner at least $200,000 in annual income (if you’re married, this figure is capped at $300,000). This sum must’ve been earned in the last two years, with the current year following a similar path
- Besides the value ingrained in a primary residence, your actual net worth must be up to $1,000,000
Since companies can pull off crowdfunding securities without registering with the SEC, this body (the SEC) has put in place these provisions to protect the average investor. Thus, when they’re fulfilled, and an unregulated investment goes haywire, investors can afford to take a loss since they’re financially grounded.
Crowdfunding Trusts and Entities
For entities to be accredited to offer crowdfunding services, they’ll need to attain one of the following provisions:
- The value of total assets in a trust must sum up to $5 million or above. Also, this amount isn’t to be subject to security purchases
- Over $5 million in actual investments. These investments shouldn’t include one that’s subject to buying securities
- Equity owners must have attained accredited investor status
It’s simple. If you aren’t accredited, you’re non-accredited. Non-accredited investors are those who, like most regular people, find it challenging to attain the requirements attached to being accredited.
That said, while most crowdfunding platforms started as mediums with offerings available for accredited investors only, the narrative is changing.
To give rise to a level playing ground, the government has ensured that crowdfunding in real estate isn’t reserved for the elite (accredited investors) only, but also for those who don’t have significant financial strength.
So, where can this investor class carry out crowdfunding activities without any reservations? Well, we’ve sought out the top 5 options.
Crowdfunding Platforms for Non-Accredited Investors: How Do They Work?
With non-accredited investors looking to make substantial profits from crowdfunding, it’s normal to come across several top platforms like Holdfolio and Fundrise real estate crowdfunding sites.
However, have you ever wondered how these sites worked? If you haven’t, let’s take a brief look at the processes crowdfunding platforms adopt to make investment deals a success.
Taking a cue from most crowdfunding offerings out there, these platforms usually start as small companies (start-ups) looking to drive investments. Once they acquired the needed investment, they go on to integrate “stand-out” features alongside their best suit (area that they’re good at).
The next step? Advertisement. Since investors aren’t going to come out from “thin air,” they’ll need to advertise their offerings on various social media platforms.
As investors flock in, these services ensure that they scale up their investments to give investing parties a decent ROI (Return On Investment). At Holdfolio, a well known non-accredited investor site, this number averages around 19.5 percent.
With real estate crowdfunding for non-accredited investors available across many platforms, having a stake in an actual real estate property is feasible. Although the rules might change in the distant future, nothing is stopping you from investing today.
However, before you use a crowdfunding platform, you must make extensive research, read reviews, and check out the investment plans on display. While risks are part of investments, crowdfunding inclusive, there’s no harm in giving it a go!