New Wealth-Building Strategy
Entrepreneurs who want to build wealth are in luck. There's a new way to do it, even if you don't have a ton of available capital.
How? An asset class that's been around forever has experienced a big renovation.
Real estate offers returns backed by hard assets that generate cash flow. Over time, commercial real estate has generally exhibited relatively good stability, more akin to bonds than to stocks. And real estate may produce returns from both tenant occupancy and intrinsic property value.
This is nothing new for high net worth real estate investors and institutions. They've enjoyed real estate's benefits for decades, building diversified property portfolios. This is due to their large pools of capital, expert resources and preferred deal flow.
Many entrepreneurs had no such advantages. And they didn't have the cash, either—preferring to build their businesses with available capital.
Crowdfunding real estate investment platforms have changed that. Now, real estate investments are available to wealth-minded entrepreneurs. And they're available regardless of your time, capital or ability to create deal flow.
Why Crowdfunded Real Estate?
It works the same as other crowdfunding initiatives. Individuals use an online platform to pool capital and fund a project. But in this case, individuals fund partial building ownership and property construction or renovations. Investors then potentially reap returns from a property's cash flow or an appreciation in price when sold.
In the past, you needed at least six-figures to enter these deals. Thanks to real estate crowdfunding platforms, you now can access them from as little as $5,000. The platforms connect investors and real estate operators who desire capital. Investors choose deals after they and the platform conduct due diligence.
Operators receive funding; investors access deals they historically couldn't. The entire deal stays in-platform and online. Investors track portfolios with intuitive dashboards and analytics.
So, real estate is now accessible to entrepreneurs. That's good news. But the question remains: why not just invest in the stock market?
How Real Estate Builds Wealth
Any well-diversified portfolio includes a mix of stocks and bonds. But a portfolio with alternative assets like real estate reaps extra benefits. It a hard asset with intrinsic value. It diversifies your portfolio beyond stocks and bonds with an asset backed by cash flow. And it offers a hedge against inflation since properties may appreciate as more money circulates.
Real estate's cash flow can potentially provide protection during stress in financial markets. Not to mention, well-structured deals can potentially carry significant tax benefits.
What Are The Risks?
Like any investment, crowdfunded real estate carries risk.
The first risk is platform-based. Look for well-capitalized platforms that put investor protection first. These platforms offer the best service and the most quality deals. That gives entrepreneurs looking to invest the most options.
Second, those options matter. Platforms should be as diverse as your portfolio. A healthy mix of commercial and residential properties is desirable. A range of risk levels is important, too. Access to different property types and risk levels ensures a diversified real estate portfolio.
Third, make sure you and the platform vet the operators of those property options. Trust and transparency are the cornerstones of any deal. Learn more about what to look for in this video on investor due diligence.
Real estate has always been a healthy way to build wealth. Now, crowdfunding gives everyone a chance to invest in it.
Together, real estate and crowdfunding make dollars—and sense.