Pools money from multiple investors to fund a project or portfolio of projects. Real estate crowd funding is right for passive accredited and non-accredited investors who want to invest in a project that would otherwise be out of their price range or geographic location.
The idea behind real estate crowd funding websites is that they use a pool of accredited investors to fund the loans of various borrowers. This means that real estate crowd funding investors invest in loans using their own cash.
Most real estate crowd funding websites boast an average return of around 10 percent for both short-term and long-term opportunities. Lending homes for example, lists average returns for accredited crowd funding investors between 8 percent and 10 percent of net profit. Returns on a crowd funding investment come as a portion of the interest rate charged to the borrower.
Since real estate crowd funding investments are typically made on a loan-by-loan basis, there is always the risk of borrower default. When this happens, the borrower stops making their monthly payments and might not be able to repay the loan in full.
Investing in real estate crowd funding can be done in about one month, which allows for due diligence and contracts to be executed. The real estate crowd funding timeline is generally for the duration of the loan the developer took out, which is typically one to five years.
Real Estate Investment Trust (REITs) Investments
REITs are corporations that own or finance income-producing properties. They give investors more liquidity and can be traded like a stock without the investor acting as a landlord. They also have a lower buy-in amount, so it’s generally cheaper to invest in a REIT than to buy a property.
Investors who invest in REITs are putting up their own cash to invest, like they would invest in a stock or mutual fund. They don’t solely own the property, so can’t take a mortgage out on it.
The average return on REITs varies depending on the type of REIT you invest in. You’re generally investing less money than you would invest when you purchase a property using a down payment and a mortgage, so your returns are generally lower.
Risks for investing in REITS include not having much control over your investment. Unlike when you purchase a house outright, a REIT is controlled by a management team that makes the decisions. Another risk associated with REITs is that there aren’t any depreciation write-offs, like there are with investment properties.
It usually takes about one month until you can invest in the REIT, which includes time for due diligence. However, the timeline varies depending on the type of REIT. A private REIT requires investors to keep their investments in the REIT for at least one to two years.
Tax Lien Investments
Tax liens investment, a type of real estate investing where investors purchase properties with delinquent tax balances and earn interest and sometimes penalties on the back taxes. They’re right for investors who want to earn interest, penalty income and possibly acquire a property for below-market value, the amount of back taxes owed.
Tax lien real estate investing is done with the investor’s own resources and is generally paid for with cash. In the event that an investor purchases the tax deed, which means they own the property, they may be able to get financing similar to financing for a property bought at a real estate auction.
The average ROI on tax liens once again varies on the amount of interest and penalties being charged and on the amount of the balance owed. The higher the interest and penalties, generally the higher your ROI will be. Tax lien returns vary widely because in some states, investors “bid down” at auction and their bid determines how much interest they will accept. For example, the interest may start at 16 percent and they may bid down to 4 percent, meaning they will accept 4 percent interest on the tax lien payment.
Some of the risks of investing in tax liens are that the homeowner will repay the debt during the redemption period and reclaim ownership to the house. Another risk is purchasing a property that isn’t worth much if you didn’t do your due diligence on researching the property. Keep in mind that when a homeowner files bankruptcy, it can halt all collections and affect your penalty income and interest.
The timeline of the tax lien depends on how much time the municipality gives the delinquent homeowner during what is called a redemption period. This is the time that the owner has to pay their tax balance in full plus penalties and/or interest, after the tax lien sale. This varies by municipality and can be a few months or a few years.
Whether you’re a short-term or long-term investor, real estate investing can offer a lot of upsides. The right real estate investments can result in monthly cash flow, asset price appreciation, and diversification, as well as tax benefits. You can learn how to invest in real estate by purchasing a fix-and-flip, a buy-and-hold or a vacation rental property.
If you’re ready to obtain financing for your next real estate investment, get prequalified in just a few minutes with lending home.They’re a reputable, online, nationwide lender that offers competitive rates for prime borrowers who want a hard money loan for a fix-and-flip project.