How do real estate companies work

How does real estate crowdinvesting work?

The real estate crowdinvesting sector has experienced a real boom in recent years. In addition to the enormous growth, real estate crowdinvesting is the undisputed leader in the crowdinvesting chart, ahead of other areas. Even if there are certainly numerous reasons for this, it is certainly also due to the familiarity of a real estate investment. Almost everyone can imagine something under a property and a real estate investment, which is why the hurdle of an initial investment in the area of ​​crowd investment is likely to be significantly lower than in other areas such as startups or SMEs. The short terms and the high interest rates compared to alternative forms of investment are also attractive. Based on some central questions, we have tried to shed some light on the matter and explain the reasons behind it.

Who is behind the real estate projects and how are they selected?

Most real estate crowdinvesting projects are not based on the crowdinvesting platform itself. The platform only serves to raise the required capital and draft contracts. In addition, the platform coordinates the communication between the investor and the construction company behind the project, and in most cases also the processing of the payment. The construction company behind a project can be different companies. The spectrum ranges from real estate developers and cooperatives to state institutions such as municipalities. It is always important to find out in a specific case who is behind a project.

The platform itself is responsible for the selection of the projects. Each real estate crowdinvesting platform pursues its own internal quality standards, which are taken into account in the selection and are decisive. The high quality of the real estate project is in the self-interest of the platform, since in the event of a failure or insolvency of the project, the reputation of the platform can also be affected, even if this is not in most cases for the underlying circumstances and the failure of a project Is at fault. Project partners with successfully completed projects will also repeatedly start projects on some crowd investing platforms. The trust that has built up and the ever easier collaboration between these project partners and the platform supports the platforms more and more in the selection of projects, as fundamental uncertainties such as the difficult-to-estimate behavior and way of working of a real estate company after financing has been concluded do not apply in these cases and are already positively assessed can be. More intensive relationships between crowd investing platforms and real estate companies are therefore even desirable in most cases.

Get an up-to-date and comprehensive overview of real estate crowdinvesting on CrowdCircus

Why is crowd investing an attractive form of raising capital for companies?

The loan of an investor, which is issued in most cases in the context of real estate crowdinvesting, is issued in the form of a subordinated loan. This subordinated loan is associated with a significantly higher risk than a classic loan, since in the event of the property developer's insolvency, all other liabilities and creditors are paid first, and the crowd investor may only be paid out after these liabilities have been paid. The subordinated loan is therefore comparable to a direct participation in a company, although you are a little better off compared to the owners of the company.

With real estate crowdinvesting, as is often the case with crowd investing, not the entire real estate project is financed by the crowd. The subordinated loan financed by the crowd represents just another component of the overall financing in addition to own funds / equity of the real estate developer and a classic loan, usually issued by a bank better off and paid in advance) to own funds, a real estate developer can use crowd investing to present significantly more own funds to the outside world in order to finance his projects, and thus get a lower interest rate and better conditions at the bank. For most real estate developers, this advantage is usually decisive for a crowd investing project.

Regardless of the financial advantages, crowd investing can also score points for a project and the company behind it through increased media presence and other advertising effects. Thanks to the strong online presence, not only interested parties and investors, but also numerous other users are reached. Even if this advantage is particularly evident in the case of product manufacturers or service companies through their crowdinvesting campaign, this advantage is also clearly evident in the real estate sector. .

Where do the high interest rates and short terms come from?

As just explained, real estate developers can use a subordinated loan as part of a crowd investing campaign to show significantly more equity in order to obtain better terms from banks. Due to this enormous advantage and the cost savings due to the lower interest on a bank loan, real estate developers can partly pass this advantage on to the crowd in the form of high interest rates. By realizing the project, which in most cases includes the sale of the property, the real estate company can pay off the loan from the bank and the capital employed by the crowd, including an attractive interest rate. Interest rates in the range of 5 to 8 percent with a very short term in the region of one year are not uncommon here. The short terms are due to the duration of the development of a real estate project. In most cases, subordinated loans in the real estate crowdinvesting sector are only taken out for the duration of a specific project and do not represent a long-term source of finance for a real estate company.

What risks do I take with my investment? Can I lose everything too?

As with any investment and the associated opportunity for income, an investor also takes certain risks with crowd investing. Since most real estate crowdinvesting projects are legally structured in the form of a subordinated loan, the crowd investor is always subordinate to other creditors such as banks in the event of the insolvency of the real estate developer or property developer, or any other reason for the failure of a project. The risks range from a delayed or delayed interest payment to the investor to a total failure and the associated total loss of the capital invested. Pointing blame is never easy in such an annoying scenario. Should the platform have selected the project better? Should the investor have found out more about the project? Or is it just the normal way of life that a high-risk equity crowdfunding project can fail? While these questions need to be addressed individually in each case, it is mostly the normal course of events that risky projects can turn out to be unsuccessful. Some project operators are therefore already offering secured loans in order to be able to offer crowd investors a higher level of security. Regardless of the individual risk, it is always important to diversify your investment across several projects and areas. Spread your planned assets for real estate crowdinvesting over several projects and platforms in order to significantly reduce the risk with an almost constant return.

How do I choose my first project?

Every beginning is difficult. Which platform is the right one? Which of the many projects is best suited to my needs? We can reassure you - that's how everyone feels at the beginning. Independent crowd investing portals such as CrowdCircus offer a very good initial overview of various crowd investing platforms and their projects. Platforms that have been on the market for several years and have carried out a large number of projects can already be a first indication of experience and investor-friendliness. This applies both to the experience in the area of ​​project selection as well as in the area of ​​investor support. By registering with selected crowdinvesting platforms, you can already gain an initial, non-binding insight into the processes and functions of a platform, and in most cases the entire investment contracts for the individual projects can be assessed. Since there are no standard contracts, it is always important to read through the entire contract and understand it. If anything is unclear, the platform staff will be happy to provide information. When selecting a specific project, it depends very much on the individual needs of the investor. Different terms and types of property must be taken into account here, as well as the real estate company behind it and personal feelings. The online presence of a project should contain all relevant information in a detailed manner and contain explanations. The location of the property and the planning should be traceable down to the last detail. The real estate company behind it should also be subjected to independent research outside of the crowd investing platform in order to get to know its company and history better.

Discover current real estate crowdinvesting projects

In general, the following should always be taken into account: Never put all your eggs in one basket. Diversify your investment and split it across multiple platforms and projects. The low minimum investments of the platforms enable a broad diversification of your assets from small sums.

How do I put together my own real estate crowdinvesting portfolio? And what do I have to pay attention to?

As already described, it is not only important at the beginning of your own equity crowdfunding career to split your assets over several projects and platforms. Your own real estate crowdinvesting portfolio should be permanently diversified, which is why expiring and repaid investments are also invested according to the same principles as if it were the first time. Even if the experience and proximity to some platforms naturally grows over time, you should always keep your eyes open so as not to miss out on alternative projects and platforms.

In principle, it should always be taken into account that, in addition to dividing the investment sums planned for crowdinvesting across platforms and projects, diversification should also always be made across regions and property types. The more different the individual components of your own portfolio, the more likely it is that, in extreme cases, not all projects will be affected by negative developments or fail at the same time.

In the following two articles, we have dealt with the topic of diversified portfolio construction again in detail:

Why does a diversified equity crowdfunding portfolio make sense?

Practical tip: How do I build a diversified crowd investing portfolio

In summary, it can be said that real estate crowdinvesting already represents an integral part of the real estate investment sector. Should the current growth rates continue, it can be assumed that the size and acceptance of real estate crowdinvesting will continue to increase. We are confident that real estate crowdinvesting will pave the way for all other areas of crowd investing to pave the way for all other areas of crowd investing. Should you become part of this success story or have been an integral part of the real estate crowd investing world for a long time, we wish you all the best and much success for your investments in the future.