The investment process: How real estate crowdfunding works?

The most simple explanation for real estate crowdfunding is the undertaking of a collective financial-backing effort to complete a property venture successfully, and have stakeholders profit from the activity.

The key players are:

  • Online real estate crowdfunding platform
  • Developers, property managers, project operators
  • Investors.

Online platform. This is the “virtual venue” or digital marketplace where the entire crowdfunding process takes place from start to finish. It relies on information technology to gather like-minded people for property-investment ventures, and to showcase investment opportunities proposed by property-development or -management companies.

The digital marketplace is also where all financial transactions are made. Its site owners and/or administrators collect the funds from each investor, have these placed in escrow, deliver the money to the project operators, collect the yields from the project operators at the appointed time, and distribute these to the investors.

Running an online real estate crowdfunding entails hard work, due diligence, and vigilance. The 24/7 operations require alert teams that can instantly detect and fix bugs in the system, especially in receiving funds from investors worldwide, and provide customer support to anyone who needs it.

Project operators. These are duly registered property-development or -management companies that have the legal means and a legitimate reason to raise capital for their projects, by using the financial resources of individuals and organizations previously unknown to them.

Their participation in the crowdfunding process begins by getting accredited with the online platform of their choice, and submitting to due-diligence checks. It is concluded as soon as they have successfully delivered on everything that has been committed to the online-platform administrators and the investors.

Because their overhead is substantially cut by engaging the services of online crowdfunding platforms, these project operators can offer higher rates of return to investors. Too, with less time and effort spent on administrative work, they can focus more on the timely and efficient delivery of their projects.

  1. These are individuals and organizations, usually regular people and small corporate entities, that are willing to place their money in support of completing a property venture, and with the goal of making a profit.

Their participation in the crowdfunding process begins by registering with the online platform, and submitting the information necessary to document their stake in their selected projects. It is concluded as soon as they have received all the yields promised to them, or when they have legally transferred their shares to other investors.

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