Real estate crowdfunding is a new method of investing in real estate whereby the investors own a small portion of an investment project, instead of personally assuming all the risks. On the surface, real estate crowdfunding looks like a Real Estate Investment Trust (REIT), which has confused many investors. But taking a closer look at these two different investment vehicles, it’s clear that there are very distinct differences.
So in this article, we review three significant differences between Crowdfunding and REITs.
Crowdfunding finances single projects, whereas a REIT (Real Estate Investment Trust) is more like investing in company stock. REITs typically invest multiple large real estate projects, and investors in REITs collect dividends based on the net profitability of all the investments in the trust.
If you want to invest in single projects that are easier to understand and monitor, you might prefer crowdfunding real estate investing. But if you want to invest in a conglomerate of large investment ventures, you might prefer investing in a REIT.
The difference in scale between crowdfunded real estate and REITs produces different levels of choice.
Since crowdfunding typically invests in a single project, you can research the project and ultimately decide whether it is a good investment. This gives investors more choice compared to REITs.
A REIT, on the other hand, usually invests in multiple large real estate projects, which gives investors in the REIT less choice. When investing in a REIT, you are investing in all the real estate in the portfolio, whether you believe they are individually good or bad investments.
#3 Profits and Stability
REITs date back to 1960. Today, many REITs have an established track record of stability and profitability. REITs are managed by professionals, and have sophisticated management systems in place to find and manage large commercial investment properties. But all of these factors, which produce diversity and stability, also cut into profits.
Crowdfunding real estate investments, in contrast, are very new, and there could be undiscovered issues with this form of investing. Since crowdfunding invests in single projects, these investments could be volatile if the project is delayed or unprofitable for any reason. On the plus side, crowdfunding projects that are lean and mean can produce higher profits per investment dollar.
Whether crowdfunded real estate investments or REITs is best for you is a matter of personal preference.
REITs may offer more stability, but at the cost of choice and possibly lower profits. Crowdfunding, on the other hand, can offer more investment choices with the possibility of higher profits.
Graystone Investment Group
Graystone Investment Group wholesales real estate in the Greater Tampa Bay market. We have researched the Tampa Bay area neighborhood-by-neighborhood to determine where investments are likely to have the most return per capital.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.