Real Estate Crowdfunding can be described as a form of Syndication. The online platform allows investors to source and service each other. An analogy is that Syndication is your regular taxi service, and Real Estate Crowdfunding would be Uber.
Real Estate Crowdfunding is a step ahead of Syndication, just like Uber.
If you don’t know, Syndication allows a group of people to pool their resources and work together on a project. This could include purchasing a property that is already in use or developing a project.
There are many benefits. Collective members now have access to many opportunities previously unattainable. The joint can pool funds to purchase a property or project that is more costly and may provide better returns. The Syndicate may allow participants to bring in their expertise in building, planning, project management, etc., which they can trade for money.
There are also many pitfalls. Syndicates are usually made up of people you trust and who have good relationships with. These people are typically close friends and family. These people are trusted and can be relied upon to make your decision. However, this is where the problems start. Anyone who has ever done business with friends and family can attest.
This is a family affair, and professionalism is not expected. With the hope that trust, common sense, and understanding will guide the members through any difficulties, agreements are often loosely written. Sometimes members will claim to have an experience that they don’t have. Instead of hiring the best builder or project manager possible, they hire Tony, a friend who has built half a townhouse before. Different financial views can lead to cracks when the project runs into trouble, as it often does. Some want to withdraw their money and send their children to college, while others prefer to wait. The heat begins to build.
This can lead to complicated situations as you are unable to call your family and friends. Even with all the legal frameworks in place, business deals can lead to failures and ruined relationships. This is because of the emotional involvement with family members and friends. An objective investor will tell you that the best financial deals are not emotional.
Most syndicates are limited to 5-6 people. You can’t legally exceed 20. Anything beyond 6 or 5 becomes difficult to manage. 500K is required to fund a two-million-dollar small project with five members. This is not a small commitment.
Real Estate Crowdfunding can be described as a form of Syndication. Instead of being grouped with family and friends, you unite forces with many people you may not have known. The internet allows for scale and global reach. A more significant number of investors means lower amounts. Crowdfunding Real Estate platforms require projects to be managed professionally by industry professionals. Check here the best real estate crowdfunding for non accredited investors. They must also include a complete retail Public Disclosure Statement and an Information Memorandum from experienced people.
Professionals manage the show. You play the role of an armchair developer, contributing with very little money. You can also participate in deals that you would not be able to access even through a Syndicate.
Managed Syndicate is another type. Managed Syndicates address the most severe issues that an ad-hoc Syndicate has to face. A professional manager and property team select the right opportunity. Offerings are usually made under strong legal structures. These opportunities include, but are not limited to, commercial real estate. These opportunities include Petrol station dealers, shopping malls, and warehouses. The money is then pooled from several investors, and the professional team uses the funds for the project.
Many Managed Syndicates have seen strong returns because of their professional and focused management teams. The problem with Managed Syndicates is their minimum investment, which is usually $100K or more, preferably much higher. This effectively locks out smaller investors. If you can access it, managed syndicates are a great way of investing.
A Real Estate Crowdfunding platform is the solution. The minimum investment is only $2000, but it offers all the benefits of a Managed Syndicate. You can think back to when cars were costly, and only the wealthy could afford them. Henry Ford’s Model T was born, and cars suddenly became affordable and accessible to the every person.