Blockchain Real Estate Crowdfunding – How to Crowdfund Real Estate Projects with Blockchain Technology
Regardless of the geographic location of the market you look at, the capital intensity of building or investing in real estate is a big hurdle for many people. With recent advances, blockchain technology is now enabling people to carry out and finance real estate projects with ease.
In other words, blockchain technology lowers the entry barrier compared to what it was in the recent past. But before diving into the main details, let’s go over some of the most important basics.
What is Blockchain technology?
Blockchain is a decentralized and distributed digital ledger system used to store, access and exchange records of financial transactions. In this digital system, grouped sets of information are often referred to as blocks. As new datasets or blocks are added, this increases the value of the entire system.
In practice, blockchain technology is behind the evolving real estate tokenization and real estate crowdfunding.
Given the sensitive nature of real estate transactions, many people use blockchain technology to increase trust between the parties to the transaction as well as stability.
In other words, it is the digital nature of blockchain technology that allows multiple investors to participate in a real estate project without even meeting each other.
What is real estate Crowdfunding?
Real estate crowdfunding is the process of attracting a large number of people to invest smaller or different amounts in a real estate project. In addition to what you can do in person, real estate crowdfunding platforms make it easy to find like-minded people interested in certain types of real estate investments.
Interestingly, most reputable real estate crowdfunding platforms are powered by blockchain technology.
As a developer, business owner or investor, you can use some of these platforms to raise money for your projects. With this facility, you no longer need to depend on traditional funding sources, which can include high processing fees and interest rates.
Benefits of Using Blockchain Crowdfunding in Real Estate
Deep Portfolio Analysis
In the traditional context of real estate investing, analyzing some properties or portfolios often requires moving from one location to another. And that takes a lot of time and money.
With a blockchain-based real estate crowdfunding platform, you can perform a relatively in-depth portfolio analysis before investing.
The most interesting part is that these benefits can be explored either by the sponsor of a real estate crowdfunding deal or by the individual investor. Through in-depth portfolio analysis, you can understand things like rental income trends in different geographic markets.
Deal flow management
Think about how it all works in the offline world. For example, managing real estate transactions between known and unfamiliar investors is never easy.
The main thing is that a low level of trust often derails many potential trades when there are no expected signals of trust. Through the real estate crowdfunding platform, it is easy to turn on and off the flow of transactions, regardless of the type of assets or parties involved.
Seamless communication with investors
Whether you are initiating a new deal or looking for one, it is very easy to connect with other investors on the same platform.
Seamless communication on these real estate crowdfunding platforms makes it easier to verify investor profiles and build trust faster than can be achieved in the offline world.
On these platforms, you can find investors who are interested in or experienced in certain types of real estate and then start talking to them right away.
Step by Step Guide to Using Blockchain for Real Estate Crowdfunding
Step #1: Choose the type of crowdfunding campaign
Given that there are different types of crowdfunding campaigns that you can use to fund real estate projects; this is the first decision you need to make. In most cases, you should consider your level of risk tolerance and the type of investors you want to trade with. Generally, crowdfunding falls into the following categories.
Debt Crowdfunding – With this type of crowdfunding, the money raised to fund real estate projects is just like any other type of debt. However, investors are entitled to get back what they have invested, as well as the agreed interest rate. The payback period and the amount of interest are usually determined at the beginning.
Collective Finance Capital – When people invest through this car, they become co-owners of the real estate project. In other words, investors buy shares in real estate investment construction. Such investments will give investors the opportunity to profit from the real estate enterprise.
Based on the lucrative nature of equity crowdfunding, investors can also benefit from streamlined rental income, property appreciation, and capital buildup and asset liquidation.
Step 2: Follow the Crowdfunding Rules
A low entry threshold does not mean that real estate crowdfunding is an unregulated financial activity. Regardless of the geographic target market, it is important to follow the rules of crowdfunding within your presence.
Without full compliance with applicable laws and regulations in your target market, you could be in trouble.
To be on the safe side, you can consult with an experienced real estate lawyer to help you get on the right track. Before consulting with a lawyer or other relevant professionals, please try to review the applicable regulations with the US Securities and Exchange Commission.
With the help of these established rules, you will find information about the right to offer, buy and sell capital in a crowd funded real estate project. You will also find other relevant laws and regulations regarding crowdfunding.
Restrictions.
Step #3: Initiate a Collective Financing Building Projects
Once you have decided to use either debt or equity crowdfunding, you will need to complete the paperwork. The next step is to launch the project and raise capital. Before you get into it, it will be helpful to clarify the types of real estate projects you want to finance and then create an action plan for that.
This will make it easier for you to get everything ready before the money reaches your bank account.
All other things being equal, your next step is to choose a real estate crowdfunding platform.
Choose a campaign type. And start your real estate crowdfunding project. At this stage, you need to specify the units of capital to be offered or the terms of the loan crowdfunding.
Step 4: invest capital
When you have transferred the funds to your bank account, it’s time to start putting your plans into action. Depending on your choice, you can first choose short-term or long-term investments. What you choose will depend on your goals and your investor’s preferences. At this stage, you need to answer the following questions.
What geographic regions do we start with?
What types of real estate do we invest in?
Do we invest in new development projects or existing ones?
What is the maturity of the investment and how can we attract investors?
Clearing up these things will put you on the right track.
Conclusion on Using Blockchain for Crowdfunding Real Estate Projects
If you don’t want to launch a new real estate crowdfunding platform, the intricacies of blockchain technology shouldn’t bother you so much. You can use existing platforms to crowdfund or fund your real estate projects. Whatever you choose, always remember that the interests of investors should come first.
Before starting a project, make sure that the laws in force in your chosen places of work are properly enforced. Finally, you can explore and learn from some of the most successful real estate crowdfunding projects.