Philip E. Goforth of Missouri is a real estate development professional with a passion for revolutionizing how projects are funded. In the following article, Philip Goforth delves into the realm of real estate crowdfunding, and the seismic shifts it can create.
Real estate and modern investment mindsets didn’t always get along. However, it seems that crowdfunding has now seamlessly amalgamated the two, allowing investors an increasingly popular way to leverage investments in the real estate market around the world.
Crowdfunding brings investors from across the world together, enabling them to pool their money online to purchase properties or shares of a property as a group. Due to the notoriously high capital required to break into the real estate sphere, many investors weren’t able to diversify in this industry. Now, though, crowdfunding flips that on its head, necessitating minimal upfront costs.
The relatively new way of real estate investing takes advantage of social networks (e.g., friends, colleagues, family, etc.) to spread the word about projects and attract all sorts of interested parties. Its emergence has seen a new wave of industry participants thanks to its accessible nature.
Philip E. Goforth of Missouri explains how it appears that crowdfunding may well be the future of real estate investing.
Philip E. Goforth of Missouri Explains Real Estate Crowdfunding’s Inner Workings
As the name suggests, crowdfunding is a group effort investment vehicle. Initially, it was associated with equity transactions, allowing small-to-medium-sized entities to gather money and use it to invest in the company’s progress.
Philip E. Goforth of Missouri says that capital seekers raise money via online crowdfunding platforms that would otherwise be impossible to accumulate — entrepreneurs have raised millions this way, with the most successful often developing pitches to entice more wealthy individuals/companies to pitch in. It isn’t just the funded operation that benefits, though — investors reap the rewards as well by becoming shareholders in the company.
Real estate crowdfunding works similarly. Investors can buy into a property and own a portion of it. Unlike traditional real estate investing, they don’t need to have huge pots of capital or buy entire properties; they’ll own a fraction and earn a percentage of the profits.
Ultimately, it lowers the barriers of entry, with many investors becoming property shareholders for as little as $5,000, and ensures that all entities share the risks, explains Philip E. Goforth of Missouri.
Transparency is Everything in Real Estate Crowdfunding
According to Darren Powderly, CrowdStreet‘s co-founder, investors should search for sponsors and platforms that acknowledge the associated risks while offering education on risk management. Transparency is crucial for maximized profits and minimized harm.
Philip E. Goforth of Missouri notes that the majority of crowdfunding platforms in the real estate sector won’t accept people who aren’t accredited investors. These individuals are advised only to invest figures they can comfortably afford based on their overall investment portfolio.
Powderly went on to emphasize the need for investment in projects from trusted sponsors — those who are sure to look out for their investors’ best interests through the peaks and troughs. Adding to his sentiments, Powderly affirms that investors who don’t understand how their money will be used, the investment’s risk factors, and their potential return on investment should pass on the project.
Real Estate Crowdfunding Offers Otherwise Unavailable Benefits
Philip E. Goforth of Missouri says that while every investment carries risks, real estate crowdfunding supplies benefits that would otherwise remain untapped. This underappreciated potential is undoubtedly behind the increasing popularity of such platforms.
Through crowdfunding, investors can access the more exclusive side of the property market — homes and other buildings that are simply inaccessible to the average buyer. On the other side of this coin, it means businesses and individuals can access a wider investor pool and more easily generate considerable cash flow.
Investors themselves stand to gain from this as well. Philip E. Goforth of Missouri explains that this avenue not only allows for portfolio diversification, but it also provides another source of income. Crowdfunding gives investors their own portion of the venture, ensuring they see the returns based on the size of their initial investment.
Increasingly Popular Investment Method
Despite the role crowdfunding now plays in the real estate investment world, it isn’t without its downsides.
Philip E. Goforth of Missouri notes, for instance, that some crowdfunding platforms charge management/advisory fees that some assets aren’t able to sell or divest quickly. On top of that, any dividends that investors receive are subject to tax, and according to Rocket Mortgage, many platforms are still too new to have a reliable history of satisfied individuals.
The Emerging Future of Real Estate Investing
Philip E. Goforth of Missouri maintains that, even though the disadvantages are worth noting, crowdfunding still plays an overwhelmingly positive role in the field, giving not-as-wealthy individuals a chance to diversify their portfolios without having to handle the typically high-cost nature of real estate deals.