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How to Start a Real Estate Investment Group for Crowdfunding

Creating a real estate investment group can minimize the problems with real estate investing and crowdfunding

I love real estate crowdfunding as a compliment to my portfolio of rental properties. Through the crowd, I’ve been able to minimize a lot of the problems with direct real estate investing that cause investors to lose money.

But real estate crowdfunding isn’t without its own problems and those hurdles keep a lot of investors from benefiting in the crowd’s answer to property investment.

I wondered if the ease of investing and high returns would be worth some of these problems when I started investing in crowdfunded properties. Then I realized that an old solution to problems in traditional real estate investing would be just as perfect for the crowd.

I’ll start by comparing the problems investors have with real estate investing and crowdfunding before showing you how starting a real estate investment group for crowdfunding has made this one of my best investments.

How Does Real Estate Crowdfunding Solve the Property Nightmare?

I’ve been investing in real estate since my early 20s and love the idea of owning physical property, turning it into a cash machine and creating long-term wealth. I started my professional career as a commercial property analyst and have owned rental homes.

But for the huge benefits of property ownership, there are also some equally great problems…most of which I’ve learned the hard way.

  • Direct property investment is not passive income. It’s a constant headache of tenant complaints and maintenance. Own more than a couple of properties and you’re looking at a part-time job or paying 10% of rents for management.
  • It’s nearly impossible for individual real estate investors to buy different property types and in different regions to get the diversification needed from market risks.
  • Buying properties is expensive. Besides the money that goes into a property, legal and other fees can easily be tens of thousands of dollars.

That’s where real estate crowdfunding comes in, not to replace traditional real estate investment but to compliment it in your portfolio.

By holding a portfolio of crowdfunded properties, you benefit from the higher real estate returns and wealth generation of real estate but mitigate the hassles.

  • You get instant diversification with as little as $1,000 in each crowdfunded property. This means you can hold a few rental properties, then diversify your portfolio with commercial properties and in different regions through crowdfunding.
  • You get professional management for your crowdfunded properties. You can manage a few of your own properties while project owners take care of their properties.
  • The only costs associated with real estate crowdfunding are usually a fee of 2% collected by the platform for managing all the documents and payments.

I invest on two crowd platforms, RealtyShares and PeerStreet. PeerStreet offers only debt investments but is a solid return and consistent cash flow. RealtyShares offers both debt and equity investments and is one of the largest property crowdfunding sites. By investing on different platforms, I get access to more deals and it doesn’t cost anything extra.

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Real Estate Crowdfunding Returns and Properties

Problems with Real Estate Crowdfunding

Real estate crowdfunding isn’t without its problems though, some are similar to traditional real estate investing while there are a few problems unique to crowdfunding.

First, you still need to analyze the property and the investment. That’s not too much of a problem for most property investors but the problem is compounded by the fact that real estate crowdfunding includes projects across the country.

Tax issues are different with real estate crowdfunding since it is a shorter-term investment and not direct ownership. Most of the projects are set up as limited liability corporations (LLCs) so the profits and expenses flow directly through to investors but there are some nuances.

Beyond the initial analysis of the property and the developer, it’s always a good idea to follow your property until the investment closes. With traditional real estate investing, it’s easy to follow your own properties but this isn’t the case with crowdfunding. Project owners will provide regular updates but may not share every detail with investors.

I wasn’t about to let these problems keep me from using real estate crowdfunding as a part of my larger real estate strategy so I borrowed from a solution that worked with direct property investment.

Creating a Real Estate Investment Club for Crowdfunding

The first time I tried investing in rental real estate, I fell into all the worst traps. I overwhelmed myself with too many properties to manage and wasn’t diversified.

how to start a real estate investing clubThe solution was to create a real estate investment group, a club of investors that helped each other out with advice and discounted services. We meet once a quarter to talk about our investments, offer advice and even help each other find investments.

When I started investing in real estate crowd projects, I thought “Why can’t a real estate investing club work for crowdfunding as well?”

The people I have in each club differs slightly. In the property investors club, we have investors with maintenance skills and local real estate agents. In the crowdfunding group; there’s a tax accountant, a couple of investment analysts and an investor local to each property.

How you put together your own real estate investing group is up to you but here are some suggestions for what’s worked for me:

  • Meet online every few months through Google Hangouts. Having members local to each property, usually in the largest cities, is a good idea so they know the local markets in which you are investing. Just five to ten members can cover all the biggest real estate markets and make it easier to follow each crowdfunded property.
  • Use meetings to talk about new crowdfunded properties you find, assigning one person to work through the numbers and research the project. You can each choose individually to invest in a project or not.
  • Having someone with a tax background and another member with a legal background is helpful along with others that can research project investments.

The real estate investment group I created has been meeting for just over a year and the experience has been great. Getting input from other investors on real estate projects has really been helpful and has cut down the time I have to spend finding, researching and following investments.

Get started by browsing available properties for free on RealtyShares

Real estate is a critical asset class to diversify your wealth from a stocks and bonds portfolio but the hurdles to direct property investment make it impossible for many. Real estate crowdfunding is a great compliment to a property portfolio and starting a real estate investment group is a good way to minimize some of the unique problems in crowdfunding. You don’t have to start an investing club to benefit from real estate crowdfunding but I’d highly recommend at least making some kind of an informal group to support each other.

About Joseph Hogue

An investment analyst by profession, I run two blogs (Crowd101 and PeerFinance101) in personal finance, peer lending and crowdfunding. I've been on both sides of the table as a lender and a borrower and am excited to be a part of the peer movement. With the power of the internet, people are helping other people manage debt and raise money in ways never before possible.

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