Crowdfunded Real Estate: Group Investing Opportunities for Millennial and Gen Z Investors

Peer-to-peer real estate has revolutionized property investment, enabling millennials and GenZ to invest in properties to develop their wealth blueprints. Unlike conventional real estate investment which may demand huge capital, crowdfunded models provide investors an excellent opportunity to join their resources so it becomes easy to diversify and grow the investor’s portfolio even if the investor is a newbie with a small amount of money. The returns of real estate have been relatively low compared with the historical average returns of 8%-12%; this investment option is preferred by young investors who are wary of the stock markets. Here we are going to discuss what crowdfunded real estate is, how helpful is it for group investors, and how Millennials and Gen Z are changing the whole industry.

What Is Crowdfunded Real Estate?

Crowdfunded real estate is a concept where several people come together and invest small sums of money to build real estate projects. Fundrise, RealtyMogul, and Crowdstreet make this possible by presenting investment opportunities in residential, commercial, and industrial real estate. This model introduces more options where investors can invest in equity, debt, or hybrid types of investments, allowing them to decide on which projects to fund based on their risk appetite.

The mechanics are simple: tender speculators register with a site, look through a list of properties or projects, and pursue those that they deem most appropriate for their investment plans. They start from as low as $500 depending on the investment platform in question and this is feasible for young people. Coined as ‘real estate crowdfunding’, this business model received great attention and continues to gain popularity as it hit $13 billion in 2021 and could reach a staggering $870 billion by the year 2031 as estimated in a recent report by Allied Market Research in 2022.


Why Millennials and Gen Z Are Adopting Group Investing?

These generations are eschewing freedom and the ability to invest independently, and real estate crowdfunding is harmonious with their investment plans. Based on a survey carried out by PwC, amount rationalization among the young generation this year reveals that 59% of them were using investments as a method of achieving their financial security priorities and real estate as their preferred asset type. 

Millennials and Gen Z are also less likely than previous generations to do something that might harm their financial position. The crowdfunded real estate’s essential characteristics, including transparency, low threshold, and limited liabilities are suitable for their investment profile.

Another reason that supports crowdfunded real estate is the high cost of homeownership. The National Association of Realtors reported that home prices in the United States increased by 14.9% within the year 2020 to 2021. Currently, many of the Millennials and Gen-Z have inadequate capital to amass for a house’s down payment which in a way hinders this stream of the real estate market from being independent. 

Real estate crowdfunding allows access to property and property markets without having to take on the mortgage or a significant amount of property at the initiation of the investment. When these investors come together to form a fund, they can acquire stakes in ventures that are unachievable when single entities.


Benefits of Crowdfunded Real Estate for Group Investors

In addition to this, one of the benefits of crowdfunded real estate is that they can diversify the investment portfolio. As compared to direct investment in a single asset, the concept of crowdfunding allows investors to spread out their investments over a pool of real estate investments, thus minimizing risk. For instance, a person can invest in several properties in various locations, sectors, classes, multi-unit housing, offices, or big box manufacturing units. 

Most of the crowdfunded real estate investments make money through the collection of rent or lease income. Usually, rental income is paid according to the platform system on a quarterly or yearly basis to ensure a consistent inflow of cash. Fundrise’s investors have been getting an average annual return of 7.3% in 2022 thereby relying on rental income and property price growth.

The evolution of the Internet and technology has enhanced real estate crowdfunding to be easily understandable by users. Portfolio, property details, and returns can be monitored and managed by investors through apps or websites. According to Deloitte, more than 70% of Millennials and Gen Z are okay with digital transactions, and 65% of Gen Z investors invest using investment apps. 


Challenges in Crowdfunded Real Estate Investments

While crowd-funded real estate can provide excellent returns it is not without risks. Fluctuations within a particular market can drive property value and profitability of investments down. For instance, the COVID-19 pandemic reduced commercial real estate value by 5% to 10% in 2020, illustrating the exposure of real estate to financial risks. 

Specific risks comprising a particular project can also be a cause of lower returns or even losses due to delayed work or cost expansion. Just like with most investments, research and diversification play a massive role in hedging these risks.

Real estate that is crowdfunded can also be less liquid as compared to other investment opportunities. Unlike stock investment where stocks can be bought or sold easily, crowdfunded properties may have restrictions on the minimum time an investor can hold the property usually between three to five years. 

Moreover, regulatory risks are different in each country, and regulation and compliance work as challenges to invest. SEC regulates US-based crowdfunding intermediaries whilst globally there are variations in policies that may affect returns and exits.


How to Get Started with Crowdfunded Real Estate?

When only starting, any group of investors who are into crowdfunded real estate will need to understand how to go about it. Now, to buy such securities, one has to open an account first, provide identification documents, and look at selections based on investment profiles. First, you can look at Fundrise which is one of the biggest platforms, as well as Crowdstreet or RealtyMogul, and then compare minimum investments, fees, and properties that anyone can invest in.

After deciding which platform to work on, decide on an investment amount and risk level, and then choose the proper projects. Statista published research that shows that the yield on crowdfunded real estate investments in the United States averages around 10% per annum. Thus, first, project selection should involve investing in different projects, and second, investors must remain patient and maintain focus on long-term investment in crowdfunded real estate.

Conclusion

Crowdfunded investment in the real estate industry is far from a temporary phenomenon; it is an innovative form of investing that has attracted the young generation, which has little experience in investing and still desires diversification and technology integration into the investment process. In this plan, young investors can acquire stakes in high-return generating real estate markets with little cash. 

Despite inherent dangers, crowdfunded real estate offers wealth-generating opportunities, stable income generation, and technological advantages. Bearing this in mind, real estate funding through crowdfunding will continue to be one of the most outstanding sectors as more people invest in it to transform property investment for generations to come.