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Real Estate Crowdfunding: Introducing Tokenization & Advantages of Fractional Investments

Real estate crowdfunding is not precisely an entirely new concept but in recent years has gained a lot of popularity as one of the best, most effective ways to diversify a financial portfolio.
But before taking a deep dive into the nitty gritty, let’s take one step back and begin with a fun story. The first idea of crowdfunding was born in 1997 as a supporting gesture from fans to their favorite band. Long story short, British rock band Marilllion was funded by their US fan base, which raised more than $60,000 to get the band across the Atlantic. More than 25 years later, crowdfunding became a sustainable investment model for a wide variety of industries and sectors.
In real estate in particular, crowdfunding is a way to raise money to finance a project with micro investments by reaching out to a large pool of smaller investors. Probably the most significant difference between traditional methods and crowdfunding is that the latter is usually managed through an online platform.
Things got even more interesting when tokenization waltzed in and revolutionized the real model. Why? You may probably ask. Well, that’s precisely the reason why we are here today, to discuss all things real estate crowdfunding —its benefits, how tokenization enhances and diversifies the system, and more.

What Is Real Estate Crowdfunding?

We already stated that crowdfunding is a (very popular) method for raising money. In short, real estate crowdfunding deploys that same model for business to fund a development project.
Not that long ago, individuals would try to enter the real estate market and they weren’t really able to do it until crowdfunding opened this possibility for almost everyone. Fractionalized real estate became a win-win situation for both large and small investors.
Large developers started to roadmap bigger and more ambitious projects through crowdfunding platforms, reaching higher initial capital, and small investors got into massive projects achieving stable investments with a well balanced risk/return ratio.
So, in a sense, real estate crowdfunding is a two-way street: businesses can access the required development capital and small investors can be part of high-quality real estate projects.

Benefits of Real Estate Crowdfunding

As we said, real estate crowdfunding brought benefits to both developers and newcomers alike. Let’s go over why.

a) Easy access to capital

Crowdfunding allows bigger investors to finance their projects without the need of getting a loan and paying high-rate interest. At the same time, they reduce their share of any project's earnings but guaranteeing all the parties attractive returns according to their initial investment.

b) Diversification

When you invest in a crowdfunding platform that features different open projects, you decide how you will split your investments. Do you prefer short-term projects with smaller returns? Are you willing to wait a little longer for more juicy earnings? It is your choice. You can have a diversified portfolio and get the best of both worlds.

c) Minimum investment

Even though it usually will depend on the project, you can buy your share of a high-quality asset and perceive returns by investing a small amount of money.

d) Very low risk investing experience

People, especially newcomers, usually have many doubts before investing for the first time. An intuitive, easy-to-use platform that provides a solid portfolio with attractive investing opportunities is a good way to begin your journey, understand how your emotions work and best manage your investments.

e) High-quality assets - High-quality returns

If you don’t know much about investing, it is always best for you to follow an industry expert. Usually, real estate crowdfunding platforms are curated and managed by experienced consultants. They do extensive research and pick the most attractive projects, balancing the estimated time/return ratio.

Enhanced Crowdfunding: Tokenized Real Estate

When you combine real estate crowdfunding with blockchain technology, you get the best version of real estate investing. Thanks to fractionalization, the risk is minimal, you get a high-standard level of security, and many other benefits for every party involved in the process. Let’s check it out.

  • No geographical limitations: Thanks to digitalization of real estate assets you can access a robust portfolio of investment opportunities around the world and expand your possibilities.
  • Security and transparency: Due to blockchain technology, all operations within the tokenized environment are traceable and guarantee proof of ownership. At the same time, all transactions are regulated by financial institutions and include AML and KYC checks.
  • Process automation by smart contracts: Unlike traditional investments, where you usually have to wait a certain amount of time once a project is finished, smart contracts execute a chain of commands that will pay investors including their earnings and fulfill every item that has been established at the beginning of the project.
  • Faster and cheaper transactions: Every operation of tokenized real estate is instant. Since there are no intermediaries, it reduces the cost and possible fees, which will impact on your estimated returns.

Fractional Investing: Is it worth it?

Fractional ownership of any real estate property benefits in almost every way to all investors. In fact, fractionalization allows a lot of people to invest in a specific development without any hassle or frictions that an associated project could imply.
Even more so, the combination of crowdfunding with blockchain technology has brought a new breadth of possibilities in real estate investing. So much so that you can invest in massive real estate projects, on the other side of the world, with little money.
And it is a trend that’s growing by leaps and bounds. In 2021, the market reached almost an $11 billion market, and it is expected to grow at a compound annual growth rate of 45.6%, breaking the $300 billion landmark by 2030.
However, it is fundamental for you to choose a platform with high-quality assets in their portfolio. This way, you can pick the project that suits you best considering the investment horizon and estimated profit according to your goals. Ready to take control of your finances and put your savings to work?

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