Challenges facing a Real Estate Crowdfunding platform
Real Estate crowdfunding in Australia seems like a spectacular idea. Australia is probably one of the last great frontiers for Real Estate Crowdfunding. Most parts of the world already have Crowdfundi...
Real Estate crowdfunding in Australia seems like a spectacular idea. Australia is probably one of the last great frontiers for Real Estate Crowdfunding. Most parts of the world already have Crowdfunding Real Estate in some shape or form. Australians love property and are 3 times more likely to invest in property than an American. Everyone seems to be in on the property game in this country yet there are quite a few who are locked out as they do not have sufficient capital to invest and enter the property space.
A Real Estate Crowdfunding platform that allows you to invest small amounts and invest in specific projects of your choice is a winning idea. But it comes with a host of challenges.
First is obviously the regulation, under currently law you can only raise upto 2 Million from 20 retail investors and make only 20 offers in a year. And there are significant restrictions around promotions. If you want wholesale investors to participate in your project funding you are kosher, but the fact of the matter is that wholesale investors do not have any shortage of investment opportunities being presented to them. They can do everything that a crowdfunding site can claim to do themselves and remove any middle men in the process. A crowdfunding site for wholesale investors only doesnt make any sense for the simple reason wholesale investors do not care for crowdfunding.
Crowdfunding is a retail investor play. Which is why at www.estatebaron.com we have partnered with the right compliance partners to ensure that the opportunities listed with us are open to unlimited number of retail investors. A full Public Disclosure Statement has been lodged with ASIC. Estatebaron is the only real estate crowdfunding platform in Australia open to all retail investors.
The second issue is if you are going to offer people the opportunity to invest in a house then the essential offer is to invest in the capital growth and the rental return. But there is a significant amount of paperwork that goes into making an investment offer possible and the cost of compliance means that the a couple of percentage points are knocked off the return. Assuming a capital growth rate of 6 to 7% and a rental yield of 4.5% the inhand rental yield comes to just above 3 to 3.5% and capital growth is meaningless till the house is sold. 3 to 3.5% is better than the cash rate a bank would offer but not enough to get even a retail investor out of bed. Most crowdfunding platforms are learning this the hard way that people want to invest in property online, but they also want strong returns.
Which is why at www.estatebaron.com we also offer access to invest in Development projects, these are the kind of exclusive deals that were previously limited to wholesale investors only. Now investing at EstateBaron.com you can pick and choose the projects you want to participate in. Generally development projects run anywhere between a year to four years and can offer profits around 20%. But an investor must look at the offer documents for the specifics of a deal. In the next post we will look at the checks and balances we have built to ensure that Investor interests are secured and the deals that are presented are only of the highest quality.
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ABOUT THE AUTHOR
Co-Founder at EstateBaron.com, Australia Crowdfunding Real Estate Platform