Is investing in crowdfunding real estate a smart choice?



This column contains an opinion Mark Ting, a Foundation Wealth partner helping clients achieve their financial goals. It can be heard every Thursday at 4:50 pm on CBC Radio as a guide to personal finance On the Coast. This column is part of the CBC Opinion section. For more information on this section, please read our FAQ

The high cost of real estate is often cited as a major barrier to entry into the Vancouver housing market. As a result, some determined Canadians have turned to crowdfunding.

There are several real estate crowdfunding companies in North America that divide the invested property into shares. I recently bought a small stake in a rental condominium in Mission, British Columbia. The crowdfunding target for this project was US $ 500,000, consisting of 500,000 US dollar shares.

In total, about 1,000 people invested an average of about $ 500 to raise half a million dollars. It is a long-term holding in which the developer has built 105 apartments, including 11 rentable apartments over the next two years, and then rents them out for three years before selling the units and sharing the profits among investors.

I became involved in the Mission Crowdfunding Real Estate Rentals for two reasons. First, I agree with the crowdfunding procurement mission’s assessment – it has big capital gains and potential rental income – and second, I use this investment as a learning experience for my kids.

“Investors need to be sure they know what fees they pay for crowdfunding properties,” says Mark Ting. (Shutterstock / Roman Makedonsky)

Learning experience

For every A grade my kids make at school on their report cards, I give them $ 100. This year, they decided to invest their income in real estate through crowdfunding. We chose the Mission project because it is local, which means that we can visit the site, follow its development and experience, albeit to some extent, the sense of pride that often accompanies owning a home.

On behalf of my children, I invested $ 500 in crowdfunding, which predicts an annual return of 14%. In dollar terms if achieved, our investment will double in about five years. An income of $ 500 in five years will not change my life dramatically, but for my children it will probably be much more effective. I hope they continue to invest the money they earn from good grades in more projects, essentially creating a small stream of investments with different risk profiles that pay off at different times. My goal for them is to form good financial habits that, if implemented, will be worth several times more than the potential $ 500 return created by this investment.

Some foundations attract developers who build a project and then rent out apartments. (Evan Mitsui / CBC)

When doing due diligence on crowdfunding, pay attention to fees. In my opinion, many proposals overcharge or cut profits. Before investing, I compared the commission structures of various crowdfunding companies and ended up choosing a company that did not charge a commission, but instead was compensated through a subscription model.

To participate in the development of the mission, I first had to pay $ 25 for an annual subscription. There are a few things to consider if you are only planning a small investment. For example, it doesn’t make financial sense to pay an annual subscription fee of $ 25 if you plan to invest only $ 100 in a project. Try to invest at least a couple of hundred dollars – ideally a couple of thousand dollars – in various projects throughout the year.

Other factors to consider:

  • Experience and track record of managers of a crowdfunding company.

  • The minimum investment amount can range from $ 1 to over $ 250,000.

  • The expected return on investment versus the risk of the project.

  • The project time horizon is usually two to five years or more.

Overall, I believe that real estate crowdfunding can be a viable tool for those looking to invest in real estate but are constrained by a lack of money or credit. Small investments in several projects accumulate over time. This makes it appealing to young people looking to develop the habit of investing – it can now be done in real estate for a small fee equal to the cost of a daily cup of coffee.


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