Every investor has the intention to maximize profits when putting money into new ventures and projects. While there are many times when investments are successful, you also need to be prepared for potential losses as well. Losing money with real estate crowdfunding is something that is feared by many new investors. But you don’t have to be scared of the loss if you do your research and choose reputable investment opportunities on whichever real estate crowdfunding platforms you’re using. There is no shortage of real estate crowdfunding sites; fundrise, crowdstreet, realty mogul, and realtyshares are a few that offer investment options into real estate investment trusts (REITS), commercial properties, and other real estate deals for the individual investor to consider in their investment portfolio.
Investment Losses and Long-Term Strategy
What does a potential real estate investing loss look like? To begin, you need to understand what other investment losses have been in the past. For a long time, the main investment vehicle was the stock market. People put money into the stocks with the hope that the value of those companies would increase with time. But changes in the economy can cause the market to drop, resulting in losses for people across the nation.
When it comes to real estate investing, the price of the properties can go up and down over time. The consolation is that you always have holdings in a physical asset. Even if the value of the property drops, you can continue holding onto that tangible asset. For more people, commercial real estate investing is a long-term strategy designed to build net worth and wealth in the future.
Losing Money with Equity Crowdfunding
There are two ways that you might lose money with a crowdfunded investment:
- Company Failure: Hundreds of new crowdfunding companies have popped up in recent years, giving real estate investors and all investors a plethora of options to choose from to create passive income. Just because an investment firm has a presence online offering crowdfunding investments doesn’t mean that it is a reputable company. There have been situations where investors put a minimum investment or more into a crowdfunding opportunity; then the company buckled due to unsuccessful business practices. As a result, the investors took a hit because they didn’t recover the cash that was put into the investment pool.
- Poor Portfolio Performance: Another way that crowdfunding failures can happen is the wrong rental properties were purchased. If an overpriced building is acquired or the property has hidden problems that weren’t discovered with an inspection, then it might result in a net loss due to the cash that is required to keep the property running.
The goal with real estate investing is to create short-term cash flow with dividends that are usually paid from rent collection and other ways that the property is generating income. These can be equity investments, debt investments or a mix of the two. At the same time, the property appreciates over the years, creating more equity when it is time to sell in the future. Even though these are the goals with real estate crowdfunding, there are times when the investments fail.
Minimizing the Risk with Your Investments
The most important decision you will make is choosing a real estate investment firm that has a proven track record in the industry. Talk to other operators and real estate developers in the real estate market they operate in to see if they are familiar with the firm you’re considering and their previous real estate opportunities. Due diligence will help you learn more about the company and the investment opportunities that are available. Then, you can choose a firm that is a good fit for your investments.
If you are worried about losing money with crowdfunding and you are an accredited investor, then you need to talk to one of the leading teams in the industry: First National Realty Partners. Call today to learn more!