How does real estate crowdfunding work?

Crowdfunding or participatory financing is a financing solution that consists in putting project leaders in contact with investors, mainly individuals, in order to raise funds from a large audience.

Real estate crowdfunding is therefore a participatory investment solution. specialized in real estate. Through an online platform, investors lend small amounts to various real estate projects in exchange for very attractive returns paid in the form of interest. Crowdfunding often takes the form of a bond loan or is done by subscribing to securities.

Real estate crowdfunding makes it possible to invest in several types of real estate projects:

La real estate promotion : lenders finance real estate development companies, which build real estate assets (housing, offices, shops, etc.) through the prior purchase of land and then sell them at a capital gain.
Les renovation projects buildings or real estate already existing.
Les property dealer transactions, which consist in buying and selling real estate.

What are the risks of real estate crowdfunding?

Very attractive in terms of return, real estate crowdfunding inevitably involves risks that should not be overlooked.

As with any participatory credit project, the main risk of real estate crowdfunding is that of total or partial loss of your capital. This may in fact be linked to the abandonment of the project, for example in the event of the bankruptcy of the company at the origin. However, note that this type of incident only happens very rarely, as crowdfunding platforms are extremely selective and rigorous in the selection of the projects presented.

A second risk to take into consideration is that of the duration ofilliquidity of your investment, which can in fact be extended more or less significantly if the project is delayed. Therefore, always allow for a margin of safety during the recovery of your capital and interest.

What are the advantages of real estate crowdfunding?

Very popular in recent years, real estate crowdfunding offers many advantages:

One of the main ones is undoubtedly the very attractive returns that he proposes. These are generally between 8% and 12% per year before taxes.
This type of investment is also often associated with a short commitment period (2 or 3 years maximum).
Crowdfunding also allows you to invest in real estate with a low entrance ticket and without constraints. Unlike the purchase of real estate for rental purposes, the financing of a participatory real estate loan is very accessible and does not require any involvement in the management of the property (works, tenant management, etc.), which is entirely delegated.

SCPI vs real estate crowdfunding

Although similar in many aspects (entry ticket, taxation, etc.), real estate crowdfunding investments differ from those in SCPI in several respects. An overview of the main differences between these two investment solutions.

The nature of the investment : investing in SCPI is like buying shares in a company that owns real estate for rent (offices, shops, etc.), where the remuneration comes from the rents paid. Real estate crowdfunding, on the other hand, consists in financing short-term real estate projects in exchange for the payment of interest.
The yield : on average, SCPIs offer returns around 4%, while real estate equity loans generally earn around 9% in interest.
The duration of the placement : real estate crowdfunding is a short-term investment (between 12 and 36 months on average), while investing in SCPI is an investment that is more long-term (the recommended holding period is at least several years).

Know the platforms where to invest in crowdfunding

Since real estate crowdfunding is a popular investment, many platforms have gradually emerged in recent years. Among them, we find the best known ones such as Anaxago, ClubFunding, ClubFunding, Fundimmo, Homunity, Lymo, Raizers, Wiseed, etc.

Faced with the diversity of the market offer, it is therefore essential to Inquire in detail on the various platforms and their history (shareholders, performances, financial strength, financial solidity, proposed interests, type of projects, default rate, duration of projects, etc.) and to compare offers. However, beware of the performance trap! Keep in mind that not all strategies fit all profiles.

What is the taxation of real estate crowdfunding?

Revenues from real estate crowdfunding benefit from a very advantageous taxation. In fact, these can be taxed in two ways:

Via the Flat tax by 30% (including 17.2% social security contributions), except with a PEA-PME where the taxation applied is 17.2%;
Via the progressive income tax scale, if you think it is more advantageous.

Also note that losses can be offset against future profits, which further reduces taxation.

Investment rates and durations

On average, crowdfunding investments are commitments of 12 to 36 months, for returns of 8 to 12% annually before tax.

Conclusion

Real estate crowdfunding is a great way to diversification of wallet. The latter also makes it possible to invest in real estate with a low entry ticket while granting significant interests. To succeed in your investment, however, take care of the platforms you use and be sure to adopt a strategy that is in line with your long-term project.

How to invest in real estate crowdfunding?