7 Good Reasons to Invest in Real Estate Crowdfunding
1. A way to invest in the real economy
Real Estate real estate crowdfunding involves lending money to developers so they can carry out real estate projects. It’s a way to participate in the construction of infrastructure, logistics facilities, or housing for single people, students, couples, or families. It’s the exact opposite of speculation, which involves profiting from market fluctuations—unrelated to the real economy—and is controlled by large financial institutions.
2. A short-term investment
Do not confuse real estate crowdfunding with an SCPI (Société Civile en Placement Immobilier). With an SCPI, the investor becomes a co-owner of a portfolio of real estate properties managed by a management company and receives a portion of the rental income. This is not the case with a real estate crowdfunding project. The investor simply lends money to the developer in the form of bonds or debentures. Once the project is completed and sold, the investor recoups their investment plus interest. This is why the average investment term is 20 months.
3. High Returns on Real Estate Crowdfunding
The average return on a real estate crowdfunding project is 10% per year, but it can range from 8% to 12% depending on the level of risk. This means that, over the life of the project, the investor receives 10% of their investment each year: this is the “coupon.” This is a high return compared to the Livret A savings account, which yields 0.5%, or real estate investment trusts (SCPIs), which rarely yield more than 5%. It’s worth noting that one of the reasons for these high returns lies in how the platforms operate: there are very few intermediaries—if any at all—between the borrower and the lenders, unlike with large financial institutions.
4. A favorable tax system
The “flat tax,” which took effect in 2018, has simplified the tax treatment of this type of investment. The single flat-rate withholding tax (PFU) applies to all investment income at a fixed rate of 30%. A gross return of 10% will therefore yield a return, after taxes, of 7%. For example, for every 1,000 euros invested, the annual net return will be 70 euros.
5. An affordable product
Thanks to real estate crowdfunding, investing is becoming more accessible, with a relatively low minimum investment. It depends on the platform, but it’s generally around 1,000 euros. And there are no fees for the investor. There’s just one restriction: the investment amount must not exceed 10% of the investor’s net worth, provided the limits set out in the declaration that must be completed before investing are adhered to.
6. Managed Risks
There is no such thing as a risk-free investment. But in real estate crowdfunding, the risk is manageable, judging by the average default rate in France for this sector. The greatest danger is that the project will fail—due to the developer’s default or a broader crisis that would prevent the developer from selling the property, for example. To find out how many projects have failed, the best thing to do is check the default rate of the platform you’ve chosen. If it’s 0%, no projects have failed on that platform… and that’s a pretty good sign.
7. A great deal of freedom of choice
Investors choose the crowdfunding platform(s) they wish to use and, within that platform, the project they wish to back. They do not go through a management company, as is the case with an SCPI, for example. It is up to them to make the most of it by selecting the right platform—one with a low default rate—and the right project—one with solid financing and significant guarantees.
Thanks to these 7 good reasons to invest, real estate crowdfunding has been steadily gaining ground since its emergence a few years ago, with half a billion euros raised in France in 2020. While there’s no shortage of reasons to invest, it’s important to do your research and make an informed decision before getting started—all while keeping in mind that the key to minimizing risk is to diversify your investments.
Check out our explanatory video on the 7 good reasons to invest in real estate crowdfunding