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However, like all investments, opportunities in this category come with risks and should be closely weighed before being committed. If you’re thinking about using one of the many digital platforms that provide crowdfunded real estate investments, here are six questions you should answer before doing so.
Do You Understand the Risks?Real estate crowdfunding platforms allow investors to put their money into properties or projects with the promise of a potential return. However, real estate investments are not guaranteed. The property could lose value, or the project could fail. This is true even for so-called ‘low-risk’ offerings. You need to understand and be comfortable with this before settling for any income-generating property.
Have You Researched the Platform?Not all crowdfunding platforms are created equal. Some are decent and are run quite well. Others are outright scams. You should thoroughly research your options before settling for any of them. Investigate factors like their track record, the experience of their leadership team, their investment screening process, and user reviews. Are they transparent with their fees, investment terms, and other crucial details?
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What Are the Platform’s Fees and Terms?Unless an investment opportunity provider or manager delivers returns that significantly outstrip its fees, using their platform may not be worth your while. Don’t commit until you have a good grasp of their fee structure. Some may charge management fees, servicing fees, or even performance fees. Moreover, look into the terms of investment – how long will your money be tied up? What’s the process of liquidating your stake like?
Are You Diversifying Your Investment?One of the biggest advantages of crowdfunded real estate is the ability to diversify with smaller amounts of money. Instead of putting all your funds into one property, you can spread it across multiple properties or projects. This may potentially reduce risk. However, are you taking advantage of this? Or are you placing too much emphasis on one project?
Is the Company Duly Registered?Startups and established companies offering investment products and services should be registered with the right public agencies, bodies, or regulators. Avoid platforms that aren’t; they could be fraudulent, or on a collision course with authorities (in either case, your investments could eventually be lost). In Nigeria, investment platforms are registered with the Securities and Exchange Commission, either directly or through a trusteeship.
How Does This Fit Into Your Overall Investment Strategy?Make sure to assess how any potential involvement with crowdfunded real estate aligns with your overall investment strategy and goals. Are you looking for passive income, capital appreciation, or both? How does real estate crowdfunding fit into your broader portfolio? Consider your risk tolerance, time horizon, and financial objectives, and go for options that meet your needs on all these counts.
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Final WordsWhile crowdfunded real estate investment platforms offer a unique and accessible way to venture into the world of real estate, it’s essential to approach them with a well-informed mindset. If you’re able to answer the above questions, you’ll ensure you’re making a decision that aligns with your financial well-being and goals. Featured Image Source: Finance Buzz
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