Real Estate Crowdfunding: How is Realty Mogul different than a REIT?


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    Real Estate Crowdfunding: How is Realty Mogul different than a REIT?


  • admin

    Simplified answer:

    When crowdfunding a property investment, you have direct exposure to a specific property or portfolio, with a finite business plan that will conclude with the disposition or refinancing of that property. This will likely be an illiquid asset, with capital tied up for the duration of the investment.

    When investing in a REIT, you're liquid, but you're investing in a management team as a going concern. They charge with maximizing (your) equity value in a continually evolving portfolio of assets. Your investment is subject to the credit quality of the parent company, and their ability to navigate the capital markets can be just as important as their ability to create value with individual assets. Their strategy may center around a specific investment thesis, a geography or asset class, but this is fundamentally different from underwriting and investing in particular property addresses.

    Additionally, assuming your REIT shares trade publicly, your investment is subject to the emotional ups and downs of the broader public equity markets. It may be affected by news headlines as much as underlying fundamentals. Perceived future gains & losses will be immediately priced into the real-time value of your shares today. This is very different from illiquid direct property investing.

    I'm sure there are more points of difference, but these are the most obvious.

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    1. An individual with as little as $ 5,000 can own part of a residential or commercial property using a crowdfunding platform. But an affordable investment amount is not the only attraction for investors. A good platform will offer a range of features that have been vetted and checked to ensure that the person who is putting money into it has a distinct idea about the merits and risks of the transaction. In the ordinary course, an investor who is diversifying into the property market by allocating an amount that is the fraction of the total cost of the property will not have the time or inclination to research the property.
    2. The only other way that a small investor can get into the property market is through a real estate investment trust (REIT). But the crowdfunding route has several distinct advantages over-investment in REITs. A REIT is essentially a company that owns properties. By investing in such a company, the individual is indirectly buying into a pool of residential or commercial properties. But there is no ownership established over any of the real estate assets that the REIT owns. A crowdfunding platform, on the other hand, gives the investor a share certificate for each specific investment.
    3. The ease of dealing with a real estate crowdfunding platform is one of the major draws for the new generation of tech-savvy investors. The entire transaction completes online. Investments can be tracked online through the platform's website, and investors can get regular updates about the status of their property. In addition to this, a well-run platform will offer a host of other benefits, which include insurance, renting out the property, collection of rentals, and management of the property for a nominal fee. Mostly, the investor gets all the benefits of owning real estate without having to go to the trouble of understanding complicated legal documents and conducting time-consuming and complicated due diligence on the property purchases.