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Is crowdfunding the future of real estate investment?

While total real estate transactions in Dubai alone reached AED 18.3 billion in May 2022, not every would-be investor has access to huge amounts of capital. However, things are changing and markets are becoming more accessible in different ways.

In fact, crowdfunding now presents an exciting opportunity for real estate businesses. It’s a route for them to legitimately obtain funds, not just a trendy way for hobby projects to raise cash and boost awareness.

But how does crowdfunding for real estate work? What advantages can real estate crowdfunding offer investors and sellers alike? Who’s already delivering great services in the space? Let’s take a closer look.

What is real estate crowdfunding?

Essentially, crowdfunding is a way for business owners to generate money from multiple sources – instead of asking a single or small group of investors for a sizeable chunk of capital.

In recent years crowdfunding has become a popular alternative to more conventional methods of financing among real estate investors. By appealing to a broad group of investors who each contribute a small sum of money – and given that it typically takes place online – it differs significantly from more established ways of fundraising.

The fact that it’s a digital endeavour also helps drive awareness. Business owners launching crowdfunding projects also use social media platforms like Twitter and LinkedIn to promote their businesses to larger audiences of potential investors.

Benefits of crowdfunding for real estate

Locking down the necessary finance to fund a deal can be difficult, whether you’re a novice or a seasoned veteran of real estate. Numerous investors have benefited from using crowdsourcing as an alternate method of raising capital for their ventures since it became available in the real estate industry.

Here’s our take on some of the best benefits of crowdfunding in real estate.

1. Increased options: Real estate crowdfunding broadens your pool of potential investors while expanding your funding options. Whether it’s friends, family, business associates or strangers you can reach them all with crowdfunding. Crowdfunding gives easy credit and funds access instead of the need for loans. This helps small business owners obtain money for contracts when more traditional options are limited if they don’t have the detailed forecasts needed for capital investment.

2. A marketing opportunity: Crowdfunding also serves as a tool for business promotion. Crowdsourcing is a terrific marketing tool for entrepreneurs building their brands. Real estate investors can easily increase their investor network by using social media and crowdfunding platforms. Company websites highlight company objectives and goals, past projects and returns and it’s great to put this information in front of as many people as possible from a marketing perspective.

3. Learn from your network: Word-of-mouth and client loyalty take time, but after a few successful crowdfunded projects you’ll notice a big boost in your professional network. To really build investor loyalty, business owners should monitor user comments, and seek feedback at every opportunity. Listening to seasoned investors’ remarks can help you discover areas of improvement.

4. Proof of concept: A successful crowdfunding campaign can prove a project’s popularity and viability. During campaigns, engaging project material might attract new investors and earn support through real relationships formed around your passion and hard work. After giving you money, your backers will care about your success – not just because they are invested but because they know you.

How to build a real estate crowdsourcing platform

If you want to start a website or platform and profit from this industry, then you’re going to want to read up on both crowdfunding tech and the real estate market. Like anything, the more you understand, the better decisions you can make – and the knowledge you have in either crowdfunding or real estate can help you spot gaps in the market.

There are also white label software solutions out there – such as LenderKit – which can present a great way of getting to market faster. They also help with accreditation, compliance, and take care of all technical requirements involved in building a software platform.

Who’s doing it best?

A licensed real estate crowdfunding platform called SmartCrowd enables users to potentially grow their wealth by pooling their investments in rental homes.

SmartCrowd is an award-winning digital platform that gives its customers all the advantages of direct real estate investments. They do this by owning the properties and lowering customer risk by spreading their wealth across a number of properties – with an overall reduction in capital expenditure. The idea behind SmartCrowd is to make real estate investing hassle-free and less risky by enabling investments for as little as AED 500.

The Dubai Financial Services Authority (DFSA) oversees SmartCrowd, which is registered in the Dubai International Financial Centre (DIFC). The DIFC’s financial services are governed by the DFSA so they’ve secured the highest level of financial services trust for consumer protection.

Stake offers customers a less time-consuming way to expand their investment portfolio with real estate and it recently launched its product and business in Dubai.

Stake was co-founded last year by Rami Tabbara – a former senior vice-president of sales at developer Damac and a founding member of The First Group – and Manar Mahmassani, a former managing director of Falcon Group and a former vice-president of Deutsche Bank. Stake is billed as a digital-first property investment and asset management company.

At a time when Dubai property prices are softening, Stake promised to address the issues with property ownership by ‘democratising property investment’.

Aqarchain was the first decentralised real estate marketplace with a metaverse called Aqarland which is mapped out based on real-world properties. It’s a pioneer in fractionalising non-fungible tokens (NFT) of physical real estate assets. By turning the real-world real estate asset into a digital one, the company has been able to do away with the middlemen usually associated with real estate investment.

A technology developed by Aqarchain tokenises real estate assets based on actual real estate characteristics, such as square footage. The smallest piece of the property that can be bought is 1 square foot and this gives people looking to build investment portfolios more opportunities to get their foot on the ladder.

Is crowdfunding the next big thing?

In the UAE, investing in real estate may move toward crowdfunding in the future – particularly in Dubai. Dubai continues to provide investors with one of the most alluring rental yields worldwide.

Real estate crowdfunding offers additional benefits outside of risk diversification – such as digitalisation and access to the real estate market – which typically demand a significant amount of capital. By contributing through a crowdfunding platform, investors who cannot afford to make substantial investments can still benefit from smaller levels of capital investment, and crowdfunding operators get access to a sizeable pool of retail investors.

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