Investing in real estate is one of the investments with many advantages these days. It consists of buying a home to rent or resell in order to make a profit afterwards. Currently, the shortage of housing is pushing developers to produce more, but it requires a lot of money to be able to do so. Sometimes these developers do not have the funds to finance their projects, whether it is renovating a building or creating new housing. This is where real estate participative financing or real estate crowfunding comes into play, because the developer has the opportunity to offer its real estate programme on a platform and Internet users can support this project and invest in it. Participatory real estate financing then consists of a grouping of several specific people to finance construction programmes. As you can see, it is possible for you to invest your savings on this investment and be reimbursed with interest afterwards. But how does real estate participatory financing work? In relation to this, we will then define the concept of real estate participatory financing or real estate crowdfunding, the advantages that this financing system can bring, bonds and interest rates and finally the role of real estate participatory financing platforms.
Participatory real estate financing or real estate crowdfunding
The concept of crowdfunding has been around for several years, it consists of raising funds to finance a project or programme. In a literal sense, Crowdfunding means “crowdfunding”, but it is also called “participatory financing”. Participatory real estate financing is one form of crowdfunding. It involves bringing together individuals who are interested in financing a developer’s real estate program in a collaborative spirit – see www.koregraf.com. The fundraising or fundraising takes place on online financing platforms. These platforms then serve as a support by putting developers in contact with real estate projects and investors. This implies that transactions must be dematerialized and disintermediated. Real estate crowdfunding can therefore be a new form of profitable savings and investment. This concept is designed for real estate developers who have profitable real estate programmes but are short of funds and interested investors. Real estate crowdfunding has to finance only part of the project and the developer can apply for loans from his bank to make up the other part of the financing.
The advantages of real estate equity financing
Real estate crowdfunding is beneficial to both investors and property developers. As an investor, you can grow your savings and it can also bring you many interesting benefits. The risks are lower and the investment can also be diversified in different types of projects such as offices or housing. You can also choose different locations and vary the nature of projects such as development, promotion, restructuring or subdivision. At the end of the program, you can recover your capital that was invested with the profits. Crowdfunding then promises high and profitable returns. During the subscription, no fees will be charged before or after and each investment follows a truly rigorous process in the selection of projects. For the developer, crowdfunding allows him to round up his funds for his program because banks never finance projects 100%. Participatory financing can also be a short-term savings for you and the benefits can range from 8 to 12% annually in a period of 9 to 24 months.
Bonds and interest rates
At the end of the project, investors become bondholders, i.e. people who hold bonds with the promoters. The property developer has the obligation to repay the full amount invested with interest at the end of the operation. The repayment of the capital can then be made in two ways. The two types of repayment are: “bullet” repayment and “instalment” repayment. The repayment in fine is the full repayment of the capital at the end of the project, but the investor receives the interest regularly every month or every year. Instalment repayment is the repayment of the capital at the same frequency as the interest. Investing in crowdfunding can then bring you more profits than traditional investments such as savings books. It can be one of the ways to earn passive income easily. The interest rates and duration depend on the project’s completion. It is after an analysis of the program by experts from each platform that interest rates can be defined. The rates can generally be between 8 and 12% and depend on the risk level of each transaction. The risk rate is lower compared to the stock market. You can diversify your investments and make the right choice.
The role of real estate participatory financing platforms
To benefit from these advantages of real estate crowdfunding, it is necessary to go through a platform that offers this type of operation. These platforms first select projects in a drastic way before proposing them to investors. There are procedures regulated by the Autorité des Marchés Financiers (French financial markets authority) for a platform to set up a crowdfunding campaign. These platforms can only carry out the operation when they are qualified as CIP or Conseiller en Investissement Participatif. This qualification gives them the right to put property developers and investors in touch with each other. The main objective of these platforms is to promote good understanding between these two actors. The crowdfunding allows these CIP platforms to propose serious projects to investors with diversified offers. The platforms communicate on a regular basis their default rates and the returns you will actually get. The reason is that these rates can change regularly over time and depend on parameters such as the type of project, risk levels, transaction duration and default rates.