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How to Leverage Real Estate Crowdfunding to Build a Diversified Portfolio

Published On
May 23, 2023

Real estate crowdfunding permits you to pool your resources and invest in real estate projects with others. It can help diversify your portfolio while paying out big gains.

Portfolio diversification is a fundamental element that aims to reduce risk while increasing total blended return. Furthermore, Modern Portfolio Theory recommends a 10 percent to 20 percent allocation to real estate to boost returns while decreasing risk. Portfolio diversification within real estate investments is simple with a real estate crowdfunding strategy.

What is Real Estate Crowdfunding?

Real estate crowdfunding enables every aspiring real estate investor to start small and contribute to the finance of much larger real estate projects. Real estate crowdfunding platform enables investors to communicate with other investors and property developers while receiving a commission for advice, management, and sales. Investors for crowdfunding for real estate provide the required cash for a certain project for any profits made by the transaction. 

A Practical Illustration

If an experienced investor or real estate developer spots a commercial property in one of Tampa's affluent neighbourhoods. This asset is currently valued at $1,207,379 but lacks modern amenities. Based on market research and other needs, the real estate developer or investor calculates that if the property is restored at an overall cost of $1,086,641 and then leased out, the asset has the ability to reach a market value of $ 1,931,807 during the next 7 to 9 years.

That is a fantastic deal! 

However, the developer or investor does not have the necessary finances to rehabilitate the building. Rather than seeking a loan, the investor can turn this into a real estate crowdfunding opportunity in which a group of investors or individuals contribute individually to the project.

How would this help both parties? 

Real estate crowdfunding allows developers to raise funds for real estate development projects. It is a feasible alternative to standard financing techniques.

Real estate crowdfunding allows investors to become stakeholders in properties that were previously unavailable to them as individuals. It now enables them to diversify their investments.

How Does Real Estate Crowdfunding Diversify Your Portfolio?

  • Openness in Investment: Real estate crowdfunding investments provide 24/7 information access to investors. So, investors can make meaningful and educated investment decisions. They also have far greater visibility and authority over property selection and deployment. You have the option of selecting different markets and properties in which to invest. You will also receive regular property updates.
  • Accessibility: Previously, only huge funds and insiders had access to and invested in the outstanding transaction flow. Because investors pool their funds with others on a crowdfunding site, they may have access to possibilities they would not have seen otherwise. They are able to take part in larger deals. Real estate crowdfunding platforms give as much data as possible on operating partners and assets.
  • Liquidity: Greater liquidity is typically provided by real estate crowdfunding investments. As a result, it makes it easier for investors to sell their shares to a third party or exit the transaction.
  • Less risk: Investors can participate in various projects over time via a reputable and well-established crowdfunding platform. They can diversify their risk over many homes and create their own property portfolio. Sure, real estate crowdfunding is fraught with risk. However, to help investors decrease risk, real estate crowdfunding platforms usually include extra risk mitigation techniques like due diligence and underwriting.
  • Research: Real estate crowdfunding gives investors access to ready-made projects, which are typically given by a trustworthy third party and administered by a local real estate agency. These parties often compare prices, research the real estate market, and then choose the best deal. As you can see, they cover the bulk of the steps that a regular real estate investor would need to take on their own.
  • Options: Real estate crowdfunding platforms provide tons of deals. Investors can assume the level of risk that they are at ease with. Investors can choose between low-risk, high-risk, low-return, and high-reward transactions. A real estate crowdfunding platform contains everything from solid retail properties to fresh development projects.
  • Hassle-free Investment: If you aren't interested in being a landlord, real estate crowdfunding is a wonderful investment. It takes time to maintain homes and deal with tenants. You have no managerial responsibilities. So, you should focus all of your efforts on optimising your properties.
  • Geographic Diversification: Real estate crowdfunding aid investors broaden their risk by investing in multiple markets and geographies. You may invest $30k in 10 different real estate markets around the United States. Real estate crowdfunding is an excellent approach to diversifying an existing portfolio. Because other platforms have lower required minimums, you can distribute the funds over multiple investments. 
  • Low Capital Outlay Required: Real estate crowdfunding has low capital outlay requirements. Thanks to alternative investment platforms like Assetmonk, investors can put $30k in real estate investment projects. So, you can spread your additional funds across several real estate development projects across different markets and geographies.
  • Passive Income: Profits from real estate crowdfunding will vary according to the investment plan used. Equity-based - In this instance, investors may earn returns based on the rental income stream or profits of the property, depending on their ownership portion (if the asset is sold). Debt or lending-based - As the name suggests, investors will lend money to the organisation. Investors will not receive property shares. But rather a fixed return based on their investment and the interest rate paid.

Bottom Line

If you have limited funds and want not to be involved, real estate crowdfunding is a better alternative. It is vital to conduct considerable research and assess your choices before making a decision.

Portfolio diversification is critical for consistent results in today's volatile financial environment. With the global economic slump, investing in a high-yielding asset class with predictable returns and low risk is more vital than ever. Assetmonk is a top alternative investment platform in the United States. It offers highly profitable fixed-income products that provide an excellent guaranteed IRR of 17% with specified terms. These institutional-grade transactions are carefully selected from high-potential private growth markets and are always backed with meaningful asset collateral. Allow Assetmonk's financial experts to help you toward a diversified investment plan that will provide you with peace of mind in the face of economic instability. 

Related Articles

  1. Top real estate markets to invest in the US.
  2. How To Finance Your Real Estate Investment.


Q1. What is real estate crowdfunding?

A. Real estate crowdfunding enables every aspiring real estate investor to start small and contribute to the finance of much larger real estate projects. Real estate crowdfunding platform enables investors to communicate with other investors and property developers while receiving a commission for advice, management, and sales. Investors provide the required cash for a certain project for any profits made by the transaction. 

Q2. What is the difference between REITs and real estate crowdfunding?

A. REITs buy commercial properties and payout rental revenue to shareholders in the form of dividends. Crowdfunding enables entrepreneurs to raise financing for initiatives from a large number of people. REIT shares can be purchased through mutual funds or exchange-traded funds (ETFs).

Q3. How much money can you make from crowdfunding real estate?

A. You can make consistent and profitable passive income via real estate crowdfunding.

Q4. Does real estate crowdfunding pay dividends?

A. Real estate crowdfunding pays dividends monthly or quarterly.

Q5.  Is real estate crowdfunding legal in the US?

A. All regulated real estate crowdfunding transactions in the United States must be conducted online through an SEC-registered intermediary, either a broker-dealer or a real estate crowdfunding platform.