(Credit: Adobe Stock)
Real estate crowdfunding is attracting more and more French people. In fact, according to the 2021 annual barometer created by Fundimmo and Hello Crowdfunding, real estate crowdfunding continues its strong growth with a collection of 958 million euros in 2021, up 90% compared to 2020! The inflow, which has almost doubled and is now flirting with a billion euros, is indicative of investor enthusiasm for this investment, but what exactly is it about? Why such a success? Do you have to go there with your eyes closed? Find out in this article what real estate crowdfunding is, what advantages this investment has and what disadvantages must be taken into consideration.
Real estate crowdfunding, what is it?
Real estate crowdfunding is a branch of crowdfunding dedicated to real estate investments. With this system, it is individuals (referred to as “crowd”, which in English means crowd) who lend money to a real estate developer, obviously against payment, to help finance a program, all from a crowdfunding platform.
Real estate crowdfunding is a unique way for individual investors to gain exposure to the real estate market. It is in fact an alternative to direct investment or stone-paper (SCPI, SCI, OPCI). It is therefore a new way of positioning on the real estate market, a market highly appreciated by the French, considered a safe haven, often perceived better than the stock market due to its tangible nature.
This is a medium term investment. The investor recovers his initial investment and interest, most often after 18-24 months. In 2021, the average placement period was 21.2 months.
What are the benefits of investing in real estate crowdfunding for an individual?
The first advantage of real estate crowdfunding is its accessibility. Everything happens online on a specialized platform in a few clicks. You don’t even need to have colossal sums, the entrance ticket is very affordable, around 1,000 euros most of the time. We are therefore far from the amounts to be released for a direct purchase that will require, at least, a sum that is a hundred times greater. But even the minimum amount of investment in real estate crowdfunding is often less than the minimum amount to invest for an SCPI, for example, since the share price is also around 1,000 euros but generally it is necessary to invest at least in 10 shares.
The average ticket for real estate crowdfunding is also relatively low. In 2021 it amounted to € 2,871 compared to € 4,711 in 2020.
Finally, the main advantage of real estate crowdfunding, the reason for its success with individuals, is the return on this investment. In fact, the average annual return has fluctuated at around 9% for several years: 9.3% in 2021, 9.2% in 2020. In a context of inflation, while the guaranteed capital investments preferred by the French, which are the A (rate interest rate 1% from 1 February 2022) and the life insurance fund in euros (1.1% on average in 2021) no longer cover inflation, the French are turning to unsecured investments in capital but much more profitable. Real estate crowdfunding that allows you to invest easily and with little means in the real estate market and which requires such a high average return necessarily attracts attention!
Read also: Becoming the owner of your property: how much it really costs you
What are the risks of real estate crowdfunding for investors?
But, as we have seen, this investment is not guaranteed in capital. It also presents significant risks, risks that should be well understood and anticipated by investors, particularly those with a risk averse profile. There are several risks.
First, the risk of default, if the promoter goes bankrupt, you could lose all or part of your capital. However, the default rate remains extremely low. It was 0.09% in 2021. But beware because it is set to increase in the coming years. Indeed, there are many litigation situations right now and several years pass before troubled projects end up being sold or liquidated with losses for investors. It should soon reach “an estimated level of between 1% and 2%” according to Jérémie Benmoussa, manager of the Fundimmo platform and president of the Financement Participatif France association.
In addition, there are risks associated with uncertainties about the duration of the investment. As we have seen, real estate crowdfunding is a medium-term investment that provides for a blocking period of funds that usually varies between 18 and 24 months. However, delays are relatively frequent and extend the duration of your placement. In 2021, the average late rate of less than 6 months was 4.76% and the average late rate of more than 6 months was 6.61%.
What precautions should you take to invest in real estate crowdfunding?
Given the risks, it is recommended to respect the essential rules of diversification. Not only should real estate crowdfunding represent a small part of your overall wealth, but you should also make sure you invest in different projects across different platforms rather than putting all your eggs in one basket. It will also be wise to invest in real estate crowdfunding funds that you don’t need in the medium term. In fact, plan to be able to recover your investment with several months, or even with several years of delay in the most extreme cases.
Finally, for the most risk averse, in the summer of 2021 a new type of real estate crowdfunding with guaranteed capital was launched on the Finple platform. It is now possible to invest in real estate development projects benefiting from a guaranteed invested capital. The only drawback: the yield is lower, between 3% and 4% gross, and is not guaranteed by this coverage. But this remains an avenue to explore for the most risk averse!