Real estate crowdfunding, also called real estate crowdfunding, is a particular type of crowdfunding that allows investors to finance real estate-related business projects. Platforms that allow investing in real estate can be of different types.
· Equity crowdfunding platforms are those (such as 2meet2biz.com) on which users subscribe to venture capital shares of the company owning the entrepreneurial project;
· Minibond platforms (such as debt.2meet2biz.com) are based on the issuance of alternative bonds - mini-bonds, in fact - by real estate companies.
There are also hybrid platforms that use both systems.
In turn, real estate crowdfunding projects can be divided into:
· Buy to Sell: acquisition of one or more existing building/real estate areas with subsequent construction/renovation in order to sell the structures;
· Buy to Let: acquisition of one or more real estate properties that are brought into income by renting, in some cases after being renovated;
· Rent to Rent: the company rents one or more structures, which are then sublet.
All these operations generally allow shareholders to receive dividends with a frequency that may be annual and/or spread over several years.
The real estate crowdfunding market in Italy
According to data published by Walliance and the School of Management of the Milan Polytechnic, as of July 2021 there were 178 active platforms worldwide, of which 36 in the United States and as many as 100 in Europe.
The real estate crowdfunding in Italy since the first platforms began operating at the end of June 2021 has raised a total of 157.87 million euro spread over 469 campaigns, of which 90.43 million in lending and 67.44 million in equity crowdfunding.
There are 18 platforms currently operating in real estate crowdfunding in Italy, 4 of which are in equity crowdfunding and the other 14 in lending crowdfunding. Real estate crowdfunding inflows really jumped in the second half of 2020, with 39.4 million collected and an increase in the flow in the first half of 2021, when the 46.5 million threshold was touched. However, we are still far from the exploitable potential.
While in the UK and the US the market has already exploded, in Italy it is an emerging sector. The growth potential of real estate crowdfunding in our country is based above all on three principles. The first is linked to the legislation that has opened equity crowdfunding not only to innovative SMEs but to all SMEs in general. This means that now all small and medium-sized enterprises can apply for capital through equity crowdfunding. The second is linked to the fact that in Italy, the real estate market and investments in the sector are timidly restarting, while the third is due to the potential offered by new foreign business models that are still little known in Italy and that can also be introduced in our country.
How much does real estate crowdfunding yield
As with most financial instruments, the yield of real estate crowdfunding investments cannot be confirmed in advance. It depends, in fact, on variables and estimates specific to each individual project.
There are basically three indicative monitoring parameters:
· The time, expected for the realisation of the project. Usually given in months, it describes the chronology of the project itself;
· The ROI (Return on Investment), i.e. the percentage of interest expected to 'return'. In Italy, the average value of this index is expected to be between 7 and 12%;
· The ROI for the year, because sometimes it is worth considering the advantages of investing in long-term projects (e.g. 24 or 30 months). When a company completes construction and sells flats or offices, the profits are redistributed to investors.
As always, the more you invest, the higher the returns will be. However, it is also important to diversify the portfolio, i.e. to spread one's capital over several projects. This certainly decreases the risk and increases the likelihood of higher profits.
Real estate crowdfunding investments are also financial investments, so any profit will be taxed at 26% in the case of investments through platforms regulated by Consob and between 23% and 43%, following the Irpef rates, if the entity is Italian but not authorised.
Will 2023 be the year of real estate crowdfunding?
Globally, the possibility of financing specific projects through online platforms has revolutionised the real estate market and allowed even small investors to participate in these alternative finance instruments.
The main advantages of real estate crowdfunding investing can be summarised as follows:
Accessibility: Real estate crowdfunding makes real estate investments accessible to a wide range of investors, including those with a low risk profile or a small investment budget;
Diversification: investors can diversify their investments through real estate crowdfunding, putting money into a variety of real estate projects, instead of focusing only on a single property;
Transparency: real estate crowdfunding platforms provide detailed information about real estate projects and their developers, allowing investors to make informed choices;
Potential returns: real estate investments can produce high returns, both in terms of passive income and appreciation of property value.
With due attention to real estate bubbles, some asset managers point out that real estate investments can be effective in fighting inflation.
An interesting boost also comes from sustainable construction. Green' buildings, in fact, are becoming increasingly popular and are set to shape the future of the sector, also through alternative finance tools such as crowdfunding. It should be noted, then, that in Italy real estate crowdfunding aimed at revitalising small towns scattered along the peninsula is having some success.
A final frontier is represented by real estate investments in the virtual world and the metaverse, investments very much linked to NFT and blockchain technology.
These reasons, added to the fact that the sector is constantly evolving and open to new possibilities for growth, lead us to say that 2023 could truly be a golden year for real estate crowdfunding in Italy.