Investing in real estate is one of the most exciting and profitable investments in the world. Everyone needs a place to call home, or a place for business. So, naturally the demand for properties is always there. With the world’s population growing at around 83 million per year, real estate values are bound to increase as well. However, investing in property also involves a lot of capital and insight. So, let’s talk about the pros and cons, and also highlight the alternatives to becoming a real estate investor.

What are the pros and cons of being a real estate investor?

In most cases the greatest advantage of investing in real estate is the almost guaranteed capital growth. It’s an exciting business sector, and all forms of properties are always in demand. But like with any investment, you can expect some downsides and risks as well. No investment comes 100% guaranteed, but real estate investments definitely come close.

Pros:

• Low risks with low volatility
• Monthly cash flow
• Capital growth
• Chances of increasing profitability

Cons:

• High entry barrier
• Resource intensive
• Time consuming

Focusing on the positives

Investing in real estate means low risks with low volatility. For example, with Reinvest24 you can invest your money now and enjoy passive income immediately. Our average Total Combined Return: Net Yield + Capital Growth is 14.6%, based on all exited projects. Low risk, but with high reward. You can also enjoy a monthly cash flow by choosing to invest in rental properties. Did you know that the gross rental yield in Estonia is one of the highest in Europe? 

Furthermore, you can always rely on capital growth in the long term. Real estate prices always rise. It’s a fact. The great thing about real estate is that it will always grow in value. You also have chances of increasing profitability even further by using leverage. You can apply for cheap bank loans and credit to partly finance your real estate investment.

Highlighting the negatives

One of the greatest disadvantages of investing in real estate is the high entry barrier. When it comes to big development projects, it’s usually a very exclusive game. The more attractive the property, the harder it will be to invest in it. Becoming a real estate investor is also very resource intensive. It’s not all about money. You also need support from real estate experts, notaries and construction companies.

The amount of energy, effort and manpower that goes into real estate is overwhelming. It’s a very time-consuming process. You will need to search for tenants, take care of maintenance and undergo any necessary renovations. You also need to pay attention to all the legal matters, including contracts, permits, licenses and permissions. Not so passive anymore, right?

What alternatives are there to investing in real estate?

So, you like the idea of becoming a real estate investor but the above makes you wonder if there’s another option that doesn’t quite include so many (complicated) disadvantages. You’re right, there are some other alternatives that let you enjoy the perks and lessen the downsides of investing.

Dividend stocks

Dividend stocks can grant you passive income, but you need to be knowledgable. To successfully invest in real estate through dividend stocks you need a deep understanding of the market, mixed with a higher-than-average risk tolerance.

Crowdfunding

Crowdfunding is an excellent way of investing into something big, together with the help of other investors. When it comes to crowdfunding in real estate, you can expect a good yield but your risk is also higher than with average real estate investments. Many real estate crowdfunding platforms actually mediate loans.

In other words, when you invest to finance a real estate development project, you’re actually investing in the company and not in the property itself. Furthermore, investment periods are usually fixed, and when investing into short-term loans you have to constantly stay on top of new opportunities to make sure your capital is producing the right results. This requires a lot of time and energy when it comes to due diligence and research.

Reinvest24

Reinvest24 is a unique real estate crowdfunding platform in Europe. Our team includes finance, IT and real estate professionals with many years of experience. Our platform doesn’t mediate fixed-term loans. Instead, we provide everyone the opportunity to invest in attractive real estate, benefiting the same way as owning a percentage of the property. We invest in rental properties with the goal of creating passive monthly income for all our investors.

You can become a real estate investor by investing as little as 100 euros. In addition to the passive income from our monthly rental yield, your invested capital is directly tied to the real estate itself. This means you also earn profits from the increase in value of the property over time, especially when it gets developed. Furthermore, when you invest in a real estate project with Reinvest24 you get shares, which you are free to sell on the open market at any time.

Become a real estate investor today

Investing in real estate is a profitable business. But it involves a lot of blood, sweat and tears (as well as capital). However, the good news is that these days you can also become a real estate investor and enjoy passive income by simply investing in properties through crowdfunding investment platforms like Reinvest24. Start investing in real estate today, explore our exciting investment properties!

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By simply entering ‘real estate crowdfunding’ into Google, you will find millions of results. What you won’t find so easily is a clear, straightforward explanation as to what type of real estate crowdfunding each individual real estate investment platform offers. The main difference is that most platforms mediate real estate backed loans, whereas only a few offer real estate equity. So, let’s explore the main differences between crowdfunding loans vs real estate equity.

Loans vs real estate equity

The majority of real estate investment platforms are in the business of mediating loans. This means that your investment (the money you invest) gets put into a company, rather than the property that company is investing in. Other unique platforms, like Reinvest24, however, provide real estate equity, which is the similar to owning a percentage of the property you invest in. The latter will provide you with much more sustainable, high-yielding results, such as a monthly cash flow from rent.

Exploring the good and the bad of loan financing

Real estate backed loans, also known as real estate debts investments, are investments into, well, debts. Your money is destined towards a loan, taken by a company, to make an investment in a real estate project. When investing into loans, you’re essentially acting as the lender. Since these are usually short-term investments, you have various pros and cons. The main pro includes a shorter hold period, which means you’ll know exactly when you’re going to receive your returns and how much. The main con, however, is that you’re investing in somebodies efforts to earn profit rather than the potential value of a property. 

Pros

• Easier to find clients, who want a loan (more projects, more often)
• Shorter hold period (fixed investment periods)

Cons

• Developments depend and rely on other projects (if one project fails, it can jeopardise the others)
• Fixed investment periods (your investment period is capped) 
• Higher risks (what will happen when crises hits the market, or loan taker defaults) 
• Return relies on the company/loan taker (rather than the value of the property)

Investing in real estate with real estate equity

Investing in real estate equity, which is what Reinvest24 offers, provides the same benefits of owning a property. In this case, you’re acting as a shareholder, receiving both short-term and long-term profits, especially when dealing with rental properties. For example, you will enjoy monthly returns from rent, as well as any rewards received from capital growth when eventually exiting your investment.

The biggest pro would include not having a limit on your return, which means more money in the long run. The biggest con, when it comes to real estate equity is that it’s a long-term investment, which means it takes time and patience to obtain greater returns. 

Pros

• Same benefits as owning a percentage of the real estate (you own shares in the property)
• Passive monthly income (short-term profits from rental yield)
• Lower risk
• Access to exclusive property deals (you own part of a property you otherwise couldn’t invest in)

Cons

• Limited selection of properties (time-intensive investment which means less projects)
• Long-term investments (higher returns are obtained during longer periods)
• Property management (resource intensive, although Reinvest24 takes care of it)
• Slower payout (selling shares and receiving profits from capital growth can take time)

Which type of investment is riskier? 

When comparing the risks, investments into loans mean that the development stages depend on a number of things. You need to take into consideration the financing, the loan taker’s (and such platform’s) other projects and all the due diligence that goes into making a geared investment through a crowdfunding platform.

When it comes to collateral, crowdfunding platforms that mediate real estate backed loans don’t always offer the property as guarantee and even if they do, the value is often a future estimation of it’s price. This means, if the loan defaults, the actual amount of monies recovered will depend on the progress of development works.

Recent announces of default of rather big lending companies on the market confirms, that the declared value of collateral is almost always lower than the actual loan. If it would be the other way around, then the loan taker could easily finance himself via bank loans and on better terms in most cases.

On the other hand, crowdfunding platforms that offer real estate equity always back your investment with the same property you are investing in as collateral. In Reinvest24 we always evaluate all potential risks of each property.

Investing in properties is safer than financing loans

When you invest in rental properties with real estate equity, you benefit from rental yield on a monthly basis. This source of passive income is key to creating long-term wealth as it will withstand market fluctuations, ensuring a better cash flow. For example, at the peak of the last housing crisis in 2008-2009, the real estate prices in Estonia dropped up to 50-60%. Meanwhile, rental prices remained more stable, dropping only around 10-15%.

The fact is people still need somewhere to live, regardless of the economy. So, even if banks aren’t granting loans and there’s a decrease in real estate buyers, there will still be a solid rental market with tenants needing a place to call home. Rental income will ensure you endure and survive a market downturn, at least until real estate prices get back on track. Overall, the long-term price growth of properties for the past 15 years has been above 300% (housing crises period included). 

Properties provides cash flow and long-term wealth 

Even if there’s another housing crisis, investing in rental properties will still generate a healthy monthly cash flow while you wait for things to recover. And eventually, the real estate market always does. So, in terms of long-term returns on periods over 10 years, the market growth is still estimated to be at least 6% per year on average. This estimate includes the next real estate market correction period. When your long-term real estate investment provides rental yield, combined with capital growth, you are bound to receive great returns, with relatively low risks.

In comparison, when investing in loans, the next market correction or housing crises will leave the developers who are taking the loans in a sticky situation with interest rates over 10% and platform fees over 4%, and no rental yield to reward investors. If the developers are unable to sell their real estate, while paying an expensive mortgage with high interest, your returns are in jeopardy. Hence, the potentially high rewards come with high risks.

Get rich quick or get rich for life?

In terms of liquidity, investments into real estate equity can provide you with both long-term and short-term returns (especially when dealing with rental properties). You’ll even enjoy monthly rental income when the market is down. However, compared with investments into loans, it may take more time to enjoy your profits, as your returns will come from long-term periods, which is more sustainable if you’re looking for long-term wealth. In comparison, investments into loans are generally faster since they are short-term investments with fixed periods.

Should I invest in loans or real estate equity?

In conclusion, investing in rental properties will grant you a monthly cash flow to withstand any storm, and the real estate market eventually always recovers. However, when it comes to real estate loans, the investment can become a risk. Many loan takers and developers will never recover from a market correction, especially when using expensive high-interest loans for fast real estate developments. Investing into the loan deal can hold a huge risk when the market is not stable.

If you would like to invest in real estate through a crowdfunding platform that provides real estate equity, take a look at Reinvest24. We are a unique real estate investment platform based in Estonia. Our properties have been providing a total combined return of 14.6% per year, with encouraging projections for 2019. If you would like to start receiving monthly passive income, invest in real estate today, starting from 100 euros. Discover our high-yielding rental properties.

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