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What is real estate syndication?
In a real estate syndication, some investors form a group and pool their money to acquire a property they are interested in. The sponsors will buy and manage the property for the investors. The investors will receive interest at the end of every year, and after the syndication is over, the investors will receive the amount they had invested at the beginning. This type of investment is temporary and is primarily of about 5 years.
What is crowdfunding?
Crowdfunding means when many investors pool their money in a specific upcoming company. Crowdfunding is very similar to real estate syndication, but in real estate syndication, an investor receives money at the end of every year. While in crowdfunding, investors receive equity in the company they had invested in. This type of investment is gradually long-term.
Here are some of the advantages of investing in real estate syndication:
- Real estate syndication is affordable and less expensive because many investors invest their money in a single property.
- The property you are investing in is usually large because many other investors are investing in it too.
- You can earn money as a passive investor for a long time because real estate syndications are mostly 5 year-long investments.
- You don’t have to worry about maintenance and repair costs because you are a passive investor, and the sponsors handle and manage the estate.
Here are some of the disadvantages of investing in real estate syndication:
- You cannot exit the syndication and take your money back whenever you want, like crypto and stocks.
- Every investor will receive a different amount of money based on the amount they had invested in the syndication.
- An investor has no control over the estate because they are a passive investor.
- The sponsors will be more benefited than the investors at the end of the syndications.
Here are some of the advantages of investing in crowdfunding:
- Investors can experience the real estate market at a very low cost because crowdfunding involves many investors at once, which makes it affordable for every investor.
- Crowdfunding is usually reward based; therefore, there are chances that the investors might receive a product of the company they are investing in.
- There are options for choosing which real estate an investor wants to invest their money in.
- It is easy for an investor to invest money in multiple crowdfunding platforms.
Here are some of the disadvantages of investing in crowdfunding:
- The investor must be a US-accredited investor; therefore, it makes zero or no chance for foreign investors to invest in US crowdfunding platforms.
- For a company that started crowdfunding but didn’t reach its goal, they have to send the money back to each investor.
- Starting a company with the help of crowdfunding often damages a company’s reputation, and these companies also sometimes face backlash for it.
- The risks involved in crowdfunding are the same as investing in real estate because if anything goes south, the investor will have to face losses.
FINAL VERDICT
Both real estate syndication and crowdfunding are risky but rewarding. It depends upon an investor’s strategy and knowledge from which he will be safe without losing money. Therefore, it is necessary for an investor to do some research and study the market thoroughly before doing any investment.