Real estate crowdfunding: definition

Real estate crowdfunding is an investment that allows investors to lend to real estate operators. The platform brings together project owners and investors, allowing the former to finance his operation and the latter to make his savings grow. *

The operator, the borrower, issues a bond and the investor participates in the bond issue by becoming a lender.

Real estate crowdfunding market figures in France in 2021

The real estate crowdfunding market in France is booming. Growth is accelerating every year to reach nearly €960 million collected in 2021** (+90% vs 2020). The number of operations financed through crowdfunding has exploded with more than 1,000 operations, i.e. +81% compared to 2020.
The average duration of an investment is 21.2 months with an average gross annual return of 9.21%.

How does it work?

By participating in a bond issue, the investor lends :

With an interest rate fixed in advance, typically between 8 and 12%;
Over a pre-determined period, typically 12 to 36 months.

The operator pays interest annually to its lenders and repays the capital on the maturity date of the project. This date usually corresponds to the sale of the operation.

What types of operations?

The real estate operations concerned by real estate crowdfunding are varied:

Real estate development: construction of new housing;
Development of housing, offices or shops;
Elevation of a building;
Property dealer: bulk purchase and sale by the slice;
Sale with a right of redemption: notarised deed allowing the initial seller to sell his property with a right of redemption in exchange for the return of the principal price and the reimbursement of the costs incurred.

What is the interest for project owners?

The interest for investors is clear, to make their savings grow over relatively short periods.
But why are more and more operators turning to this financing alternative?

What needs to be understood is that, just as with the purchase of a property by a private individual, banks require operators to provide a substantial equity contribution in order to obtain a loan. To do this, operators can use co-promotion which allows access to the necessary funds but is expensive for the operator: sharing the margin in proportion to the co-financed share.
Crowdfunding is a solution that allows them to complement this equity without sharing the margin.
Finally, crowdfunding allows operators to access funding more quickly, about 1 month between the request and the sending of the funds.

Related articles
- Discover Raizers
- What is a bond?
- How to invest in an operation?
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