What is real estate crowdfunding?

Real estate crowdfunding is a form of collective financing (crowdfunding) focused on real estate. In it, multiple investors make small contributions to finance real estate projects through a digital platform that acts as an intermediary. As there are several participants, they share the risks and benefits of the financed asset with a participation proportional to their contribution.

Imagine a real estate project consisting of renovating a historic building in Barcelona to turn it into tourist apartments. Its total cost is 2 million euros. 1,000 people recruited through the Urbanitae platform participate in its financing. Each of them contributes 2,000€. The rental of the apartments generates an annual net profit of € 300,000, which is distributed among the microinverters at a rate of € 300 per head.

Homes, plots, parking spaces, premises ... Any investment in real estate can be the object of this form of microfinance. However, it is most often found in the residential sector. The contributions can fall both on existing properties and on future real estate developments.

There are two types of collective real estate investment. On the one hand, equity consists of profiting from the rental or sale of the asset (the micro-companies act as co-owners). On the other hand, in the case of debt, the interest on the loan granted to the promoter is collected (microinverters act as lenders).

Advantages of real estate crowdfunding

Real estate crowdfunding is booming. In Spain, collective investment in real estate experienced a year-on-year growth of 84% in 2023 and 71% in 2024. Such success is due to the advantages of this investment modality. Do you want to meet them?

Democratizes real estate investments

Real estate projects require the support of large capitals. Traditionally, this is a handicap for small and medium-sized investors. Fortunately, this innovative form of crowdfunding makes it possible for everyone to access the opportunities presented by the real estate market.

Of course, making a real estate investment of € 200,000 is not within the reach of all pockets. However, practically any of us can invest €500. Real estate crowdfunding is designed so that such investors can participate.

Real estate crowdfunding not only democratizes investments from an economic point of view. It also promotes geographical accessibility. Thanks to digitalization, international investors have it much easier to finance real estate projects anywhere in the world.

Allows access to large projects with little capital

If we stick to conventional financing, large real estate projects are out of reach for most of us. Consider, for example, the cost of acquiring and renovating a shopping mall (€2.5M) or building an apartment complex (€1M). However, with crowdfunding, any small saver (such as a student or a pensioner) can access such projects.

In addition to enabling access to millionaire projects, real estate crowdfunding also reduces risk. With it, we no longer need to commit a large part of our personal wealth to participate in the real estate market. This is very useful in order to familiarize ourselves with this type of investment.

It enables diversification

Any experienced investor knows that diversification is the key to a successful strategy (the losses of one project are compensated by the gains of another). Once again, this is unbearable for most of us when we talk about fully financing such expensive assets as real estate.

Investing in three properties the old-fashioned way could take us approximately € 530,000. Of course, by opting for real estate microfinance, a tenth of that amount would be enough for us to finance, for example, 53 assets or more.

Enhances transparency and control of investment

Real estate crowdfunding platforms put the transparency of investments in the spotlight. To this end, they provide detailed information about each project (risk analysis, market studies, ROI, promoter history, etc.). This makes it easier for potential investors to make well-informed decisions.

Simplifies and speeds up the realization of profits

Professional management is intimately linked to real estate crowdfunding. It is the experienced managers who do all the work (tenant selection, maintenance, insurance, etc.).

Your role as an investor is limited to receiving the profits. Consequently, real estate crowdfunding is emerging as a fast and easy way to put our money to work.

How to invest in real estate crowdfunding

After knowing all its benefits, the most logical thing is that you also want to participate in real estate crowdfunding. Become a micro-entrepreneur by following our step-by-step guide.

Learn about real estate crowdfunding

Although collective, real estate crowdfunding is still an investment. Therefore, it is essential to understand how it works (types of projects, modalities, risks and benefits, applicable regulations, etc.).

You also need to have basic knowledge about the real estate market (capital gains, depreciation, gross and net profitability, etc.). You have numerous resources to acquire that financial baggage (books, blogs, webinars, etc.).

Choose a platform

Much of the success of your collective real estate investment depends on the platform you choose. The range of options available is very wide, but not all are equally reliable. Here are some aspects that you should look at to get your choice right:

• Authorized by the CNMV (Spain).
• History (active years, completed projects, average returns, etc.).
• Transparent (provides clear and detailed information about projects, risks and promoters).
• Positive reviews from users who have invested in such a platform.

Create an account

Once you have selected the platform of your preference, you will have to create a profile on it. The registration process, besides being quick and simple, is practically identical on all platforms:

1. Fill in the registration form with your personal data.
2. Complete the identity verification (KYC) process.
3. Upload the required documents.
4. Link a secure payment method.

Analyze the existing real estate projects

The time has come to choose, among all the available real estate assets, those in which you want to invest. Read their tabs carefully to select the ones that best fit your profile:

• Modality: debt (fixed interest) or equity (variable earnings).
• Expected ROI: Compare it with the market average.
• Deadline: It must be aligned with your profile (short-term or long-term).
• LTV (Loan-to-Value): This is an indicator of the risk (it should not exceed 75%).
• Documentation (investment contract, promissory note and due diligence report).
• History of the promoter: previous experience, successes, failures etc..

Select your project portfolio

With all the information in your possession, you will have to choose the real estate asset or assets in which you are going to invest. Remember that the best investment is the one that adapts to your investor profile.

From all the pre-selected opportunities, choose those that are in accordance with:

• Your risk tolerance.
• Your time horizon and liquidity needs.
• Your financial goals and performance expectations.
• Your financial situation.

Provides funds

Now that you have made and customized your real estate investment portfolio, the time has come to finance it.

• Select the amount you want to invest in each project (respect the minimum and maximum limits of the platform).
• Make sure you review and understand the terms and conditions of the investment.
• Transfer the money using a secure method (e.g. credit card).

Monitor the investment

After investing it is important that you stay informed about the progress of the project. Remember that the updates (e.g. rent payments) will be published in the dashboard of the platform. You should be alert to possible changes to the original plan.

Get the profits

How you get the return on your investment will depend on the type of project. Your share of the profits can consist of several periodic payments (rent/loan) or a single amount equivalent to the capital gain (purchase and sale).

Plan your departure

Having your exit strategy planned out in advance will help you maximize the return on investment. These are the points to consider in order to carry out this step optimally:

• Analyze the market (so you'll know the best time to exit the project).
• Take into account the time horizon of the investment (whether it is higher or lower will depend on the type of project).
• Evaluate the available options (wait for the expiration of the project or sell your stake early).
• Consider the tax implications of leaving by consulting with a tax advisor.

Best practices to optimize your investment

• If you are just starting out, start by investing small amounts. Thus, you will get acquainted with this type of investments without exposing yourself too much.
• Invest only if the platform uses escrow accounts (the funds will be retained until the project completes its financing).
• Never invest more than you can lose. No real estate crowdfunding project is completely risk-free.
• The risk is proportional to the profitability. Projects with an annual ROI of more than 20% usually carry extreme risks.
• It diversifies between different types of assets, terms, modalities and locations. Do not invest more than 5-10% of your capital in a single real estate project.
• Reinvests the profits obtained in new real estate crowdfunding projects to capitalize on the compound interest.

Prominent real estate crowdfunding platforms

Spain has a dozen real estate crowdfunding platforms registered with the CNMV. How about if we introduce you to those who lead the sector?

Opinions and profitability in real estate crowdfunding

The average annual return on real estate crowdfunding ranges from 8% to 12%. However, depending on the type of project and the risk assumed, it is possible to obtain returns of up to 15% or even 20%. Recall that the average return on real estate investments is between 6% and 8%.

Do you still not know if real estate crowdfunding is made for you? Then, it will come in handy to know the opinion of investors who tried their luck with crowdfunding before you:

• "I participated in a residential development in Cancun via CrowdStreet. The profitability was 12%, but the project was delayed by 6 months due to permits. Even so, it was worth it" - Carlos R., 42 years old (semi-professional investor).
• "I wanted a monthly income without being a landlord. I invested € 8,000 in loans for tourist rentals in Seville with Hausera. I receive 60€ per month (9% per year). It is stable, but the returns go down if there are gaps between tenants" - Ana T., 58 years old (Passive investor).
• "I invested € 5,000 in a loan to renovate a building in Chamberí with Housers. In 14 months, I got 9% per annum. It was simple and I received punctual payments" - Laura G., 35 years old (retail Investor).

Real estate crowdfunding gives you the opportunity to participate in the real estate market without having to make large financial outlays. Did you know that at Muppy we take care of your investments so that you get the maximum return?