Curious about Real Estate Crowdfunding in Canada ?

What is Crowdfunding, exactly ?

Crowdfunding refers to pooling in resources to fund a project. You can think of it this way. A group of individuals including investors, donors and potential customers can come together to fund a project. Kickstarter as an example focuses on Crowdfunding for creative projects. Gofundme is an example of crowd-funding for donations. Crowdfunding for real estate is very similar but the project in contention is a real estate property instead. Investors can enjoy benefits of exposure to the real estate market which means exposure to a sector that a lot of Canadians might find out of reach. This blog post dwells deeper into Real Estate Crowdfunding Canada.

Why would you even consider a Crowdfunding solution here ?

A 2022 poll done by the Ontario Real Estate Association revealed that 40% of young adults (18-38) that purchased a home had help from their parents. In Jan 2022, the average price of a home increased by 25% from Jan 2021 across Canada. Prices in Toronto have gone up by over 450% since 1996.

Given this trend, young Canadians are having to move further away from their first choice of primary residence. The massive increase in average home prices also speaks volumes about unaffordability for many youngsters and low income families. House price to income ratio has gone up significantly in the past decade. Mortgages are getting bigger and current service debt ratios for many aren’t cutting it for many families. Well, this would mean that many millennials and families are not able to tap into one of the most powerful tools of building wealth.

How can Real Estate Crowdfunding be of benefit in Canada ?

Crowdfunding for real estate could be a great solution for investors looking to enjoy the benefits of this market which would otherwise be out of reach to them.

• As mentioned above, Portfolio diversification is a great benefit to investors. You could be seeking exposure to Real Estate from an all Stock/ETF portfolio.
• An investor does not need to pay down the entire down payment. Rather, investors can put down much smaller amounts.
• Ability to diversify in multiple real estate projects potentially across different national markets/cities.
• Passive Income creation based on whether your invested project generate rental income.
• No hassles of property maintenance, property risks etc. A third party or a property management company will take care of the maintenance.

In our case, we’re not confident that we’d be great landlords. Dealing with tenants, late payments, property issues can be stressful. And so Real Estate Crowdfunding Canada may be a great way to avoid all these headaches.

What are some disadvantages of Real Estate Crowdfunding in Canada ?

• Investment is less liquid, and you might have limited pre-defined opportunities when you can exit. You might end holding this investment over a long time period
• The potential upside is lower relative to owning your own physical property. The upside is shared with the company or crowdfunding platform and/or the entity maintaining the properties
• Deals could be risky compared to other investments. This is because one developer or company may be responsible for the entirety of the project. Potential Issues in project timelines, increased availability of rental in the market etc.
• Cash flow may come in slightly later depending on the type of project you invest in. A hotel or apartment complex requiring renovation may have a longer lead time.

If we were invested into a Crowdfunding platform, our biggest worry would be that the concept is relatively newer relative to traditional property investing in Canada. My question would be our next section.

Is Real Estate Crowdfunding Legitimate in Canada ?

This is a tricky one and I would strongly urge the reader to do their due diligence on individual platforms providing Real estate crowdfunding in Canada. It is important to keep up-to-date on the on the regulatory compliance of the platform. This would mean that the platform should be authorized with the securities regulations in the provinces where it does the transactions. You could also look at the reputation of the platform and the reviews of existing users. There should be blog posts or Youtube videos of existing investors. Also, important is to understand and review the Terms and Conditions of the platform. And finally, watch-out for any of the fees involved with investing or exiting the property. Also, check if you need to be an accredited investor or not prior to making your decision.

What are my options for Real Estate Crowdfunding in Canada ?

These are some options available for Real Estate Crowdfunding in Canada. A couple of the more popular ones are:

1. Addy Invest – Addy considered one of Canada’s largest Crowdfunding platform, if not the largest. Addy does not require investors to be accredited. This means that regular people can invest with smaller amounts.
2. Fundscraper – Minimum investment is higher at $5,000 and the investment time range may go from 6 months to 5 years. Their website claims that investors can make average annual returns between 7% and 12%.

A Quick Summary !

It would all boil down to your risk appetite. You maybe someone who make looking to purchase their first home and might have better investment opportunities available. If you’re looking for a shorter timeframe of investing then this may also not be for you. But this investing medium could be good for someone looking to take-on a bit of more risk. It could also work for individuals who don’t want to own physical real estate but want the exposure. You could also think of investing in REITs through your broking platform as an alternate to Crowdfunding. As with all investment mediums, please do your due diligence prior to investing.