Crowdfunding Real Estate Income

Income-Based Real Estate crowdfunding is the new opportunity to invest in already leased properties, offering stable returns previously accessible only to professionals. Unlike real estate development deals, it focuses on managing existing properties, eliminating permitting and site risks and reducing overall risk. It is an ideal solution for those who want a source of stable, passive income without having to deal directly with property management. Let's look below at the main features and advantages of this type of investment.

What is Income-Based Real Estate Crowdfunding?

Income real estate crowdfunding is based on the purchase and management of properties that are already leased. Investors purchase a share of the capital needed to acquire the property and, in return, receive a portion of the income generated by the company that receives the rents. In addition to managing the property, the developer usually has the goal from the fifth year onward to sell the property, thus also offering investors additional income from the capital gain.

Advantages of Income Property Investment

• Passive and Stable Income: the cash flow generated from rentals, once costs are deducted, generates a profit on the balance sheet of the company managing the property. This profit is distributed to its members in the form of an annual dividend.
• Passive Investment Management: the management of the property is entrusted to a specialized company that handles all operational activities, including maintenance and rent collection. Mamacrowd works with operators who have long experience in the field and a proven track record of reliability.
• Accessibility and Diversification: operations of this type were historically reserved for industry professionals and large investors. Mamacrowd allows its investors to participate even with smaller amounts.
• Risk Reduction: compared to real estate development transactions, which have a shorter duration but incorporate permitting and site risks, income transactions can be considered lower risk, over a medium-term time horizon.

How do you make money in Income Real Estate?

• Annual Dividend: Income generated from rentals is distributed to investors, guaranteeing them an annual return. The yield can vary depending on the type of property and market conditions.
• Capital Appreciation (Capital Gain): in addition to rental income, the income investment generates a gain from the revaluation of the property, and investors receive a proportionate share of the capital gain generated from the sale.

The return is measured by theIRR (Internal Rate of Return, or Internal Rate of Return), which represents the annualized return on the investment and takes into account both rental income and capital appreciation.

Exit mode

• The project developer's main objective is to generate an early exit for investors through the sale of the property in the years prior to maturity, typically starting in the fifth year.
• the promoter typically provides a number of early exit "windows" (e.g., at the third, sixth, tenth year), with repayment of principal and an increasing return based on the length of time in the investment. This mechanism is usually through put options that allow investors to sell their shares back to the promoter itself before the term.

Risks of Income-Based Real Estate Crowdfunding

• Rent Risk: The cash flow depends on the constant occupancy of the property. This risk is mitigated by the quality and stability of the tenant.
• Capital appreciation: the increase in property value over time is subject to fluctuations in the real estate market.
• Liquidity: the duration of these investments is generally between 5 and 10 years and includes predefined conditions for those who wish to liquidate their share early.

Conclusions

Income-based real estate crowdfunding is an advantageous choice for investors seeking a stable cash flow and medium-term diversification strategy. With passive management and regular returns, this formula is especially appealing to those who want to build passive income without being actively involved in property management with lower risk than development deals.