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How to invest in real estate with the help of crowdfunding

Getting your foot on the property investment ladder can be much easier with the strength-in-numbers power of crowdfunding.

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Crowdfunding has revolutionised the marketplace, enabling entrepreneurs and inventors to launch projects that previously would have been near impossible to get off the ground. It’s also opened a new opportunity for everyday investors to play the part of venture capitalists, and get behind projects that they’re passionate about.

The practice, which, via internet platforms, raises contributions from a broad base of mostly small-dollar investors, has funded tech innovations, TV revivals and charitable causes. Now it’s moving into the realm of real estate, opening up property investment to people who may otherwise have found themselves shut out of the market.

What is real estate crowdfunding?

Like other forms of crowdfunding, real estate crowdfunding allows a large group of investors to pool their funds in order to back a project, in this case a development or investment property.

Investors buy a share of a property or development project. Depending on the type of investment, this could see investors share in rental returns, unit sales or commercial rents. The way investors make money will depend on the type of investment and the performance of the property. For some investments, such as a residential house or unit, this could be the amount of rent the property generates. For others, such as a large-scale development, it could be the eventual sale price of the property.

Investors will make money in proportion to the amount of shares in the property they own. The length of time an investment takes to generate a return can vary, but most crowdfunding platforms include a secondary market for shares. In other words, if an investor wanted to liquidate their stake in a crowdfunding project, they would be able to sell or trade their stake just as they would ASX shares.

How does it differ from regular property investment?

The main draw of crowdfunding for real estate investment is that it lowers the barrier into the market for would-be property investors. The latest home value figures from CoreLogic put the median capital city dwelling price at $580,000. Combine this with the fact that most lenders require a 20% deposit, and so getting a foot on the ladder as a property investor through traditional channels could mean more than $115,000 in upfront costs.

Crowdfunding, however, allows these costs to be spread amongst a broad base of investors. It likewise allows this broad base of investors to share in the returns. While it may seem like an uphill battle to come up with $580,000 for an investment property, crowdfunding means that 580 individuals could invest $1,000 each and then share in the rental returns or the profit generated by the sale of the property.

Real estate crowdfunding also allows everyday investors to access projects at a scale that would be otherwise impossible. Crowdfunding platforms in Australia have offered stakes in large scale commercial properties and huge residential developments along with traditional, single family, owner-occupied properties.

Property development

Another characteristic that sets crowdfunding apart from traditional property investment is the level of risk involved. An investor in a crowdfunded property does not have their name on the property’s title or on an associated mortgage, meaning their credit history isn’t impacted should the investment take a turn for the worse. Moreover, with the ability to trade or sell stakes in an investment at any time, investors aren’t tied to properties long-term.

Real estate crowdfunding also differs from another avenue for property investment, the Real Estate Investment Trust (REIT). REITs are typically complicated, publicly traded investment vehicles that have to be managed by experts, carrying with them high maintenance costs and lower rates of return. REITs offer investors a stake in a real estate company, while crowdfunding offers investors a stake in a specific property or project. This lower level of complexity means crowdfunding investors can have a higher level of control over their investment along with lower maintenance costs.

Why should I be interested?

If you’re looking to get involved in property investment but don’t have the means to save a deposit for a home loan (or simply don’t want the long-term commitment), crowdfunding could be a good alternative. It’s important to keep in mind, however, that with a smaller investment you won’t see the same level of returns you could with traditional property investment.

For those looking to follow a more traditional property investment route, crowdfunding can still serve some important purposes. First, getting involved in crowdfunded real estate projects can offer a good, hands-on learning experience in picking the right properties to maximise your investment. Second, real estate crowdfunding can often carry a higher rate of return than shares or term deposits. For would-be investors looking to save a deposit, putting your money in a crowdfunded real estate project could see it grow much faster than it would sitting in your savings account. The caveats to this, of course, is that returns aren’t guaranteed.

How do I get started?

Real estate crowdfunding in Australia is still in its infancy, but there are several platforms you can use to participate. VentureCrowd, Brickraise, DomaCom and CrowdfundUP all let individual investors buy shares in property projects. Different platforms carry different minimum investments, from $100 up to $5,000.

To get started, pick a platform with a level of investment, structure and choice of projects that suits you. Research the projects available to backers and decide which one looks most attractive to you. While most crowdfunding projects will give investors an idea of the rate of return they can expect on their investment, it always pays to do independent research on the properties or areas available for investment.

Check out investment loans from across the market

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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - Discount Offer for Investor Variable P&I Rate
2.99%
2.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner occupier, P&I)
2.49%
4.12%
$595
$0 p.a.
90%
Investors can take advantage of a short term fixed rate with no ongoing fees.
IMB Fixed Rate Home Loan - 3 Years Fixed (LVR ≤90% Investor, P&I, NSW and ACT borrowers only)
2.74%
3.59%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
State Custodians Low Rate Home Loan with Offset - LVR up to 60% (Investor, P&I)
2.74%
2.76%
$0
$0 p.a.
60%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
2.44%
3.57%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Well Home Loans Balanced Fixed Home Loan - 3 Year (Investor, P&I)
2.44%
2.76%
$250
$0 p.a.
90%
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.
State Custodians Low Rate Home Loan with Offset - LVR up to 80% (Investor, P&I)
2.90%
2.92%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
ME Flexible Home Loan With Member Package - LVR <=80% $400k up to $699,999 (Investor, P&I)
3.13%
3.57%
$0
$395 p.a.
80%
Package loan for investors making principal-and-interest repayments. Low fees and 20% deposit required.
Pepper Money Essential Prime Full Doc Home Loan - LVR >75% up to 80%
4.19%
4.38%
$599
$10 monthly ($120 p.a.)
80%
This is a competitive, flexible variable rate suitable for borrowers with a good credit history. Borrow up to 80%.
Well Home Loans Balanced Variable - LVR 90% (Investor, P&I)
2.82%
2.85%
$250
$0 p.a.
90%
Competitive variable investor mortgage to fund your property portfolio. You can add a 100% offset account for just $10 a month. Not available for construction purposes.
ING Orange Advantage Loan - $150k to $500k (LVR <=80% Investor, P&I)
3.24%
3.57%
$0
$299 p.a.
80%
Investors can enjoy a 100% offset account, a redraw facility and flexible repayments.
UBank UHomeLoan - 3 Year Fixed Rate (Investor, P&I)
2.44%
3.30%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.
ME Basic Home Loan - LVR <= 80% (Investor, P&I)
3.28%
3.30%
$0
$0 p.a.
80%
A no frills home loan for investors.
State Custodians Low Rate Home Loan with Offset - LVR up to 80% (Investor, IO)
3.15%
3.01%
$0
$0 p.a.
80%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
ME Flexible Home Loan Fixed - 1 Year Fixed Rate (Investor, P&I)
3.83%
4.97%
$0
$0 p.a.
80%
Lock in the rate on your investment loan with one year. Requires a 20% deposit.
Pepper Money Essential Prime Alt Doc Home Loan - LVR up to 55%
4.49%
4.68%
$599
$10 monthly ($120 p.a.)
55%
A competitive rate home loan with an offset facility for self-employed borrowers.
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Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

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