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Crowdfunding: An alternative to direct real estate investment


Amar NijjarThe shock from the relentless slide in oil prices is spreading ever further into our economy and financial markets, with the dollar, the stock market and bond yields all descending to new lows.  Public markets today are extremely interconnected and if China sneezes, the rest of the world catches pneumonia!  As much of the world is directly impacted by changes in the US and Chinese economy, the investments we make are subject to the risks associated with the downturn of these markets.

Unlike investments in the financial market, investments into commercial real estate properties through direct limited partnerships via crowdfunding portals can shield an investor from vagaries of capital market volatility. Here are top 5 reasons why crowdfunded real estate may be a better alternative investment to the financial markets.

Bricks and mortar: Commercial property investments via crowd funding are secured by underlying real estate unlike most of the other securities, which have intangible assets underneath them. If you invest in a plaza, you can always drive by and see how many cars are there in the parking lot on any given day!

Tenants: When investing in a stabilized real estate asset, you will have tenants in the space that are providing a cash flow to the properties income statement as well as the limited partnership vehicle based on long term contractual obligations thereby providing stable cash flow.

Easy: Commercial property is relatively easy to understand for an average investor. Tenants pay predictable rents, which form part of gross income and the landlord pays predictable expenses resulting in a relatively stable bottom line that is then available for distribution.

Management: Crowdfunding portals promote transparency. More often than not, crowdfunding portals will require a sponsor to put a minimum of 10% of their own equity into the asset(s). An average investor can take comfort in the fact that the owner/sponsor of project will often have more than 50% of the equity in the project – aka ‘skin in the game’. Prudent owners are then more likely to make sure that the property is well managed. This gives the investor confidence that their capital is being invested as claimed by the crowdfunding portal.

Scarcity: Economics 101 – invest where there is less supply and more demand. We have only so much well located land.  Investments in such projects will hence always appreciate over time.

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Amar Nijjar

About the Author ()

Amar is the Founder of R2 Capital & Investments. R2 is Canada’s leading Online Marketplace where investors can access Private MICs, Private REITs and Income Product and or Development LPs - all with the power of technology - bringing efficiencies and time/money savings into Private Capital Marekts. Amar has funded over $10 billion and underwritten over $25 billion of real estate during his career. Prior to starting R2, Amar led several senior roles at BMO, RBC, CIBC and most recently was Practice Leader and Executive Vice President at JLL (formerly Jones Lang LaSalle). He holds an MBA from York University and an undergraduate degree in chemical engineering.

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