Investing in real estate online is possible in the digital era. Investors have many options for their portfolios as online real estate investors.
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Real estate is a tangible asset, but investors have several online options to invest in this massive asset class.
Real estate investing doesn’t have to turn you into a landlord, and you can even harness the power of blockchain technology to enhance your online real estate investments.
If the idea of investing in and managing an online real estate portfolio is appealing, then keep reading. Find out what it means to invest in real estate online, along with the major pros and cons of this approach to the real estate market.
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Online real estate investing refers to investing in real estate opportunities that are available through an online platform or fund. Online real estate investing generally does not result in physical ownership or custody of a specific property or properties.
Investors can access both primary offerings and secondary markets online to invest in real estate. Blockchain technology can support real estate offerings that resemble traditional private placements, in addition to secondary markets that can create liquidity for online real estate investors. Traditional fund structures can enable online real estate investing that resembles investing in stocks or bonds.
Real estate investing online can be for commercial real estate or residential real estate, but is often focused on commercial properties. Commercial real estate opportunities are often rental properties with strong cash flow characteristics. Many online platforms support commercial real estate and other types of rental properties.
If you want to invest in real estate online, then you have a few options. Keep reading to understand the various ways for online investors to gain portfolio exposure to real estate.
Investors can use traditional online platforms that crowdfund real estate. While the crowdfunding model can be applied to many different types of projects and assets, many crowdfunding sites are designed specifically for real estate. Real estate crowdfunding platforms frequently focus on commercial real estate such as multifamily rental properties.
Crowdfunding works by bringing a “crowd” of individual investors together to fund a project or asset, which can be a specific property. Traditional crowdfunding platforms are centrally managed by a private entity, which investors are obligated to trust in order to access the platform’s real estate offerings.
Crowdfunding fractionalizes real estate offerings, making real estate accessible to more investors by lowering the required investment minimum. Traditional crowdfunding platforms, including for real estate, are challenged to efficiently manage and communicate with large numbers of investors.
Another way to invest in real estate online is to purchase shares in a real estate investment trust (REIT). REITs are a type of fund that directly own income-producing real estate, such as apartment buildings, hotels, office buildings, and warehouses. Investors in REITs are directly paid a share of a fund’s income in proportion to their investment in the REIT.
REITs may be publicly traded like stock on an exchange, or may be non-traded, private REITs. Investors in REITs may pay low to no fees, depending on the type of REIT and brokerage fee structure, or may pay substantial fees to a private REIT manager.
REIT investors can choose a real estate investment trust with a specific focus area, like multifamily housing, but do not have the flexibility to select specific real estate investments. REIT fund managers develop and manage a REIT’s portfolio, and oversee the distributions—usually quarterly—of the REIT’s income.
A real estate fund is an exchange-traded fund (ETF) or mutual fund that invests in real estate companies, including REITs. Whereas REITs pay out rental income to investors, real estate funds generate value by investing in high-performing real estate enterprises. Investors can buy shares in real estate funds as another online way to invest in real estate.
Real estate funds can be actively or passively managed. Actively managed funds are professionally guided by investment managers, whereas passively managed funds typically track a specific index such as the MSCI World Real Estate Index.
The fees for actively managed real estate funds are generally higher than the fees charged by passive fund managers. ETFs are more frequently passively managed and have low fees, while mutual funds typically charge higher fees for active management by professional investors.
Investors can add real estate to their portfolios by investing in tokenized real estate. Online platforms like HoneyBricks that tokenize real estate use blockchain technology to issue and support real estate tokens, which digitally signify fractional ownership in a specific property.
Tokenized real estate can combine the benefits of traditional crowdfunding for real estate with the efficiency, transparency, and security of blockchain technology. Leveraging blockchain tech can enable a real estate tokenization platform to easily manage and communicate with large numbers of investors, in addition to supporting a secondary marketplace for the liquid exchange of real estate tokens.
Real estate tokenization platforms like HoneyBricks don’t issue proprietary tokens, but rather enable professional real estate sponsors to tokenize their offerings. Real estate token investors can easily diversify their real estate holdings by buying and selling real estate tokens whenever they wish (after an initial holding period). Most tokenization platforms pay regular returns to investors, and collect a fee as a percentage of the income generated from a property.
Investing in real estate online has both perks and drawbacks. Let’s dig into some of the major pros and cons of online real estate investing:
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HoneyBricks has helped thousands of investors learn and invest in real estate through security tokens and in this video - hear from Andy Crebar, co-founder and CEO of HoneyBricks what you should look for in online platforms.
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Online investing in real estate can be appealing to investors who want the benefits of real estate ownership without the hassle of physically caring for property. Investors have many options to invest online in real estate, although they should be prepared to pay investment fees for the convenience of professional management. Investing in real estate online is not riskless, which is why every investor should do their own research—and plenty of it—before allocating any money.
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