As real estate investors, developers and borrowers continue to realize the power of crowdfunding across the country, each firm has its own unique set of characteristics which gives it a competitive advantage. Some of the firms prefer debt-based real estate crowdfunding whereas others prefer equity-based deals. The differences between equity and debt therefore are the main determinants of the business models that platforms choose to adopt. Most of the leading real estate crowdfunding firms seem to prefer debt-based crowdfunding.
…because it offers short-term investment opportunities
Patch of Land is one such real estate crowdfunding #platform that opted for debt-based financing simply because it offers short-term investment opportunities that can yield average returns of 10-18% per annum. On the other hand, in equity-based crowdfunding, the investor gets to own a percentage of the business or firm they are investing in. This is usually a long-term investment that requires time to mature.
The decision by Patch of Land to choose debt-based crowdfunding triggered several occurrences. Firstly it enabled them to achieve their objective of pooling resources together from different people, redevelop surrounding neighborhoods and earn a profit from it. Secondly, they were confident that it was the biggest, most secure and lucrative market to operate in. Thirdly, it proved to be an alternative security of a fixed return or term. The decision enabled the company to fill a gap that was faced by most construction developers- overcoming several obstacles in the funding and the loan approval processes.
…because it allows them to start receiving returns in a year’s time
Majority of investors, especially first-time investors, usually enter the real estate market to test the industry. These investors use the first investment as a pilot project and make their final decision based on the results. This makes debt-based crowdfunding more attractive to them because it allows them to start receiving returns in a year’s time. Therefore it becomes easier for crowdfunding platforms to attract investors, raise funds and provide developers with the required money to develop or redevelop properties. At the end of the day, they play a key role in developing communities, creating employment and boosting the economy.
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