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Real Estate crowdfunding in Australia seems like a spectacular idea. Australia is probably one of the last great frontiers for Real Estate Crowdfunding. Most parts of the world already have Crowdfunding Real Estate in some shape or form. Australians love property and are 3 times more likely to invest in property than an American. Everyone seems to be in on the property game in this country yet there are quite a few who are locked out as they do not have sufficient capital to invest and enter the property space.

A Real Estate Crowdfunding platform that allows you to invest small amounts and invest in specific projects of your choice is a winning idea. But it comes with a host of challenges.

First is obviously the regulation, under currently law you can only raise upto 2 Million from 20 retail investors and make only 20 offers in a year. And there are significant restrictions around promotions. If you want wholesale investors to participate in your project funding you are kosher, but the fact of the matter is that wholesale investors do not have any shortage of investment opportunities being presented to them. They can do everything that a crowdfunding site can claim to do themselves and remove any middle men in the process. A crowdfunding site for wholesale investors only doesnt make any sense for the simple reason wholesale investors do not care for crowdfunding.

Crowdfunding is a retail investor play. Which is why at www.estatebaron.com we have partnered with the right compliance partners to ensure that the opportunities listed with us are open to unlimited number of retail investors. A full Public Disclosure Statement has been lodged with ASIC. Estatebaron is the only real estate crowdfunding platform in Australia open to all retail investors.

The second issue is if you are going to offer people the opportunity to invest in a house then the essential offer is to invest in the capital growth and the rental return. But there is a significant amount of paperwork that goes into making an investment offer possible and the cost of compliance means that the a couple of percentage points are knocked off the return. Assuming a capital growth rate of 6 to 7% and a rental yield of 4.5% the inhand rental yield comes to just above 3 to 3.5% and capital growth is meaningless till the house is sold. 3 to 3.5% is better than the cash rate a bank would offer but not enough to get even a retail investor out of bed. Most crowdfunding platforms are learning this the hard way that people want to invest in property online, but they also want strong returns.

Which is why at www.estatebaron.com we also offer access to invest in Development projects, these are the kind of exclusive deals that were previously limited to wholesale investors only. Now investing at EstateBaron.com you can pick and choose the projects you want to participate in. Generally development projects run anywhere between a year to four years and can offer profits around 20%. But an investor must look at the offer documents for the specifics of a deal. In the next post we will look at the checks and balances we have built to ensure that Investor interests are secured and the deals that are presented are only of the highest quality.

One other thing that we missed in the last article was a crucial piece. When Australians start investing in property, leverage is a key factor in the path to creating a Real Estate Empire. Most people start with a home, then after paying down the mortgage for a few years and once sufficient Equity has been accumulated they draw down a portion of it by taking a loan against it and then invest in putting a deposit against the next property. Most banks think property is a safe asset and are willing to loan upto 80-90% of its value.

The big idea of Fractional Property investment and even Real Estate Investment Trusts looses out of steam because it is a financial investment and most banks dont view it the same as owning a house. Which means that leverage is out of the picture. With the option of drawing down equity out of the window the premise of potentially negative cash flows and very low rental returns suddenly seem like a dead duck in the water.

Which is why we at www.estatebaron.comwe also allow the option to invest in Development projects themselves. There are essentially two ways to invest in a Development project. One is Debt and the other Equity.

Most Development projects get a large portion of their project funded by banks and the remainder is funded by private money or second mortgage capital. If a crowdfunding site provides funding in place of a second mortgage then the returns after the platforms fees are going to be 6% to 12% per annum. This is a decent return for retail investors but second mortgage has little security. An early stage crowdfunding platform may not always have the capability to litigate for rights for years in case a project goes bust.

So if you are going to take a risk, why not get the commensurate returns for it in the form of an Equity position where you get rights to share in profits. However the risk is that profits are what is left from revenues after expenses. You can always have a shady Developer/Builder claim thousand dollar door knobs and leave nothing in profits to be shared. It will take only one bad actor to destroy the credibility of the platform.

In addition most Developers want certainty in funding. They put deposit and then they want to know that they will receive funding else its their neck on the line come settlement. While in the US projects get filled in hours, the depth of market in Australia or awareness of the concept is minimal. Guaranteeing funding is not possible in the early days of a crowdfunding platform.

So what is the solution to all of this? Well, we will finally have an answer in the next article!