By Manuel Cornejo | Bricksave
April 06, 2024
News > Blog Article > Maximising returns: top strategies for real …
Crowdfunding has made investing in real estate more accessible and affordable for everyone, allowing everyday investors to own a share of residential properties in different parts of the world while achieving a healthy return on their investment.
But even so, it’s still important to understand how different strategies can help you maximize the benefits of a real estate crowdfunding investment, without experiencing some of the pitfalls new investors can sometimes face. If you want to know where to start, here are two key strategies that work well for investors: diversification and compound growth.
Diversification is about spreading risk across different assets. In the context of real estate crowdfunding, this means not just investing in multiple properties, but ensuring these investments are varied by property type and location. The logic is simple – you don’t want to “put all your eggs in one basket”, so you diversify by owning several different investments, helping to ensure that if one investment is disappointing, the impact on your overall portfolio is relatively small.
Why is diversification important in real estate? Simply put, no two properties or locations are alike. The real estate market is influenced by various factors, from economic trends to local regulatory changes. For instance, while the residential property market in one highly desirable area could be booming due to housing shortages, another area could be proving less popular right now, but demand is expected to pick up in the future. By casting a wider net and investing in different cities or regions, investors can shield themselves against the short-term ups and downs associated with the property market.
It also pays to own investments in properties where the returns you can expect to receive behave differently. Some investments might offer substantial rental yields with little potential for capital appreciation, such as properties in certain areas of Chicago, while others in places like Miami or New York may promise significant capital appreciation but lower rental income. Having a healthy balance of both can help investors to get the best of both worlds, achieving consistent income as well as long-term capital growth.
Another important investment strategy that can be applied to real estate crowdfunding is the use of compound growth, or compounding. The concept is very simple, and easy to apply. Instead of taking the earnings from your investments and pocketing them, you use those earnings to increase your investment. This reinvestment cycle lets your initial stake balloon in ways that straight-line growth can never match. It’s the investment world’s version of a snowball effect: as your investment continues, and you keep reinvesting your earnings, it gets bigger and bigger, because you’re earning interest on interest.
One of the advantages of this approach is that it doesn’t take any effort from you at all. You just need to keep putting the returns from your investment back into more crowdfunding opportunities. This helps to increase the diversification of your real estate portfolio, because you can keep adding new investments in new properties, without resulting in another up-front investment outlay.
This strategy is really a game-changer for anyone hoping to build an impressive real estate crowding funding portfolio over time without having to start from scratch to finance each investment upfront.
So, how do the investment returns multiply? Let’s say, for example, that you invest $1,000 in a real estate crowdfunding project with an annual return of 5% and choose to reinvest the earnings each year. Reinvesting your first year’s return means your total investment has increased to $1,050. In year two, you earn 5% on $1,050, which means your investment has already grown to $1,102.50. Each year, you earn 5% not just on your original $1,000 but also on the returns reinvested from previous years, so by year ten, your original investment has expanded to around $1,628.89. This shows why compound growth is so useful – it means the total return from your investment will far outstrip what you would have earned if you had taken out the 5% each year.
Of course, one of the advantages of crowdfunded investments is that you don’t have to just increase your investment in the first property you bought. Through Bricksave’s digital wallet, where all your investments are securely stored, you can take your earnings and reinvest them in different residential projects, opening up more diversification opportunities.
Every investor wants to get the best possible return for the money they choose to invest – the biggest ‘bang for their buck’. When thinking about real estate crowdfunding investments, the two strategies of diversification and compounding stand out as powerful tools for investors who want to own a portfolio of investments but also want to maximize their investment returns while minimizing the risks involved.
Start maximising your returns today.
However, no investment strategy is fool-proof, which is why investors need to partner with a crowdfunding platform like Bricksave that not only provides access to a diverse range of real estate investments but also gives investors the reinvestment options they need to make compounding and diversification work for them.
Investing carries risks, including loss of capital and illiquidity. Please read our Risk Warning before investing.
