Crowdfunding can be a good option for retail investors, but accredited investors may prefer a more sophisticated solution.
If you're looking for a relatively new way to diversify your investment portfolio, real estate crowdfunding may be a good option for you. Crowdfunding gives everyday people the ability to invest in real estate assets once only reserved for wealthy investors.
Real estate crowdfunding works by allowing investors to pool their money together to fund real estate projects or purchase investment properties. In some cases, the minimum investment required can be as little as $1. For many retail investors, real estate crowdfunding is a good option, albeit one that is often not matched with the best investment opportunities.
But accredited investors may be looking for solutions that are more diversified by asset class and geographically, with fewer limitations and higher average returns – solutions like those provided by Parvis. For many investors that usually invest in real estate projects, these solutions are better suited to their investment goals than the typical real estate crowdfunding model.
In this article, we’ll be looking at the differences between real estate crowdfunding and Parvis, outlining the benefits of these options and what might work best for you.
Definitions: Real Estate Crowdfunding & Parvis
Although the premise of pooling money together to invest in a real estate asset is the same, there are some significant differences between the crowdfunding and Parvis models.
Option 1: Real Estate Crowdfunding
This form of real estate investing is likely the most affordable and straightforward investment, given that it can be as low as one dollar, and it generally has a limit on the amount of money that a single person can invest into a single property. This makes real estate crowdfunding an appealing option for less experienced investors looking to learn about the market.
Real estate crowdfunding typically works by splitting properties up into multiple units at a specified price point. A simple example of this would be the crowdfunding of a $700,000 property that is split into 700,000 units at $1 each.
Because this type of crowdfunding has such a low buy-in and is often capped at a relatively low amount, funding large multi-million dollar projects can be difficult. As a result, real estate crowdfunding often deals with lower-cost projects and properties.
With crowdfunding, you can make money in two different ways:
- The property sells - In this case, if the property has appreciated in value, an investor can receive a portion of that increase based on the amount he or she has put into the project, plus their initial investment.
- Rental Income - In this case, an investor can receive a portion of the profit from the property net rental income based on the amount paid into the project.
Option 2: Parvis
Parvis is perfect for knowledgeable real estate investors seeking to grow their portfolio with access to high-quality projects. One of the key differences between Parvis and crowdfunding platforms is that you must be an accredited investor to invest with Parvis.
Accredited investors include:
- Financial institutions
- Registered advisors or dealers
- Pension funds
- Corporations, limited partnerships, trusts or estates having net assets of at least $5 million
- Individuals with at least $1 million in financial assets (cash and securities) before taxes. (In calculating an individual's financial assets, any outstanding loans incurred to acquire those assets must be deducted)
- Individuals whose net income before taxes exceeds $200,000 (or $300,000 combined income with a spouse) in each of the two most recent years and who reasonably expects to exceed that net income in the current year
- Individuals who have at least $5 million in net assets
For most investment offerings on the Parvis Platform, a minimum investment of approximately $20,000 is required. Having a larger minimum buy-in opens up investors to larger projects and helps ensure that the project being funded can raise the required amount of capital. Also, unlike crowdfunding, where there is an investment cap, there is no maximum investment limit with Parvis. When you invest with Parvis you are purchasing equity or debt in properties.
Breaking Down The Benefits
As mentioned, while Parvis and crowdfunding share the same fundamental framework and goals, they are still very different. Let's take a look at the benefits associated with each.
Benefits of Real Estate Crowdfunding:
Low barrier to entry: Crowdfunding allows you to enter into real estate investments at a low cost. This gives you the ability to mitigate your risk but mainly restricts an investor’s ability to invest in a high-quality project or property.
Build experience: Because the minimum investment is so small, real estate crowdfunding allows an investor to gain experience in the real estate market relatively safely. It is a good way of investing if one is looking to grow both the funds and knowledge that will eventually help level an investor up to accredited investor status. As an accredited investor, you will have access to larger, higher-value properties and opportunities.
Simplicity: Another benefit of real estate crowdfunding for individuals new to real estate investing is its simplicity. Many crowdfunding companies simply set up a corporation, divide it into a set amount of shares and use the funds to purchase a property. However, this offers very little fiscal benefits.
Benefits of Parvis:
Expert team: Real estate crowdfunding in Canada is a bit like the wild west right now. There are a lot of companies that have entered the market focusing only on the technology, without any of the actual knowledge and experience needed to attract suitable and profitable properties or developments for you to invest in.
This isn't an issue at Parvis –– our team has an extensive real estate, finance and legal background, with a depth of knowledge and experience when it comes to completing capital stacks for development projects both in Canada and internationally.
We bring the knowledge, experience, professionalism, and relationships needed to align with experienced development partners and attract a diversified portfolio of projects that offer great returns for your investments.
Better investment opportunities: Because of our accredited investor base, Parvis can attract a higher calibre of development partners. Investments at Parvis are uncapped for accredited investors, which helps assure developers that they will be able to fill the fund for larger, higher-quality developments much more reliably than real estate crowdfunding can offer.
Better returns: As mentioned above, Parvis can offer investment opportunities in higher-quality developments ––typically, this means better returns. While many retail crowdfunding companies provide returns of around 10%, Parvis is targeting an offer of 18%+ return net of fees.
Additionally, our relationships with quality developers, builders and financial institutions allow us to offer funding for larger developments with multiple phases of construction, convenient for capital partnerships within master planned communities and portfolio level development planning. This provides an incredibly attractive investment opportunity where accredited investors have the chance to invest over a longer timeline, with numerous liquidity events throughout.
About Parvis
Parvis is building the next generation of real estate investing. Our digital platform democratizes access by bringing quality real estate opportunities to more individuals. Through exclusive access to diverse, high-quality investment projects on the North American market and a user-focused, state-of-the-art platform, Parvis is becoming the go-to marketplace for real estate investing. We are bridging the gap between traditional and digital finance by offering a marketplace that automates compliance tasks, providing in-depth analytics. Get started today.
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