Is Real Estate Crowdfunding Recession Proof?

NEW YORK, January 30, 2023 (Newswire.com) - A natural hedge against inflation, real estate investments can be beneficial during recessionary periods. They can provide recurring income as well as asset value appreciation. The key is finding investments offering strong cash flow potential, minimal maintenance and robust value propositions. Of course, this can also be true for alternative investments in general, such as those offered by Yieldstreet. 

So — is real estate crowdfunding recession-proof?

What Is Real Estate Crowdfunding?

Crowdfunding is a form of peer-to-peer lending in which funds are collected from a large number of people to capitalize on an investment. Applied to real estate, crowdfunding usually involves three parties. These are the sponsor or project owner (the individual or organization seeking funding), investors, and the platform facilitating an offering.  

Investors commit capital to projects in exchange for shares of ownership proportional to their investments. Compensation may be in the form of recurring income or a single specified payment. 

The platform facilitates the exchange of funds and ownership shares. It also ensures the authenticity of the opportunity and markets it to potential investors. Additionally, the platform verifies the identities of all parties and makes sure applicable regulations are followed. It also serves as a repository for investor funds and is charged with ensuring their safekeeping with a reputable financial entity.

Real Estate Crowdfunding and Recessions

Real estate crowdfunding investments often contain certain protections against recessions. Meanwhile, crowdfunding can open opportunities to invest in real estate to a broader pool of investors. Because crowdfunding pools many individuals' assets, larger scale real estate opportunities can be made available to people of more modest means. Some crowdfunding platforms require minimum investments of as little as $500.

When considering real estate crowdfunding opportunities to help weather recessionary periods, it is important to consider cash flows, risk and yield, diversification and the allocation of investment capital to recession-resistant assets. These can include farmland, rental properties and real estate investment trusts (REITs).

Farmland represents a good investment because people will always need to eat. Growing staples such as corn, soybeans and wheat can be lucrative, whatever the nature of the economy might be. 

Similarly, people will always need places to live. Recessionary times are often accompanied by decreases in home ownership. Job losses triggered by recessions can make purchasing homes difficult. This is particularly true because the Fed tends to raise interest rates in an effort to rein in the inflation that can lead to a recession. This usually increases the demand for rental properties. 

REITs specializing in those assets offer their benefits, without imposing management concerns. REIT opportunities are also available in infrastructure projects, which is a possibility few individuals have the wherewithal to fund on their own. 

Is Real Estate Crowdfunding Recession Proof?

Best thought of as recession resistant, rather than recession-proof, real estate crowdfunding does have the potential to help investors profit during a recession. Again though, the key is finding the right opportunities in which to invest.