Real estate crowdfunding in Canada

Real estate crowdfunding in Canada

Looking to invest in the property market but don't have enough money to go it alone? Money.ca explains why real estate crowdfunding may be the answer. With the rising cost of housing in Canada, there's no doubt that property can be a lucrative investment. However, the problem for many Canadians is that, while they have some funds to invest, they simply don't have the large amount required to buy a property on their own.

Crowdfunding essentially democratizes access to real estate by allowing individuals to pool their resources and collectively invest in high-value properties. Whether you're a seasoned investor looking to diversify your portfolio or a newcomer eager to give real estate investment a try, crowdfunding offers a unique opportunity. In this article, Money.ca explores what real estate crowdfunding in Canada is about so you can decide whether it's the right investment for your needs.

What is real estate crowdfunding in Canada?

Real estate crowdfunding in Canada is when a group of individuals pool their money together to invest in real estate properties that they would otherwise not be able to afford if they had to invest on their own.

This way of investing gives smaller investors the chance to participate in larger real estate deals that would potentially cost millions of dollars. By leveraging the collective funds of multiple investors, online crowdfunding platforms can make it easier for Canadians of more modest means to build wealth by investing in residential, commercial, and industrial properties across the country.

It's important to note that the amount you earn from your investment is entirely contingent on how much you put in—your profits are based on what percentage you invested.

Is crowdfunding legal in Canada?

You may be new to real estate crowdfunding in Canada, so it makes sense to wonder whether or not it's even legal. The answer is that crowdfunding real estate in Canada is indeed legal, but there are some strict regulations (which are created and overseen by the Canadian Securities Administrators) to control how crowdfunding works.

Crowdfunding legislation in Canada

The Canadian Securities Administrators oversees crowdfunding in Canada to ensure these platforms comply with securities laws (note that the laws govern crowdfunding in general, not just real estate crowdfunding). These regulations are designed to protect investors and maintain the security and legitimacy of the investment market in Canada.

Here are some examples of the key rules concerning crowdfunding in Canada:

• Non-registered and non-licensed platforms are prohibited from operating in Canada, which ensures that only legitimate and compliant platforms can offer investment opportunities.
• Companies can raise up to $1.5 million in a year through crowdfunding (instead of the previous limit of $500,000).
• Each individual investor can only offer $2,500 per deal. Additionally, if a registered dealer confirms the suitability of the investment, this limit can be further increased to up to $10,000.
• The Canadian crowdfunding regulations clearly require real estate crowdfunding portals to specify the minimum amount needed for a project to succeed. If this minimum amount is not reached, the funds must be returned to the investors.

Top real estate crowdfunding platforms in Canada

Despite the fact that crowdfunding for real estate is a relatively novel idea in Canada, several real estate crowdfunding platforms have started operations  in the country over the last few years, including:

1. Addy Invest: The largest platform in Canada, this Vancouver-based company works with both accredited and non-accredited investors. It's an accessible way to start real estate crowdsourcing because you can invest with as little as $1.
2. BuyProperly: This online platform operates in both Canada and the U.S., specializing in real estate investment opportunities.

What do real estate crowdfunding platforms do?

Real estate crowdfunding platforms essentially work as intermediaries between investors and property investment opportunities. They research investment opportunities, select viable properties, recruit investors and manage all the investments.

Is real estate crowdfunding worth it?

Real estate crowdfunding is risky and is not easily accessible in Canada yet due to the scarcity of funding platforms. It's really up to the potential investor to decide if they feel comfortable investing in this relatively new and not-yet-popular form of investing. Here's a look at the pros and cons of crowdfunding real estate in Canada.

Pros

• Accessibility: Crowdfunding allows investors with modest means to invest in property. By pooling resources online, individuals can participate in real estate projects that typically require substantial capital and were formerly only available to wealthy Canadians.
• Diversification: Investing in property is a good way to diversify your portfolio.
• Less management: Platforms handle property management and legalities, so you don't have to know a lot about property management—which means you can be a passive investor.

Cons

• Potential high risk: This type of investing and platforms are new to Canada and are not yet well established, so it could be risky to invest your money.
• Due diligence: Investors must carefully research and select projects.
• Limited selection: Few companies offer this type of investment so your choice of platform is limited.
• Limitations: Strict regulations can limit opportunities and ease of investment.