Your beloved cat’s $10,000 vet bill is daunting after an accident. But if everyone chips in, it’s manageable. The original crowdfunding platforms like GoFundMe were built to help you find “everyone,” as you share on your channels for family and friends to donate. 

Even strangers donate if they feel moved enough. Then, the crowdfunding concept moved into business, with Kickstarter supporting thousands in their next product endeavor or restaurant opening. 

Now take that idea and plug it into real estate. The result? Crowdfunding real estate in Canada, with more accessible access to property — plus, everyone actually benefits. 

We took a similar idea to create Lotly’s real estate investment fund, where savvy investors can benefit from the returns of Toronto’s hot real estate market.

Let’s walk through what crowdfunding real estate in Canada looks like, pros and cons, and how you can get started today. 

What is crowdfunding real estate in Canada?

Demand for funding will always outweigh supply — be it for venture capital, business development, or real estate acquisitions. Scholars claim that the government can’t possibly merge those gaps. But crowdfunding investments can. 

Crowdfunding real estate involves a pool of investments from multiple people to meet the funding requirements to purchase one or more properties. 

Now, that could look like a few scenarios. You might crowdfund with your four brothers to purchase a Toronto home. All four of you are on title, responsible for maintenance, and share rental income and appreciation after taxes and home expenses are paid. 

And if you don’t have four siblings to join you in your endeavour? 

You can leverage the millions of others looking for real estate investments. 

These days, large developments crowdfund small contributions from investors to fund large real estate projects, including commercial and residential developments. CBC’s finance columnist, Mark Ting, describes his family’s experience investing in a crowdfunded real estate development in Mission, BC. The project garnered 1,000 investors who each put in $500 — a total of $500,000. The return, he predicts, will double his original investment within five years. 

Hang on; this sounds a lot like REITs. What’s the difference?

REITs vs Crowdfunding Real Estate

REITs, or real estate investment trusts, are corporations that invest in real estate with investors’ money. They often purchase commercial real estate, along with large-scale residential properties like apartment buildings, warehouses, plazas, malls, and more. 

REITs function like stocks — you buy shares, and then the corporation awards you dividends. Still, you’re taxed on dividends like any other income. On top of that, REITs often come with hefty management fees. But similar to crowdfunding real estate, REITs give you access to the real estate market without the headaches of mortgage qualification, minimum down payments, and credit requirements. 

Crowdfunding real estate removes the corporation sitting between you and your appreciation. Instead of a corporation awarding you dividends, you’ll reap the market’s actual appreciation on your initial investment. 

For example, Lotly investors co-own the properties they invest in with a projected annual return rate of 15%. Our research shows that most homeowners sell or refinance within seven years. If you invested $100,000 this year and your corresponding homebuyer sold in 2030, you’d get back your initial investment ($100,000) plus appreciation, which, by our projections, would total $140,500 minus our management (0.5% per year) and initiation (2%) fees. 

(Note: this is an example, not a guarantee. All investments are subject to risk.)

Plug and play with different investment amounts and see potential returns with our Appreciation Split calculator!

Pros and cons of crowdfunding real estate in Canada

We see crowdfunding real estate in Canada as a welcome model to get into real estate. Still, you should consider some pros and cons before you get started. 

Pros of Crowdfunding Real Estate

• Minimal capital required: Even a 5% down payment feels unattainable when properties are worth over a million dollars. Crowdfunding real estate platforms allow smaller investments to buy a piece of that sweet home equity pie.

• Stress-free: Real estate investing is lucrative, but not without headaches. Your traditional investor deals with maintenance, mortgage fees, interest rate increases, and tenant relationship management. An investor that enters the market through crowdfunding, such as with Lotly, doesn’t have to worry about any of that. 

• Stable return: When’s the last time the real estate market crashed? You might think of the momentary property price decline in 2022 — or the more significant crash in the mid-90s. Still, a down market presents opportunities. House prices in Toronto are down 12% from last year, making it a great time for prospective buyers and investors to break into the market. Still, remember that the market never stays down, so real estate investing is relatively risk-free through crowdfunding from a long term point of view. 

Cons of Crowdfunding Real Estate

• Slow: Real estate appreciation takes time, so patience is key. As mentioned, most property owners take seven years to sell or refinance. 

• Fees could eat into returns: Some crowdfunding companies have hefty management fees that could make your investment less fruitful than you’d hope. Make sure you read the fine print about management and initiation fees before committing to a project. Lotly, for example, lists them transparently on our landing page so that you know exactly what you're getting into!

Access real estate investing with Lotly today!

Crowdfunding has come a long way. People have crowdfunded together to fund surgeries, art projects, businesses, and today? Real estate. 

If you’re ready to put your money into a stress-free investment with a strong potential for high returns, we can help.

‍

*Lotly GTA Fund I is closed as of December 2023. We will update you when the next fund opens.