What is Crowdfunding?
Crowdfunding is a form of collective financing that allows entrepreneurs, businesses, or projects to raise funds from many people through online platforms.
There are several types of crowdfunding, depending on what contributors receive in exchange for their contribution. These include:
Reward-based crowdfunding: Investors receive a product or service in exchange for their contribution, commonly seen in creative or tech industries.
Equity crowdfunding: Participants acquire a portion of the company's equity, becoming partners in the project.
Peer-to-peer (P2P) lending: Contributors lend money in exchange for interest, similar to traditional banks, but with better conditions.
Donation-based crowdfunding: Used for charitable causes, with no financial return to contributors.
Real estate crowdfunding: Used to invest in real estate with a smaller capital amount than conventional investments.
In this article, we will focus on the last type. Not everyone has the capital to buy, for example, an apartment to sell or rent for economic returns. Real estate investment has very high entry barriers, often centralized in a single property. This innovative model helps you invest in properties with accessible capital and diversify across multiple real estate projects in different cities or provinces, compared to what you would invest in just one.
How Does It Work?
Legally, real estate crowdfunding in Argentina operates through a trust, which is a safe and transparent legal structure. In this model:
Investors contribute capital to a trust established for a specific project.
The trustee (administrator of the trust) manages the funds and executes the real estate project.
Investors become beneficiaries of the trust and receive their share of the profits, either from the sale of the property or rental income.
You can learn more about Trusts in our blogs dedicated to this legal contract.
Why is it a Good Time for Crowdfunding?
Argentina is experiencing an economic situation where access to credit has become difficult, and saving up to buy real estate requires a lot of time, resulting in idle capital. In this context, crowdfunding has become a viable alternative for small investors. From the perspective of an entrepreneur who wants to launch a project but struggles to find large investors, this form of financing offers the opportunity to exponentially increase potential investors.
In Argentina, real estate crowdfunding is regulated by the Entrepreneurial Capital Support Law (Law 27349) and supervised by the National Securities Commission (CNV). This provides legal security to investors and transparency to projects. This has created a more reliable ecosystem, encouraging participation from both entrepreneurs and investors.
Business Ideas within the Crowdfunding Ecosystem
For Investors:
Diversify your portfolio across properties in different cities: Invest small amounts in various real estate projects in different cities and provinces, thus reducing the risk of social issues or natural disasters that could affect your investment. This allows you to obtain returns from multiple developments in different cities, protecting your capital.
Invest in early-stage properties: Participate in various early-stage developments where properties are generally priced lower. Diversify the risk of developer defaults. As projects complete, properties typically increase in value, giving you the chance to gain capital gains when the property is sold.
For Entrepreneurs:
Launch a real estate crowdfunding platform: Create a platform that connects developers with investors. You could focus on residential, commercial, or mixed-use properties and charge a commission for each successfully funded project.
Fund boutique projects: If you're a small developer, you can use crowdfunding to finance boutique real estate projects, such as small buildings or housing complexes. This allows you to access funding without relying on traditional banks or large investors.
Restore historical properties: Propose a restoration project for old or historic buildings through crowdfunding. Investors will not only have the opportunity to generate financial returns but also participate in projects with strong cultural and social value.
Regulatory Compliance in Argentina
CNV Registration: Any investment crowdfunding platform must be registered with the National Securities Commission (CNV), ensuring that it meets transparency and security requirements for investors.
Investor Protection: The law imposes investment limits based on the investor's profile and provides mechanisms of protection against potential losses, which increases trust in the system.
Transparency: Platforms must provide clear information about projects, their risks, and financial structures. This is mandatory to ensure that investors make informed decisions.
Conclusion
Crowdfunding is a powerful tool for connecting entrepreneurs with investors and donors in Argentina. Whether through investment platforms, loans, or donations, it offers a world of opportunities for those seeking alternative financing or innovative projects to invest in. In our law firm, you will find experts to advise you before you dive into the crowdfunding world or to help you verify whether the company complies with the necessary regulations before you make an investment.
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