Crowdfunding

Crowd Investment - Crowd investment (also known as crowd investing or swarm financing) is a form of financing in which many small investors collectively invest in real estate projects via online platforms. The minimum investment amounts typically range from 100 to 10,000 euros. Investors receive a fixed rate of return (4-8% p.a.) and share in the project’s success. Legally, these are usually subordinated loans - a form of mezzanine financing that falls between equity and senior bank loans.

How It Works and Structure

The typical process of a real estate crowd investment:

1. A project developer presents their construction project on a crowd investing platform
2. The platform reviews the project and publishes an investment offer with terms (term, interest rate, minimum investment)
3. Retail investors invest amounts ranging from 100 to 500 euros via the platform
4. The capital raised is provided to the project developer as a subordinated loan and supplements the developer’s equity
5. Upon completion and sale of the property, investors receive their capital plus interest

Terms typically range from 12 to 36 months. Interest rates are 4-8% p.a. - significantly higher than risk-free investments, but also carrying corresponding risk.

Risks for Investors

Crowd investments in real estate are not a safe investment:

• Subordinated status: In the event of insolvency, bank loans are serviced first-crowd investors receive only what is left over, often nothing
• Total loss: If a project fails, the entire investment may be lost
• No collateral: Subordinated loans are generally not secured by a mortgage
• No deposit insurance: Crowd investments are not covered by statutory deposit insurance
• Illiquidity: Shares are not tradable, or only to a limited extent, during the term

Market Development and Platform Quality

The German crowd investing market has developed since 2015 and reached significant volumes during the growth phase of 2016-2021. Following the interest rate reversals in 2022-2023, several platforms have run into difficulties as projects have fallen into financial trouble due to increased construction and financing costs. Various well-known platforms have ceased operations or undergone restructuring. For investors, this development shows that platform selection and critical project review are at least as important as expected returns.

Quality indicators for reputable platforms include: BaFin registration, transparent disclosure of all risks, complete project documentation (building permit, financing structure, developer’s equity ratio), the project developer’s own investment (skin in the game), and a verifiable track record.

Crowd Investment vs. Other Investment Forms - Comparison

Feature	Crowd investment	Direct purchase of a condominium	Open-end real estate fund	Equity ETF
Minimum investment	€100-500	€50,000-100,000 equity	€50	€25
Target return	4-8% p.a. (interest)	2-5% p.a. + appreciation	2-4% p.a.	5-8% p.a. (historical)
Collateral	Subordinated, no real property security	Land registry entry	Real estate portfolio	None
Liquidity	Low (12-36 month term)	Very low (sale takes time)	Medium (redemption periods)	Very high (daily trading)
Risk of total loss	High (subordinated)	Very low	Low	Low
Deposit insurance	No	No	No	No (special fund)
Tax	Withholding tax	Income tax on rental income, § 23 EStG	Withholding tax	Withholding tax

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that investors in the Nuremberg metropolitan region view crowd investments as a diversification, limiting them to a maximum of 5-10% of their total investable assets, and only invest capital that they can afford to lose entirely. Check the track record of the platform and the project developer, the quality of the location, the overall financing structure, and especially the developer’s equity ratio (at least 10-15% is a good sign). Diversify across multiple projects and, if possible, across different platforms rather than investing everything in a single project. Projects in Nuremberg and the metropolitan region have the advantage that you can personally assess the location and monitor construction progress on-site.

Frequently Asked Questions

How safe is a real estate crowd investment?

Crowd investments are risky and not suitable for conservative investors. They involve subordinated financing without collateral, which is the last to be repaid in the event of insolvency. In the past, several projects have failed, resulting in investors losing their entire capital. The return of 4-8% reflects this risk-those who expect higher returns than with secure investments must also accept a higher risk of loss.

What is the minimum investment amount?

Depending on the platform, the minimum investment is between 100 and 500 euros. The maximum investment without a full prospectus (exemption under the German Investment Act) is 25,000 euros per investor and project for investments over 1,000 euros-and only if sufficient assets can be verified. Retail investors should not invest more than 1,000 euros in a single project to limit concentration risk.

How are crowd investment returns taxed?

Interest income from crowd investments is subject to withholding tax (25% plus the solidarity surcharge and, if applicable, church tax). The platform typically withholds the capital gains tax directly. With an exemption order, interest income up to the saver’s allowance (1,000 euros for individuals, 2,000 euros for joint assessment) can be made tax-free. In the event of a total loss of an investment, the tax treatment of the loss depends on the legal form of the subordinated loan-in this case, we recommend consulting a tax advisor.

What due diligence should I perform before making a crowd investment?

Reputable platforms provide a comprehensive information sheet (Asset Investment Information Sheet, VAIB) as well as the securities prospectus or key information document for each investment opportunity. We recommend that investors review at least the following points: Is the platform registered or licensed with BaFin? Does the project developer have a verifiable track record of completed projects? What is the developer’s equity ratio in the specific project-is a ratio below 10 percent a red flag? Is there a legally valid building permit? What is the overall financing structure (ratio of equity / senior bank loan / crowd-funded subordinated capital)? Investors based in the Nuremberg metropolitan region have the advantage of being able to personally visit projects in the area-a simple step that many investors underestimate, but one that provides valuable insights into the location, construction progress, and market environment. Projects with unclear financing structures, a lack of proof of a building permit, or developers without verifiable references should be consistently avoided.

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