Real estate is a well-understood, though still badly performed, method of creating property. It takes only one episode of the HGTV house-flipping series to realize that it doesn’t take brilliance… but even geniuses will screw things up with poor execution.
If you’re a buy-and-hold investor, you’re less likely to screw things up, but instead you fall into the “death by a thousand paper cuts.” Upkeep, renovations, locating investors, tossing out deadbeats, 2 AM plumber phone calls, cleaning… you get it. If you read a book on investing in real estate, it just seems very easy. And it’s really easy. But it’s not that fast.
The devil is the details, as they say.
That’s why so many investors are interested in real estate investment trusts (REITs). The REIT gives real estate exposure without any of the work. Vanguard’s REIT Fund charges you only a 0.12 percent cost ratio and you are exposed to a number of commercial real estate firms. That’s just $12 for every $10,000 spent.
And if you don’t want to have a fund that only invests in storage facilites, office parks, and malls? You’ve been out of luck, until recently. You might try to find a real estate syndicate in your city, but that’s not without its risks.
A real estate investment platform for crowdfunding could be the best choice.
Best Real Estate Crowdfunding Sites Summary
|Site||What Makes Them Special||Minimum||Accreditated Required?|
|Fundrise||eREIT (fund)||$500||Any Investor|
|Streitwise||eREIT (fund)||$1,000||Any Investor|
|AcreTrader||Low fee investing in farmland||$3k-$10k||Accredited Investor|
|Roofstock||Turnkey single-family rental properties||Varies||Any Investor|
|RealtyMogul||Commercial real estate via fund|
6-24 month periods
|Patch of Land||Lending marketplace||$5,000||Any Investor|
Fundrise is one of the best crowdfunding real estate investment sites for non-accredited investors as they sell a bundle of their individual contributions in a system they call an eREIT. Being an accredited investor is typically one of the main roadblocks to investing in a real estate company, Fundrise offers an alternative to those who do not reach the high bar.
The EREITs follow the investing plan, which is available in their proposal materials. They’re like normal REITs, except that the minimum is a small amount of $1,000. Unlike standard REITs that trade in the free market, they are not publicly traded. The shares can be redeemed quarterly. They are more liquid than a syndicate, less liquid than a mutual fund.
Streitwise is a real estate investment trust that provides 10% returns with a small minimum contribution of just $1,000. It is available to non-accredited buyers.
The fee arrangement is 3% of the sum paid plus a 2% premium on funds under managment. If you study the payments for other transactions, you will often see that such fees are bundled into the amount raised (in the form of acquisition fees, financing fees, performance fees, etc.) as well as the disbursements. Having a straight 3% growth and a 2% of the assets under management is much easier of a system than the others.
Since it is a REIT, they pay distributions on a quarterly basis and are expected to transfer 90 percent of their taxable income each year in order to maintain this arrangement. You should plan to keep the investment in Streitwise for a period of time because every quarter there is a 1-year lockout and a redemption date. You do have the luxury of reinvesting dividends should you want to do so. The minimum investment is $1,000.
Did you know that you can invest in farmland?
AcreTrader is a new real estate website specialized in farmland. They are investigating all the offers, picking fewer than 5% of them, and purchasing the farms through an LLC. You may earn income from leasing as well as see interest in the property itself. Did you know that 40% of U.S. farmland is rented or leased?
The minimum investment sum is normally between $3,000 and $10,000. It depends between the production based on the price per acre and the total cost of the crop.
They bill just 0.75 percent of the valuation of the farm as an annual management fee plus any closing costs for each sale. The average hold period is 3-5 years, but some offers are 5-10 years, you can sell your stock on the exchange. And you can do that in a self-directed IRA!
Note: For more farming deals, another company is FarmTogether. I know less about them than AcreTrader, but they’re similar. Usually, the cost for licensed investors and their transactions is a minimum of $10,000 to $50,000. You get quarterly, semi-annual, or annual cash yields. Joining is also free so you can sign up to see their deals.
Roofstock is a real estate investment platform that helps you to buy turnkey single-family rental properties with just 20 percent down payment. It’s free to sign up and you can search their property marketplace based on a variety of factors such as list price, location, monthly rent, colleges, etc. And if you are familiar with 1031 Exchanges, they will also inform you the assets are available for this.
Here’s a rundown of some of the properties available as of June 11, 2019:
If you’re curious why they’re on the list, it’s because you can also lease (not buy) real estate shares similar to what you’re buying on other platforms. You can invest in unique portfolios (essentially a non-public REIT) so that you can invest with some diversification. There was, for example, one portfolio composed of six single-family homes in St. Louis. There was another one, seven single-family homes in the Midwest.
If you’re investing in a house, you buy it and you can rely on their property management company (they don’t run it, they’re linking you with those in the area), insurance, etc.
Ultimately, it’s stupid to say so, but they have a 30-day money back guarantee. When you buy a property and you’re disappointed, they’ll refund it (technically, they’ll list it for sale on their website and return the money once it’s sold).
RealtyMogul was founded in 2013 and provides accredited and non-accredited investors a way to invest in commercial real estate. Accredited investors may invest in different transactions, while non-accredited investors may add to MogulREITs. They’re not concerned with any residential deals and are trying to invest in focused commercial real estate transactions that the average buyer won’t have access to.
Whereas the larger REITs concentrate on large corporations such as Simon Property Group (mall owner/operator) and Public Storage (huge storage facility operator), RealtyMogul is looking to invest in apartment neighborhoods, shopping centers and Class A office buildings.
The minimum investment size for individual projects is $5,000, but for their REIT, MogulREIT, you can get into the game for as little as $1,000.
If you’re acquainted with LendingClub, PeerStreet is like that, but for the real estate investment environment. It is a system with only loans (debt deals only) backed by the underlying real estate asset.
They rely on shorter-term loans and conservative loans, with a term of 6-24 months and a loan-to-value ratio of 75% or less. The interest fee on each loan is about 0.25 per cent-1.00 percent for a minimum of $1,000. It is for accredited investors only.
EquityMultiple is one of the younger entrants to the crowdfunding real estate investment sector. They deliver debt and equity investments that focus solely on institutional commercial real estate. They also have syndicate loans and are backed by an existing national real estate consultancy firm (Mission Capital), which helps to make transactions.
The minimum is $5,000 and the fee structure is tailored to match your needs with you, the investor, based on the type of investment. Usually, there is a 0.5 percent annual fee to cover administrative costs, plus 10 percent of earnings after you have earned all your initial investment back. In preferred equity and debt transactions, they also offer a service fee between the interest rate charged to the borrower and what is paid out to you. Finally, a percentage of the total amount earned will be received in all sales. This price arrangement is typical, you need to study the basic details of the contract in order to learn the exact percentages in each.
Patch of Land
Patch of Land is a peer-to-peer real estate crowdfunding platform for accredited investors, equivalent to PeerStreet. They are looking to partner with real estate developers who are developing current real estate projects.
The minimum amount of money is $5,000.
The Remainder of the Pack
As more websites pop up, I’ll continue to look at them and how they’re different. This section of the post will review the websites I have researched, so if you need me to have a look – email me.
Listed below are a few of the other programs:
- Prodigy Network – Having a $50,000 minimum and also a focus on institutional grade investments in Manhattan, they’re focused and possess a much more personalized service allure. (This is just for accredited investors only)
- LendingHome – San Francisco-based market with 12-month loans with single-digit properties. The properties are rehabilitation projects and quite conservative (typical LTV of 62%, based on an interview at the New York Times). (This is just for accredited investors)
- Small Change – They invest in residential and commercial property projects based in their “change metrics” like mobility (walkability, bike-ability), sustainability (green construction, adaptive reuse), and financial energy (job creation, affordable housing). You will find minimums that are per-project plus they have choices for both non-accredited and licensed investors.
- Fund That Flip – Back vetted residential property loans (hard cash loans) at $5,000 increments plus they prefund their prices. Without opening an account, it is possible to view their deals. (This is just for accredited investors)
- ArborCrowd – Backed by the Arbor Family of Companies (Arbor Realty Trust, Arbor Commercial Mortgage, AMAC), you gain access to big business investment opportunities. A current $12.7mm bargain for a multifamily property in Alabama estimated an IRR of 16-18% with a 3-5 year-old period. The prices have a tendency to be on the side that is bigger and also the investment amount is $25,000. (This is just for accredited investors only)
- AlphaFlow – They construct a portfolio of property loans in the debt offerings of different businesses on this list, such as PeerStreet, to maximize for return and risk. They adapt and will rebalance the finance you need and you can reinvest or withdraw earnings. (This is just for accredited investors only)
- Senior Living Fund – A platform which specializes in senior housing and they project rates of return in the 13%-21 percent stove. They do not provide many details on how they create and finance new senior housing communities. Because it is a fantastic case of specialization, I am sharing it but I really don’t know much else about it.
What happened to RealtyShares?
RealtyShares used to be the top platform on our list because I had first-hand experience and loved the product. I’ve had two investments with them (both are still on schedule) and they’ve always had a ton of data on each contract. My overall experience with them was great, so I was disappointed to see them effectively shut down (no new investments, no newinvestors) on 7 November 2018.
Are you going to invest in these deals?
What if you’re confused about these new platforms? Are they a good option?
There are a lot of different investment options for crowdfunded real estate platforms. Some are loans, and others are property. Some of them are a combination of both, so it’s always necessary to check the prospectus or offering circular to see what you’re investing in.