Crowdfunding in Real Estate

crowdfund-real-estate

How much money do you need to be a real estate investor? Not a lot of it. Check out how beginners can spend only $5 in crowdfunding real estate.

These are the top crowdfunding in real estate platforms:

  • Rich Uncles (suitable for small investors)
  • Fundrise (there is no income requirement)
  • EquityMultiple (for investors that are accredited)
  • RealtyMogul (suitable for long-term investors)
  • Groundfloor (best for short-term investors)

WHAT IS REAL ESTATE CROWDFUNDING?

Real estate crowdfunding is where you pool your money with other partners to buy real estate.

This helps you to invest with only a little bit of money in real estate. Then you own a limited portion of major multi-million real estate developments.

Developers are using crowdfunded funds to develop their projects. And owners (that’s you) gain returns by rental income or when the property is value-appreciated.

Real estate crowdfunding is a perfect way to create passive money. Professional platforms are responsible for screening, purchasing, constructing and maintaining assets. And you’re just getting the returns.

Real estate crowdfunding vs REIT:

REIT (Real Estate Investment Trust) is a company that invests in real estate. And when you invest in a REIT, you invest in a company, technically. There’s typically limited transparency, so you just trust the company to make good choices. There are publicly traded REITs where you can purchase and sell shares at whatever time you choose.
Real estate crowdfunding helps you to participate directly in real estate ventures. Platforms are more open on just what ventures the funds are invested in. However, there is less liquidity since the shares are not publicly traded.

HOW DO YOU MAKE MONEY

In general, owners are paid in two ways:

  • Dividends: Income from the property, by rent or interest on the mortgage. Dividends are a means of producing passive profits. Please notice whether the company distributes dividends on a monthly or quarterly basis.
  • Appreciation of the valuation of the shares: This is where the valuation of the stock increases over time. Once the house is sold, you will be paid at the end of the purchase. This may take a couple of years.

There are two major categories of crowdfunding projects:

  • Equity: This is where you buy partially of the property. Returns are made by means of profits, such as rental income. The risk is greater, but there is a possibility for better returns.
  • Debt: This is when you’re behaving like a lender. Returns are made by investing money at a set interest rate. This is a lower risk, but your returns are fixed.

Best Real Estate Crowdfunding Platforms

There are lots of crowdfunding projects for real estate. Every of them is distinct and has its own unique features. How are you going to pick the best one?

We’ve come up with the best investment real estate platforms. If you’ve just got $5 to spend or a lot, there’s something that’s going to suit your budget.

Rich Uncles (suitable for small investors)

  • $5 minimum contribution
  • No Accreditation/Revenue Requirement for Student Housing REIT
  • No Account Maintenance Fees
  • Venture Types: Equity & Preferred Equity
  • Asset Types: Commercial

Rich Uncles lets everyone invest with only $5 in their Student Housing REIT. It is perfect because you only have to invest a little bit.

You need a net worth of at least $70,000 and an annual profit of at least $70,000 for Rich Uncles’ National REIT. You are able to buy with as little as $500 into the National REIT.

Rich Uncles are very careful when it comes to their tenants. They purchase property with a 50+ percent cash down payment. This helps to reduce the risk of default. Rich Uncles is usually searching for long-term, identifiable tenants such as Costco, Walgreens and 24-Hour Fitness.

Rich Uncles concentrate primarily on producing rental profits. You can collect monthly payments from the rent. You will either collect the payments as cash or you can reinvest the dividends.

Rich Uncles is selling untraded REITs. This ensures that you can’t sell your shares on the open market. For average, you can expect to remain in the investment for 4-7 years. When you need to “back out”, Rich Uncles will be offering you a monthly Share Repurchase Plan.

Fundrise (there is no income requirement)

  • $500 minimum contribution
  • No Accreditation/Income Requirement
  • 1 percent management fee
  • Categories of project: Debt, Equity & Preferential Equity
  • Property Forms: Commercial & Residential

Fundraise has almost no income or net worth requirement. All you need is $500 to open your account. This makes Fundrise one of the best sites for any investor.

Fundrise is selling eREITs or Real Estate Investment Trusts. eREITs are a well-considered, diversified portfolio of real estate investments. They can involve new or existing buildings with tenants already in them.

Fundrise provides both income and growth portfolios. And, based on your goals, you have more choices.

Income portfolios rely primarily on assets that produce cash flow (either by rent or mortgage interest). Growth portfolios rely primarily on assets that are projected to increase in value.

Dividends are paid on a quarterly basis.

Fundrise is giving a 90-day money-back guarantee. Whether you are not happy with the service or are not confident with this investing strategy, Fundrise will buy back the initial investing within the first 90 days.

EquityMultiple (for investors that are accredited)

  • $5,000 minimum contribution
  • Accreditation required
  • Up to 1% account management charge plus 10% of gains
  • Venture types: Debt, Equity & Preferred Equity
  • Property Types: Commercial

Accredited participants certainly have a broader playing field when selecting crowdfunding real estate platforms.

EquityMultiple is characterized by the large amount of due diligence that it does before it approves an investment. EquityMultiple searches for:

  • National and international borrowers with substantial expertise
  • Commercial property in healthy cash-flow environments
  • High interest rate with short-term loans
  • Preferred equity investments with solid current yield
  • Value-add developments with ambitious growth strategies

EquityMultiple is straightforward for planned returns. Investments typically last between 6 months and 7 years. The typical investment needs a total of $10,000 minimum, but there are options for $5,000. Second, you can discover the investing opportunities free of charge.

For all equity transactions, EquityMultiple will not be paid until all creditors have repaid their original capital investment. Instead EquityMultiple takes 10% of the remaining profits.

What’s an  accredited investor?

An authorized lender will have a net worth of at least $1 million and an annual profit of at least $200,000.

When you are married and apply for an retirement account together, your total compensation must be at least $300,000 a year.

RealtyMogul (suitable for long-term investors)

  • $1,000 minimum investment
  • Accredited and non-accredited investments
  • Rates differ depending on investment
  • Transaction types: Debt, Equity & Preferred Equity
  • Property types: Commercial & Residential

RealtyMogul provides options for both accredited and non-accredited investors.

For non-accredited investors, you can only invest in RealtyMogul’s 2 REIT options (one for income and one for growth) beginning at a minimum of $1,000.

You will invest in individual properties (called “private placements”) for approved investors. RealtyMogul proposes equity investing in commercial real estate around the U.S. Typical investing is between 3 and 7 years.

RealtyMogul is based on quality over quantity. It focuses on commercial real estate that can easily provide investors with cash flow. It avoids ground-up developments or raw land and deals instead with real estate companies with a proven track record of progress.

Groundfloor (best for short-term investors)

  • $10 minimum contribution
  • No Accreditation/Income Requirement
  • No account operating costs
  • Property types: Residential & Single Family

In general, real estate is an illiquid project. You’ve in it for at least a few years before the idea is complete.

Yet Groundfloor provides real estate investing options for just 6-12 months, meaning you aren’t stuck for years.

Groundfloor is like peer-to-peer lending for real estate projects. You invest in loans to borrowers who need funding for building projects. You’re collecting dividends because borrowers are paying off the loan with interest.

You will pick which loans you want to invest in. Interest levels vary from 5% to 25% (higher indicating more risky). You can create your own diversified portfolio to mitigate default risk. The average return is 10%.

The ground floor is open to everyone in the 50 states. There is no prerequisite for income or accreditation.

OTHER REAL ESTATE CROWDFUNDING PLATFORMS TO CONSIDER

  • Peer Street

    You can spend just $1,000. PeerStreet does not buy the real estate itself. Alternatively, it acts as a middleman between the originator of the loan and the lenders (you). You may invest the entire amount of the loan or crowdfund the loan with other creditors. You will collect interest payments around the 1st and 15th of the month for the life of the loan.
  • RealCrowd

    RealCrowd helps you to invest directly with real estate experts, for accredited investors only. It’s got a tight checking process. Every real estate company must have at least 10 years of principal-level experience and at least $50 million in transactional activity as principals.

You can choose your own projects based on your priorities. RealCrowd is a good option for buyers who want to do their own legwork.

HISTORY OF REAL ESTATE CROWDFUNDING

Real estate crowdfunding was first made possible in 2012 under the Jumpstart Our Business Startups (JOBS) Act. Essentially, this allowed private companies to collect money by crowdfunding, so everyone could invest in them.

For the first time, private properties (such as real estate) can be invested in by individual owners with relatively little money. Since then, crowdfunding sites in real estate have erupted.

Real estate crowdfunding is still at its early stages. There is a great deal of potential for growth. But the future is uncertain, as some common sites have already shut down.

SHOULD YOU INVEST IN REAL ESTATE CROWDFUNDING?

Real estate crowdfunding is a fantastic opportunity to invest in real estate with even a little bit of money. It’s fine, too, if you want a completely passive investment.

But there are also risks involved. It’s important to know the risks well before you get into it.

  • The future is uncertain. Real estate crowdfunding sites are still quite recent. They have risks that have not been defined by established REITs, such as no previous operational history or proven sources of financing. Nor has there been a confirmed long-term success history. In recent years, some crowdfunding sites have already locked their doors.
  • No control. You’re not going to pick up your savings. Basically, you trust the platform administrators to make sound choices and handle them properly. It’s impossible to completely appreciate the ventures you’re interested in.
  • Liquidity is limited. Because these shares are not sold in the public market, you can’t sell at whatever point you want to. Usually, they are long-term projects of at least five years. You’re going to be penalized if you want to sell early. Some sites can offer early payout offers at those times where you can sell them.
  • Danger of capital loss. Most investments will not have a guaranteed return. If the project goes down, you might even lose your original money.

Yet there are still a lot of benefits.

REASONS TO USE A REAL ESTATE CROWDFUNDING PLATFORM

  • Invest with as little as $5. If you are pooling your money with other buyers, you don’t need hundreds of thousands of dollars to invest in real estate. You can invest in real estate that would not usually be available.
  • Know the risk right upfront. Many crowdfunding sites have investment information, including the level of risk and projected returns.
  • Diversification of the portfolio. Investing in real estate gives you a bit more diversification over stocks and bonds. This will serve to have a buffer against the ups and downs of the market.
  • Fund a number of programs. Instead of investing in only one real estate scheme, the funds can be invested across a variety of projects around the U.S. It often spreads the risks in the event of a decline in one sector.
  • Tax benefit. Real estate transactions are usually made by taxable accounts, but investors can now use a self-directed IRA account to invest in real estate.

WHAT TO LOOK FOR IN A REAL ESTATE CROWDFUNDING OPPORTUNITY

  • Income or accreditation criteria. This is the greatest limiting factor for what sites and investment options you have.
  • Minimum amount of investment. Can you meet the minimum investment criteria of the platform?
  • Time period of investment. Generally, interest in real estate is illiquid. When you don’t want the finances to be locked up for years, opt for shorter project periods or contribution redemption schemes.
  • Investment choices. Are you looking for investment in equity or debt? Are you trying to have more discretionary profits now or more investment in the future? Each of them has its own risk, fees, and potential profits. Choose a forum that delivers what you need to accomplish your goals.
  • A comprehensive evaluation process. Check out how well each developer is being evaluated by the client and their acceptance conditions.
  • It is a transparent operation. You will have access to all aspects of the project in order to make an educated decision.

FINAL WORD

Real estate investment gives you enough opportunities to invest in real estate without significant amounts of money or background in investing in real estate.

Be sure you do your own due diligence before selecting the right platform for you, because each choice has its pros and cons that make it perfect for certain buyers, but not the best alternative for others. Knowing the costs, risks and laws will help you make the most effective choices for you.