Heard of crowdfunding in real estate, and don’t know where to start? In our detailed guide we have covered you when it comes to finding the best crowdfunding choices.
Crowdfunding Real Estate Guide: What Is it & How to Invest
There used to be one simple truth when investing in real estate: if you’re short of money, you’re out of the game immediately. The players in this sector are primarily high ballers – with hundreds of millions of high net worth investors or creditors.
If you’re not an accredited investor and have few contacts of your own, the real estate investment scene simply doesn’t have a spot for you.
Cue crowdfunding in real estate.
Now ordinary investors can band together, due to 2012 JOBS Act, to pool their financial and intellectual capital to invest in large assets – property they could not manage on their own.
The space for real estate crowdfunding is increasingly rising and even non-accredited investors have been able to engage in this flourishing activity through companies such as Fundrise. If you’re just starting out, the number of choices on the market makes it easy to get overwhelmed.
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There are hundreds of sites all vying for investors. So who do you trust with your capital, and which company will help it grow as quickly as possible?
To help you find the best real estate crowdfunding sites, we have shortlisted the best easy-to-use platforms that give straightforward targets, provide a comprehensive list of closed and active listings and a special niche.
Know that some of these websites allow only accredited investors to join, but we’ve also thrown in a number of platforms that allow non-accredited investors to crowdfund real estate.
How is Crowdfunding for Real Estate?
In short, crowdfunding of real estate is a form of investing in assets using small sums of capital from different individuals. This is done mostly through crowdfunding platforms which bring sponsors and investors together.
Real estate crowdfunding includes two parties: the investor, and a sponsor. The sponsor scouts out the property and collects the requisite funds to purchase and maintain its regular operations.
The investors, on the other hand, provide most of the necessary financial equity (investors typically put in about 80-95 percent of the needed financial equity, while the sponsor shells out around 5-20 percent).
The sponsor then distributes the income on a monthly or quarterly basis to the investors, depending on the contract. Since properties are typically valued over a period of time, investors may get better rents or bigger profits when the property is sold to the market.
Before the emergence of internet-based real estate crowdfunding platforms, crowdfunding allowed an investor to have access to a network of trusted partners and a lucrative offer they could buy shares of.
As such, it can be difficult to reach interested parties with minimal connections.
Fortunately, real estate crowdfunding has made it easy for ordinary investors to raise money for big projects by linking them with like-minded people who have common goals.
In addition, real estate crowdfunding has made property investments more available by providing investors with a wealth of knowledge for informed decision-making about each project.
Lower minimum contributions also level the playing field, encouraging more people to take part.
Another main benefit of crowdfunding is the opportunity to diversify your portfolio with long distance real estate investments: you can invest in several properties at once in various geographic regions where demand is on the rise!
This can lead to a great opportunity to make a passive income by investment in real estate.
How to select the Right Crowdfunding Platform for Real Estate
It’s important to consider benefits and risks when selecting the best platform. Compared to other choices, there are plenty of pros and cons in every real estate investment. The most important aspect is that you weigh your choices to find one that suits your personal financial goals accordingly.
See how these line up before you plan to shell the money out. Here are a few practical advices:
1. Be meticulous
Remember that each platform is different before you take the plunge – some can suit your goals better than others. Practice informed decision-making by recognizing the strengths and limitations of a platform.
Pay careful attention to project duration, track record, return results, number of acquisitions, management experience, and corporate financing.
2. Be Partial Towards Vetted Deals
A platform that vets investments is better than one that doesn’t. There are crowdfunding platforms that do more to protect their investors by underwriting, reviewing, and structuring their investments. In comparison, other websites only act as matchmakers.
Would you rather examine and evaluate the business strategy of a sponsor on your own, or would you prefer to be directed by a corporate underwriting team?
3. Look Out for Partnered Sites With a Licensed Broker
Sites that are associated with licensed broker-dealers are more official – they have eyes on any transaction with due diligence, making sure the marketing materials are reasonable and realistic.
Start honing in whenever possible on those websites.
4. Make Sure Interests Are Aligned
When sponsors bring financial equity into a contract, their business plans are more likely to go through. It is for this purpose that some platforms structure their investments so that sponsors, along with their investors, shell out capital.
Similarly, some sites often negotiate a “promote” interest, in which sponsors only earn higher returns after a base sum has been given to their investors.
5. Check Your Investments
Yeah, platforms make investments easier by offering a wealth of knowledge on each property, but know full well that these platforms are not investment advisors. While some firms vet deals before making an offer to investors, not all firms do.
Consider working with a fiduciary or financial advisor who can help point out red flags or roadblocks.
6. Taking Liquidity Into Consideration
In real estate – it’s all timing. Properties have varying liquidity schedules, and every investment has specific return profiles.
Know well for how long you will be locked into an arrangement while making your investment decisions.
7. Examine the Risks
Each investment has risks associated with it. Although investing is a great way to diversify your wealth, you do need to take into account risk diversification.
See how your future returns balance against your expected risk to decide whether you’re better off equity or debt investments.
How to Invest in Real Estate Crowdfunding
After acceptance of your investment, it is usually offered through an investment page to a pool of investors. This page offers an overview of the project providing a financial summary with specifics of the business plan, partner descriptions and local market position, fee analysis, legal arrangements and possible future cash flows.
The investor can go through with the actual investment transaction after reviewing the offering materials:
- Choose the investment you want, and e-sign the legal document.
- The funds are debited from your bank account.
- This will merge the investment funds with other investors’ assets.
- The fund will be closed until enough money is raised.
- You will begin collecting distribution payments (if the investment performs as expected), as described in the offering materials.
Returns are not necessarily guaranteed as for all investments. Investments of the sort of immovable property could be underperforming for a number of reasons, such as when an investor is ineffective in executing their business strategy or mistiming the current market.
In these situations, real estate investors can lose all or a portion of their capital invested.
Always pay careful attention to the risk profile of your project, and ensure that it aligns with your objectives. A word for the wise: never spend an amount you aren’t willing to lose.
There are some things you need to know about investing in real estate that will decide the quality of the opportunity:
- Cap rate and cash yield
- Internal Return Rate (IRR)
- Payback period (in years)
- Multiple on capital investments (MOIC)
I’ve developed a free Excel rental property spreadsheet to help you invest smarter in real estate. Not tougher.
The calculator can be downloaded by clicking the button below. Downloading takes just 5 seconds and get started.
You may use this to determine crowdfunding opportunities for real estate, as well as your own direct investment in real estate.
The 9 Best Websites for Real Estate Crowdfunding
These are some of the best real estate crowdfunding platforms to consider helping you make passive income by investing in real estate.
If you are just starting investing in real estate, Fundrise is a great forum for example. A tech-focused real estate crowdfunding for non-accredited investors offers access to real estate investments through eFunds and eREITs, or diversified portfolios of US private real estate properties.
Fundrise invites investors in all 50 states as opposed to other crowdfunding sites.
Here’s the key appeal for the platform: all you need is $500 to invest in real estate to create your portfolio. The company is investing your cash in a plethora of residential and commercial properties in the US after you pay out a certain amount.
Fundrise provides investment for forms of property such as commercial projects, rent-stabilized housing, renovation and development of homes, as well as home construction.
The Fundrise Starter Portfolio received an annual dividend of 6.55 percent as of 22 March 2019. You could start investing in more advanced plans for places like Washington D.C. Or Los Angeles until the balance of your account reaches $1,000. This helps you to collect a dividend yield of up to 12 percent a year.
The good news? You won’t feel the frequent swings in stock prices compared to publicly traded REITs. Moreover, Fundrise has an app that you can use to get you investing on the go.
It’s one of the many reasons that we have called it one of the best investment apps for real estate.
RealtyMogul has built an impressive track record as one of the first players in the real estate crowdfunding industry that makes it one of the best platforms available today. The business provides investments in a number of categories, including retail spaces, multifamily condo buildings, and mobile homes.
The minimum investment on a majority of products is also attractive at $1,000.
RealtyMogul is a forum for accredited and non-accredited investors alike. Both can invest in REITs through RealtyMogul. These REITs are more based on debt investments, which yield a fixed monthly dividend.
MogulREIT II is a better choice if you intend to invest for more than three years, because it provides more value as assets appreciate over the years.
A smaller monthly dividend is the only drawback to that decision.
By comparison to other market-based real estate crowdfunding sites, Crowdstreet primarily focuses on commercial real estate, including multi-family condos, retail, and office buildings. In August 2017, what used to be a forum for accredited investors became open to unaccredited investors.
The platform provides direct access to institutional-quality commercial real estate with a minimum investment of $5,000 (other platforms allow you to invest in commercial real estate but only through a managing firm or lender).
Crowdstreet comes with all of the online resources that you need to make educated investment decisions. All current offers, estimated returns, and related documents are easily viewable. What you need to do is e-sign a few documents and send in your investment.
Crowdstreet currently has a borrower loan approval rate of $5.
Roofstock prides itself on being the first online marketplace built exclusively for investment in rental homes for single-family properties. Compared to those in the industry, it’s a fairly young business but the platform has already raised more than $1 billion in completed transactions.
Roofstock is a platform designed for investors that provides a wealth of knowledge you need to analyze to buy properties including data, analysis and insights.
Despite favorable cash flow potential and investment profiles, all homes are screened.
Roofstock allows investors to view their investment in real estate as stock portfolios.
This is achieved by concentrating on allocating properties, as opposed to resolving the pressures of property management.
Interested in making multiple investments simultaneously in various real estate offerings? AlphaFlow is a perfect tool to use. The crowdfunding platform enables you to make a single investment that is split into several website deals, almost like a personal investor who helps you make wise decisions.
AlphaFlow splits the commitment between 75-100 active investments – each of these investments is in residential properties with an annual yield potential of 7.5 to 9 percent and a maturity period of 6-12 months. This helps you to yield greater returns at a lower price.
The matured savings can be invested once more, leading up to a growing increase in interest rate.
Although other platforms have a maturity date of three to five years, AlphaFlow will allow you to withdraw your funds penalty-free earlier.
The only downside is the high initial minimum investment of $10,000 from AlphaFlow, but what makes up for it are the diversified portfolio and maximized future earnings.
The principal subject of PeerStreet are debt investment loans. PeerStreet, a platform built for accredited investors, helps you to invest in single-family ventures like shop fronts and single-family ventures. The company also receives multifamily real estate and condo building proposals from time to time. When you’re considering making short-term investments in different residential properties, PeerStreet is a platform to consider.
This crowdfunding real estate business is working together with major lenders to raise capital. Two of the hallmarks that PeerStreet is known for are openness and excellent management.
PeerStreet charges attractively administration fees for each investment as small as 0.25 percent (most crowdfunding firms charge 1 percent).
Which makes the company more open to the market of investors. Another advantage of using PeerStreet is its automated investment feature which allows you to build investing screens.
You can filter results there through several factors like geographic area, type of property, borrower, or date of maturity of the loan.
With a minimum investment of $1,000, the platform is available to all approved investors. You will find loans with returns of 6-9 percent and durations of 6-36 months, making it a perfect option for investors just starting out in the crowding room of real estate.
7. Rich Uncles
Rich Uncles was founded in 2012 and is one of the oldest crowdfunding real estate firms on the market. The platform is open to non-accredited investors, with a emphasis on commercial properties. The platform has recently opened its doors to student accommodation, too.
The Student Housing REIT provides an annualized 6 percent student housing dividend that has rates of 90 percent rental accuracy, a minimum capacity of 150 beds, and locations within a one-mile walking radius of NCAA Division I campuses (at least 15,000 students must be enrolled).
The REIT was launched only recently in mid-2018, and the only investment property available so far is the Stadium View Suites, a complex situated inside the Iowa State Campus.
Commercial Property REITs are the prime alternatives of the platform.
The business operates numerous retail and commercial assets throughout the U.S., with store locations for companies like Harley Davidson and Dollar General.
The platform doles out a 50 percent down payment on each property for higher investment income and to reduce the risk of missed payments and mortgage default. If you intend to invest you will need to make an initial investment of $500.
At the moment, Rich Uncles NNN REIT is open to citizens of the following states: CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NY, SD, TX, UT, VT, WI, WY.
Meanwhile, the Student Housing REIT is accessible to investors in all 50 states and around the world.
8. 1031 Crowdfunding
With more than $1.3 billion raised and more than $2 billion invested in real estate sales, 1031 crowdfunding is a force to be reckoned with in the crowdfunding real estate sphere.
Much of their offerings are commercially based, with a specific emphasis on hotels, retail outlets and self-storage, but you can also find a wide variety of multi-family homes.
The company prides itself on vetted investments and more than 60 years of cumulative real estate industry experience. The biggest draw is an insurance policy, called 1031 insurance.
It policy separates them from other crowdfunding platforms by ensuring the swap funds are invested in replacement properties rather than being taxed for capital gains.
StREITwise is a renowned real estate investment company integrating new federal regulations with creative technologies. With a minimum investment of $1,000 and low fees, stREITwise revolutionizes the market and makes real estate investing open to everyone.
The firm has become famous among accredited and non-accredited investors since its inauguration in Los Angeles in 2017. It also provided investors with an annualized 10 percent dividend return.
Summary of Best Crowdfunding Opportunities in Real Estate
Those are our top crowdfunding choices for real estate, and you can make a pick based on your ambitions. Each platform provides a distinct approach and strategy. With one of those platforms, you’ll be in good hands.
Investing in real estate is one of my favorite ways of creating wealth over time. You stay in charge of your decisions, and may take a multi-pronged approach to investment strategy. It’s a little bit more hands-on but that’s where crowdfunding comes in.
If you opt for crowdfunding, you’ll potentially lose some control, but flexibility and diversification are where it makes up. Real estate crowdfunding allows you more flexibility to actively invest and target other types of assets or geographies to add diversification.
My recommendations are:
- Fundrise – For investors with limited capital and beginners. Only a $500 limit to invest. Completely free to join.
- RealtyMogul – Suited for non-accredited with more money. Investment caps are just $1,000.
- CrowdStreet – For accredited investors with extensive real estate investment experience.