Best Real Estate Crowdfunding Platforms
According to The College Investor, investing in real estate has produced 90 percent of the world’s millionaires over the past two centuries.
Buying immovable property was one of the best investments you could make for decades. Owning land and becoming a real estate developer offer many benefits.
Some of the challenges facing buyers who are trying to get started with investing in real estate is the high entry barrier. When you’re trying to purchase a rental home, get ready in most cases to fork out a 20 percent or more down payment!
Platforms for real estate crowdfunding provided a unique solution to this problem. Now, thanks to them, you can pool your money with other investors from around the world.
Every little bit of money adds up and this is put to work by private investments in real estate. For some of those platforms you can start investing with as little as $500, in some cases even less.
In this post, we’ll review the top 11 best crowdfunding platforms out there to help you manage this new investment.
It is important to note that this is a new investment which gives us a limited history of operations to look back on. Returns from these crowdfunded property platforms were quite strong for now!
Investing in these various platforms has one drawback and that is the fact that all of them are only open to approved investors. This is a category of investors that have to meet particular criteria for revenue or net worth.
Most of these sites offer private placements, which is securities sales to very few investors. Because this is perceived to be higher risk, the SEC only permits the involvement of accredited investors.
You need to have a net worth of more than $1,000,000 to be an accredited investor. The catch here is that your primary residence interest can not be counted in this. Another way to apply for this is to have a two year salary of $200,000 or more, or $300,000 if you’re married.
The good news is that not every platform demands that you be an accredited investor!
#1 Pick For Beginners: Fundrise
The minimum amount to start investing with Starter Portfolio is just $500.
What is more, you don’t need to be an accredited investor. Fundrise has growth and income investor portfolios, as well as one that offers a combination of both. The fee structure is very clear and straightforward at just 1 percent per year. That is why it is our top pick for beginners!
#1 Pick For Income Investors: RealtyMogul
Income investors seek consistent dividends or distributions from their investments.
RealtyMogul delivers that through their monthly-distribution-paying Mogul REIT. These can be reinvested back into the REIT or directly deposited to a bank account. This REIT is open to all investors. However the minimum of $5,000 is a little steep.
#1 Pick For Accredited Investors: EQUITYMULTIPLE
This crowdfunded real estate platform is sponsored by Mission Capital, a global real estate company.
That gives them nearly two decades of real-estate experience. This platform lets you invest with a minimum investment of $10,000 in pre-vetted properties. Following review, fewer than 5 percent of the properties evaluated are added.
#1 Pick For Low Minimum: Rich Uncles
You can’t beat 5 dollars when it comes to a small minimum investment.
That’s the minimum required to invest in the Student Housing REIT, as crazy as it sounds. This investment is available to all investors! This REIT explicitly invests in housing for students within walking distance of major universities.
#1 Pick For Alternative Investment: AcreTrader
You may want to consider farmland for those who are looking for a less traditional approach to real estate investment.
AcreTrader is an approved-investor-only site that allows you to invest in working farms’ shares. Renting the land to farmers or selling the land for a higher price years later generates money. The minimum investment is roughly $5,000.
For a variety of reasons Fundrise is at the top of our list. First, Fundrise was founded in 2010, giving it one of the longest operating histories compared to other platforms.
This crowdfunded platform for real estate investment provides a variety of different portfolios for investment. The portfolio for starters has a minimum balance of $500 and the advanced plan has a minimum balance of $1,000.
The second explanation why Fundrise tops our list is that they deliver the most diverse variety of portfolios of investment. The options available at other platforms for investment in crowdfunded real estate are often very small.
We think Fundrise has something to give to all. Fundrise takes a value-investing philosophy when it comes to the investment strategy for real estate. They plan to buy below market value assets and then develop equity through improvements.
During its lifespan, the Fundrise property investment team has purchased $7.5+ billion in real estate.
Fundrise Investment Options
The Fundrise Starter Portfolio is intended for new investors who want to check the product without jumping in.
The minimum balance is just $500. This portfolio consists of 50% growth and income holdings of 50 percent. It’s absolutely free if you want to upgrade to an advanced plan down the line, and you can do so at any time!
Now, we’ve got the Fundrise Supplemental Income Portfolio.
This portfolio contains immovable profits. Investors can mainly earn returns through dividends from the cash flow that generates real estate. Fundrise produces dividends in proportion to your share of the fund, by rent and interest payments. You may reinvest those dividends free of charge or add them to your bank account.
The Fundrise Balanced Investing Portfolio offers a combination of 50 percent growth and 50 percent investment in profits.
The balanced investment portfolio invests in a combination of Fundrise-offered eREITs and eFunds. The target for this portfolio is a balance of value-appreciating real estate and income-generating real estate.
Long Term Growth
Now, we’ve got the Fundrise Long Term Growth Portfolio.
The purpose of this portfolio is primarily to generate returns from asset appreciation. This fund seeks to purchase high growth potential real estate and produce yields primarily from the selling of the underlying assets. It involves purchasing land and doing repairs to sell the asset later for a profit.
Investment platforms for crowdfunded real estate are relatively new. There is not a lot of evidence to look back on, as a result. That being said, Fundrise’s historical performance has been good. Note that such returns are “net of” or “after” payments.
Fundrise has an annual fee of 1 percent. They do not charge any other secret fees and Fundrise doesn’t charge any front load fees. One of the key reasons why Fundrise is #1 on our list is due to this clear, straightforward fee structure.
2. Realty Mogul
In 2013 Realty Mogul was officially started. This platform offers various investment options but some are limited to approved investors only. In order to invest, such investors must meet net worth criteria.
Realty Mogul offers two portfolios that are not limited to approved investors but at least $5,000 is the minimum balance to start with. We are leaning to Fundrise for that purpose.
The private placements on Realty Mogul are open only to approved investors.
When it comes to land acquisitions Realty Mogul has a special strategy.
First, they don’t invest in projects which don’t produce cash flow. This involves the building from the ground up and raw land.
Second, they work only with a select group of real estate partners with proven track record.
Third and finally, with leases in hand, they check out properties. Ideally this strategy mitigates some of the possible risks that this investment entails.
Investment options for Realty Mogul
Mogul REIT I (Income)
Mogul REIT I is a non-traded public REIT which holds commercial debt and equity investments.
Mogul REIT I’s aim is to generate revenues through a variety of real estate investments. With the aim of preserving, protecting, and expanding your investment over the long term, Mogul REIT I aims to pay for attractive and consistent cash distributions. For Mogul REIT I the minimum contribution is $5,000. This REIT pays the distributions monthly.
Mogul REIT II (Growth)
Mogul REIT II is a public non-traded REIT which focuses on long-term capital development. This REIT seeks to pay out cash dividends to creditors on a quarterly basis.
Mogul REIT II invests mainly in residential real estate projects, especially in apartments. One of the REIT’s key tactics is to renovate and reposition multifamily homes over time with the goal of capital appreciation.
Mogul REIT II looks for properties in areas and communities consistent with revenue and those considered established. For Mogul REIT II the minimum investment is $5,000.
Private (Accredited Investors Only) Placements
Realty Mogul also offers a number of private investment placements. Such private placements are limited only to approved investors. You will need a net profit of $1,000,000 or $200,000 per year (if married, $300,000).
All private placement offers within this platform are for the most part slightly different. Some may have minimum investment, as well as times of lock-up for the initial investment. lLong-term capital appreciation and profits over time is the investment goal for private placements.
Realty Mogul Returns
The Mogul REIT I charges monthly dividends, while Fundrise charges these on a quarterly basis.
The annualized distribution rate for the Mogul REIT I is 7.70%, according to the report. Like Fundrise, the Mogul REIT II pays out distributions on a quarterly basis.
The annualised distribution rate for the Mogul REIT II is 4.50 percent, according to the site. It is important to remember that the aim of this REIT is to earn a return based on asset appreciation and not distribution revenue.
Realty Mogul Fees
The platform Realty Mogul pays fees depending on the type of investment you want. Debt or equity investments, for example. Such fees include an annual wealth management fee ranging from 1 to 1.50 percent.
There are also legislative fees for other forms of investment. Such payments can be as high as 3 percent. The charging mechanism is quite vague overall. We prefer Fundrise’s simple, easy to understand fee structure of 1 percent.
This is another private REIT which focuses primarily on office buildings which generate cash flow. This is available to both accredited investors and non-accredited ones.
Investors are subject to a 1-year lock-up period when they invest, which ensures they can not sell during this time. After this they offer redemption quarterly. This company is led by three founders who have over 40 years of real estate experience together, generating more than $5.4 billion in real estate transactions.
One of the main distinctions between this and many others is that the buildings you might actually invest in are owned and run directly by Streitwise. Most of the other platforms offer investments in other people’s assets, making them a middleman who simply collects capital and receives a share of the profits.
They actually have just one investment available and that is the 1st Streit Office Inc which is open to both accredited and non-accredited investors. The minimum amount to start investing in this REIT is only $1,000.
The Streitwise investment strategy is to acquire and maintain a portfolio of value-oriented investments home to creditworthy tenants that provide a source of steady and increasing dividends.
They concentrate in particular on something called non-gateway markets, where prices are more rational. A gateway market is a major city serving as an air or sea point of entry to the country. Such markets are always red hot, which means prices are shy high. They totally avoid those markets.
The goal of Streitwise when adding properties to the portfolio is to find properties that have a few particular characteristics. They are searching for properties close to services, with a large base of renowned employers and businesses. They always look for quality buildings and a continuous occupancy.
They are also targeting properties with creditworthy tenants.
Some of those tenants include:
- Wells Fargo
- Panera Bread
- Berkshire Hathaway
Streitwise contributes 3 percent of the funds you have spent to the company and expense of selling. The one-time number doesn’t reduce your own shares.
A 2 percent annual management fee is charged to the sponsor and reimbursed for acquisition and operating expenses. That’s taken out of the distribution for the ongoing 2 percent charge and all the quoted returns are net of fees.
No fees for the purchase, operating fees, special servicing fees, investment fees or disposition fees are charged.
It is important to note that these historic returns from Streitwise are “net of” or after fees. Since its inception, investors have been generating 10 percent annual dividends. As of Q2 2017, this has been the return.
Bear in mind that returns for investments like this are never guaranteed, but we definitely hope these figures will hold up for the investors. So far, they have paid a dividend of 10 percent straight for 11 quarters.
4. AcreTrader (Accredited Only)
While this may not be the most seductive type of online passive income earning, AcreTrader allows you to invest in farmland! You know, the stuff we use to make a very critical resource called food?
Just imagine it. You are taking a piece of property, and then splitting it into shares. Then, investors purchase the land from individual shares! As an asset class, farmland has, over the past 30 years, provided investors with an average annual return of 11-12 percent. Learn more about AcreTrader from our detailed review.
There are two ways to get charged possibly:
- If the value of the land goes up, then when it is sold, you make money!
- If you rent the land to the farmers, you earn the dividends!
Usually AcreTrader’s minimum investments vary from $5,000 to $10,000 depending on the farm’s size and quality. It is important to note that only accredited investors currently can access AcreTrader. That being said, if it looks like a good fit for you, it’s definitely worth bragging on your next cocktail party right!
At AcreTrader, the team is day-to-day analyzing the land. Less than 1 percent of all the parcels that they review are selected for the site. When a parcel has been added to the list, it is broken down into shares. Per share accounts for 1/10th of an acre. So if you bought 10 shares you’d own 1 acre of farmland. Typical minimum contributions range from $5,000 to $10,000 for AcreTrader offerings.
If the land goes up in value while you own it (known as asset appreciation) when you sell it, you can gain money! Over the past 50 years, the average appreciation of farmland has been 5.9 percent per annum.
Every bid has as an approximate period of possession, after which they intend to sell the property. While there are opportunities for liquidity available during the project, farmland should always be seen as a long-term investment.
5. EQUITYMULTIPLE (Accredited Only)
The EQUITYMULTIPLE platform comes in at #5 on our chart. This is an online investment platform for commercial real estate, backed by an established real estate company named Mission Capital.
Mission Capital was founded in 2002, and is a leading provider of real estate and debt capital markets solutions.
Though EQUITYMULTUPLE is a fairly new venture, through Mission Capital they have over a decade of real estate experience. This gives them one of the longest track records of any platform included on our list. Read here our detailed EquityMultiple review.
Sadly, EQUITYMULTIPLE has services for approved investors only.
EQUITYMULTUPLE lets you directly invest in individual real estate ventures. Investors should start from scratch constructing their own real estate portfolios. When evaluating potential investments they follow a four-step process:
- They begin with a list of established sponsors and lenders with a proven track record
- The EQUITYMULTIPLE team then analyses particular real estate markets or possible investments
- If a market or initiative meets the initial requirements, they must dive deeply and have less than 5% of applications
- Investors choose projects in which to invest and build portfolios
EQUITYMULTIPLE Options to Invest
This crowdfunded investment platform for real estate is built for the committed accredited investors. The choice of individual real estate projects to invest in is up to you. EQUITYMULTIPLE provides screening resources and has an growing array of live deals in which you can invest.
The minimum required to invest is $10,000 in each project. Investing in multiple deals on the platform can build your own portfolio of real estate investments on EQUITYMULTIPLE. One of three types of possible investments; equity, preferred equity or debt deals.
This form of deal carries the highest risk but also the highest potential for return. In a liquidation scenario, equity investors are the last to get paid but have uncapped upside as a potential owner in the company. Typical term for investments is 2 to 5 years.
This form of deal has a small advantage over an equity deal as it is paid before the promoters of the deal or the equity holders. However, they receive a fixed monthly or quarterly return as well as a percentage of the upside, instead of uncapped upside. This will make it less risky but will also lower your potential return. Typical term for investments is 1 to 3 years.
Through this form of investment, any loan is a first lien loan, which means you get paid first. However, as a purely debt investor, you are not part of any project upside. You are collecting interest payments, instead. This means it’s low risk but also means lower returns. Typical term for investments is 6 to 24 months.
EQUITYMULTIPLE strives for a net Return of 7 to 12 percent for debt transactions, according to the platform. For equity investments, investors are looking for a 6-12 percent cash on investment return. They will consider equity transactions in some global real estate markets with lower expected cash on investment returns.
The EQUITYMULTIPLE fee structure varies according to the contract structure. They all include a placement fee of 2 percent, paid by the sponsor. The investors are not paying the fee.
Equity deals carry an asset management fee of 0.5 percent to 1 percent paid by investors. EQUITYMULTIPLE also gains a 10 percent share of the deal’s income. Preferred equity and debt deals have different charging structures based on the debt’s preferred rate of return and interest. However if you refer a friend, they will waive the fees for some deals.
6. Yieldstreet (Accredited Only)
We’ve got another great option here for accredited investors looking to enter the private real estate market.
The term “Yieldstreet” was motivated by the notion that investors saw successful investment opportunities outside the stock market (aka Wall Street) hard to find. Before, these private real estate transactions were reserved for those who had to spend millions of dollars. You always had to be “in the know.” This website aims to be a one-stop shop for alternative investments for those looking beyond the stock market for returns. While offering investment in real estate, they also offer other alternatives such as commercial and consumer financing, portfolios of artworks, and more.
We looked at their platform and saw a variety of interesting investments like…
- Commercial financing under “Vessel Acquisition” category for a Marine Tanker
- A ‘Post-War and Pop-Art’ portfolio worth more than $10,000,000
- Short-term commercial financing notes
These are not properties in which ordinarily approved investors can invest. Yieldstreet has a number of interesting investments available but for the remainder of this passage we will stick to the real estate side of the market.
Typically, the real estate offers are investment portfolios. They invest in buildings that have high loans to value ratios in urban areas.
One new deal we looked at, for example, was a portfolio of single family homes in Florida. This was 192 single family homes portfolio across 47 communities. They were aiming to boost investments of $16.11M.
With over $1 Billion in funding completed, they have seen tremendous progress with this program.
How Does Yield Street Work
- The first move is to have an account on Yieldstreet.
- Next, you can browse existing investment offers on their website or via their application.
- If you have found an offer that you want, you can invest in the project.
Horizon Time & Minimum investment
As previously mentioned, this platform is only open to accredited investors.
One advantage of investing with Yieldstreet is that with increasing time horizons you will find investments. Most are as short as six months and others are as long as five years.
Usually, the minimum contribution is $5,000 and payments vary depending on the contribution, but appear to be about 2 percent per annum.
Roofstock offers a very special investment opportunity for real estate investors.
This platform provides residential real estate for single families only. Roofstock strives to be a forum that will attract consumers as well as sellers interested in single family rentals.
Buyers have a choice of screened homes that they can invest in with the potential for cash flow. Sellers have a place to list for sale their single family rentals without upsetting tenants or losing revenue by selling them vacant.
Roofstock lets investors concentrate on building a portfolio of real estate without thinking about property management. The property management team cares for operational responsibilities such as rent collection, vacancies handling, repairs and other day-to-day property management.
Roofstock gives you the chance to take advantage of buying real estate without the hassles of being a landlord.
One major benefit opposed to investing locally by Roofstock is that you can invest in other real estate markets. They’re not just restricting you to dealings in your field. Roofstock has property management teams throughout the US. This could allow you to benefit from a hot real estate market or diversify through many markets.
Investment Options for Roofstock
With Roofstock, you can invest as little as 20 percent in single-family real estate.
There were more than 300 different assets available for purchase on the site at the time of writing this article. Much as for a conventional investment in real estate, buyers would be able to put down tens of thousands of dollars to purchase an investment property.
Another option for investors is buying properties on Roofstock into a portfolio for sale. With hundreds of thousands or millions of dollars to deploy this is for high net worth investors. Essentially, you are buying a whole portfolio of single family rentals. Some of those on-site investments were as much as $10 million.
Property Shares (Accredited Investors Only)
The third way to invest in Roofstock is by buying shares in the company. This investment is only available to approved investors. The minimum investment to buy these shares in the property is just $5,000. Property shares allow you, along with other investors, to hold fractional ownership in a single family property.
Every property on Roofstock for sale has an overview of financial data for investors. Every property will get a different expected return. For eg, some of the properties we saw on Roofstock ranged from 5.25% to 7.76% when it comes to the Cap Rate.
For Roofstock, the pricing structure is rather straightforward.
Buyers pay a 0.5 percent selling charge and sellers pay a 2.5 percent listing fee. That’s a 3 percent total fee, which is much smaller than the usual commissions you pay to a real estate agent.
8. Rich Uncles
In 2012, the Rich Uncles real estate investment platform was introduced by Uncle Ray.
A major differentiator between Rich Uncles and the other investment sites for crowdfunded real estate is that you can start investing on just $5. Unfortunately Rich Uncles offers only two separate portfolio options for investors at this time. One of the key reasons why Rich Uncles came in lower on our list is the small range of portfolios.
Every week more than 1,000 potential investment assets are studied and assessed by Rich Uncles.
Only the top 0.3 percent of those measured are allocated to investment portfolios. Rich Uncles is highly selective about whether the cut is made by real estate deals. One of Rich Uncles’ peculiar characteristics is that they purchase properties with 50 percent or more cash down payments, giving them a large stake in equity.
The tenants of the property are names like Walgreens, Chevron and Husqvarna which we all know.
Rich Uncles Investment Options
NNN REIT (National REIT)
The National REIT aims to invest all over the United States in manufacturing, retail, and commercial real estate.
The minimum investment to be made in National REIT is $500. The National REIT is currently limited to investors in just over 20 states. This REIT invests in exclusively commercial real estate, meaning the mix doesn’t include residential real estate.
Student Housing REIT (BRIX REIT)
This REIT seeks to invest in the whole of the United States in student housing.
Rich Uncles is concentrating on student housing around high demand universities in highly diverse markets. Rich Uncles is looking for housing with occupancy levels of more than 90 percent and a minimum capacity of 150 beds. The minimum investment to make in the Student Housing REIT is $5. This REIT is currently available to investors across all states in the US.
Rich Uncles Returns
The average annualized Student Housing REIT dividend is 6 percent, according to the website. The National REIT’s average annualised dividend is 7 percent.
Fees on Rich Uncles
Rich Uncles organizes their fee arrangement in a special way. Most conventional REITs charge large fees for the maintenance and management of the investment.
On the other hand, Rich Uncles is not gaining money unless the investor makes money. Investors are paid out the first 6.5 percent of profits. Then, Rich Uncles takes 40% of all gains that reach 6.5%. This fee structure ensures the investor’s investment goals align with the Rich Uncles compensation.
9. CrowdStreet (Accredited Only)
CrowdStreet is an online investment platform for commercial real estate which started back in 2014. On the web, they claim to have projects for investors and sponsors that surpassed 22 percent returns. This platform is different from the ones listed above, since you can invest with them in three different ways:
- Invest in individual real estate transactions directly
- Contribute to 30 to 50 real estate investment funds
- Completely directed assets based on your goals and targets
CrowdStreet lets investors pick and choose individual ventures to invest in. This platform also focuses primarily on commercial real estate, meaning the mix does not include residential real estate. They claim to review roughly 400 potential investment opportunities every month on their web. Less than 3 percent of those reviewed are approved.
One of the main reasons CrowdStreet ranks fourth on our list is due to the high upfront investment.
A minimum of $25,000 or $50,000 is typical for the direct investment approach.
They also recently reduced the portfolio option minimum investment from $25,000 to $10,000. Finally, the portfolio option is completely controlled and has a minimum commitment of $250,000. This makes CrowdStreet inaccessible to many new investors. CrowdStreet investments are only for approved investors, due to SEC regulations.
Investment Options on CrowdStreet
You pick and choose properties to invest in via direct investment.
This is perfect for investing a considerable amount of capital for the committed investor. CrowdStreet provides investor research tools, and is highly transparent. The offers available on CrowdStreet currently have a minimum investment range of between $25,000 and $50,000.
Investing in an immovable property investment portfolio is a smart option for passive investors.
CrowdStreet has also carried out work on these property investments. Around 30 to 50 commercial properties are held anywhere in each portfolio. The minimum investment to be made in the CrowdStreet Blended Portfolio is $10,000.
Now we arrive to managed investing..
CrowdStreet will manage your portfolio personally to help you attain your investment goals. Experts at CrowdStreet will create a customized portfolio of real estate investments and invest in deals on your behalf. This service is reserved for investors of high net worth, as the minimum to invest is $250,000.
Returns at CrowdStreet
With the direct investment strategy, each project has a targeted investor IRR or internal rate of return. For the 8 projects available when we did our study, the expected investor IRR ranged from 9 percent to 24 percent based on a variety for different factors.
Unfortunately for the CrowdStreet Blended Portfolio we could not find any historical return results. Since the managed plans are customized to each individual person, returns can fluctuate. CrowdStreet talks about a variety of past ventures that have produced exceptional returns.
Fees at CrowdStreet
This crowdfunded real estate platform approaches fees in a specific way.
The deal sponsors are paying all the fees, meaning the investors have zero fees. CrowdStreet is very clear as to who is the sponsor for any contract. The fee approach is one of this platform’s highlights.
10. PeerStreet (Accredited Only)
This platform offers a marketplace where accredited investors can invest in debt from immovables. PeerStreet relies on state-of-the-art technology such as advanced algorithms and big data analytics to review every possible investment.
Most loans available on the PeerStreet platform are shorter term, varying in length from 6 to 24 months.
PeerStreet is going through a stringent due diligence process on both the loans added to the platform and the origination partners. PeerStreet only works with originators of highest quality who have a track record of success in the private lending industry.
Investment Options on PeerStreet
Investors may pick potential investments by hand, or invest in pre-built portfolios. PeerStreet matches investors with originators of the loan.
PeerStreet only offers debt investments, meaning you have no equity in the property.
PeerStreet’s minimum investment is $1,000 which is very small but is only open to approved investors. It is necessary for investors to realize that the loans are not a secondary market either. If you make an investment, you will be locked in for the duration of the loan.
For example, platforms like Fundrise offer redemption periods quarterly.
Returns at PeerStreet
The estimated annual returns range from 6 to 12 percent according to PeerStreet.
You may wonder why the mortgage rates are higher than conventional ones. The explanation is that PeerStreet searches for low-risk specialty loans and higher potential returns.
One example of this is property rehab loans. Before investing through this platform it is suggested that investors have comprehensive knowledge of real estate lending.
Fees at PeerStreet
PeerStreet can charge a service fee in respect of every loan offered on the investment platform. The price varies according to investment. It usually varies from 0.25% to 1%, and is disclosed on all investment opportunities.
11. Patch of Land (Accredited Only)
This is another peer-to-peer site for real estate lending, close to PeerStreet.
This network paires approved and institutional investors with on-the-market lenders. Patch of Land is specialized in high yield, collateral backed short-term loans. They aim to streamline the communication process between lenders and borrowers through the use of technology and data-oriented systems.
Because of the risk involved, many of the real estate ventures found on these peer to peer real estate lending networks are bypassed by conventional lenders. This makes higher risk and higher potential return on these investments.
One way to reduce the risk is to diversify through several different loans on the network. Unlike several other crowdfunded investment sites in real estate out there, Patch of Land is reserved exclusively for approved investors.
Patch of Land Investment Options
Investors are given the task of choosing investment by hand, making it an active investment. After choosing properties in which you wish to invest, you can simply finance the account and start earning interest on the loans.
The minimum investment needed to start with Patch of Land is only $1,000.
One of the pros of investing with Patch of Land is that they’re pre-funding all platform transactions. That means investors will start earning interest on day one. If those transactions were not pre-funded, creditors would have to wait for ventures to be fully funded to unlock funds. You will not be receiving any substantial returns during that time period.
Patch of Land Returns
Statistics as of July 2017 reveal, according to Investor Junkie, the Patch of Land has financed 655 loans, offering an average return rate of 11.12 percent since its inception. They say that you will gain 12 percent in as little as 12 months on the Patch of Land platform.
Patch of Land Fees
Now, we’re reaching this investment platform’s ugly side. Patch of Land’s pricing structure is covetous. Patch of Land receives one to two percent of each loan’s value. This fee structure is substantially higher than other investment options for real estate out there.
Other Crowdfunded Real Estate Sites
There are a number of other crowdfunded sites for real estate out there and more are emerging every single year. We’ll do our utmost to maintain and refresh this list a few times a year.
That said, here is a short overview of some of the other sites that are out there today. Some of these sites have very similar deals but when it comes to different investments and fee structures you can find some variations.
We will update our list above as we do more work on every of these platforms.
This platform is available to all investors, not just approved investors.
Anyone with $10 or more can invest with this platform and lend flippers their money. Groundfloor links investors with lenders who try short-term funding for flips in the real estate.
That is when you purchase a property in need of repair, improve it and then sell it to others. The loans available on the platform fall into different degrees based on risk level. This platform provides exclusively flips on real estate debt investments.
This is a brand new idea of having non-accredited investors funding flips of immovable property that can be high risk. Here, investors need to understand all of the risks involved.
Only approved investors can access the website.
RealCrowd offers a number of different types of sales. The minimum investment is $5,000 and the average investment duration is between 3 and 5 years.
You will be evaluating prescreened investments for this platform and selecting which ones are a good match for you. If you want to or have a fund holding many different individual investments, you can invest in one specific property. One of the main benefits of this platform is that it does not charge any commissions to investors.
American Homeowner Preservation
This is an investment meant to fall into the “doing good for others” category. This crowdfunded real estate platform invests in distressed mortgages with a minimum of just $100. It is available to both accredited investors and non-accredited ones.
A distressed mortgage is a house that is either being foreclosed or sold by the lender. It occurs when the property owner can not afford the mortgage or the property taxes.
American Homeowner Preservation (AHP) steps in and purchases these distressed mortgages at steep discounts from the lenders. These borrowers just want to get these loans off their books, and they’re willing to lose. AHP also deals with these lenders to see how they can adjust the loan terms so they can continue to make payments.
AHP can bundle this loan with others if they can make payments, and resell them. They try to help the homeowner stay at home and prevent foreclosure. If the homeowner is unable to be helped, they foreclose and sell the house.
The platform seeks to help investors diversify into commercial real estate, thus the name, which has become an investment that has helped build and retain wealth for the top 1 percent wealthiest individuals.
One of the major distinctions between DiversyFund and other platforms is that they own the properties through their REIT. They buy, and maintain, assets. Because of this unusual structure, they can deliver this investment at no fee.
You don’t have to be an approved investor in order to invest and the minimum is just $500.
This REIT focuses mainly on complexes of multi-family apartments. The reasoning behind that is that everybody wants a place to live, and for decades that has been a established investment. Rather than just investing in one house, they are investing in several across the various real estate markets.
For approved investors only, this platform is available with a minimum investment of $10,000.
AlphaFlow is totally hands-off and passive, unlike other platforms out there that let investors pick and choose investments. By investing, investors simply put their money to work, and leave it to the experts to make decisions. For every investor, those experts will create tailored portfolios.
If you are an accredited investor seeking a hands-off approach to investing in private commercial real estate, this is certainly a platform to consider. You can sit back and relax while the assets are being vetted and your investment handled.
With a minimum investment of $100,000 this platform is open to accredited investors only.
Origin Investments owns and operates in key markets with commercial real estate. These are fast growth regions with tremendous potential for upsides. Atlanta, Austin, Charlotte, Dallas, Denver, Houston, Nashville, Orlando, Phoenix, and Raleigh are all involved.
This company originated in 2007, giving them a longer track record and history of operations than most other platforms available today. It is similar to a high minimum private investment firm but they use some crowdfunding technology.
There are many investment funds at the website. Each fund is diversified across multiple distinct properties. Through this platform you are not able to invest in individual, particular assets.
This is another hybrid of peer to peer real estate lending and crowdfunding.
The minimum investment is $50,000, which is open to accredited investors. Loans are prefunded on LendingHome, ensuring you don’t have cash sitting idle until financing is secured. In addition, they prefund the loans themselves, then sell the entire loan to institutional investors, or issue notes to individual investors.
Each of these notes has a minimum investment, some as small as 5,000 dollars. Investors can buy a lot of different notes which helps them to diversify through a lot of different loans. The risk for each note is different, and each loan is subject to a corresponding risk rate. Higher risk loans have higher potential returns but a higher default risk.
This platform has a deposit of only $1,000, but only certified investors can use it.
Like several other sites, Sharestates links investors to sponsors. For example, a sponsor may be a real estate developer, trying to raise money for a project. The Sharestates team reviews these projects, and adds a small number to the web.
The investor gets to study different available investment opportunities and choose which ones you want to invest in. Investors are presented with content so they can perform their own due diligence.
Sharestates provides investments in both the debt and equity.
Real Estate Crowdfunding For Beginners
For those unfamiliar with crowdfunding in real estate, let’s go ahead and cover some of the basics.
You may wonder why all of those platforms with limited operating history are fairly new. The explanation behind this is that crowdfunded real estate reflects a new investment opportunity that came up in 2012.
Under Obama’s administration the Jumpstart Our Business Startups or JOBS Act passed. The aim of this law was to loosen restrictions on small businesses, particularly by lightening securities regulations. Before this legislation passed, the use of crowdfunding to issue shares was illegal for businesses.
Now, to collect money in that fashion is perfectly legitimate!
Before this law, the real estate investment options were slim. Of course you might go the conventional route and purchase physical real estate, but for most investors the capital costs put that out of option. In addition to this, the other options included only private deals for approved investors or a purchase into a REIT.
What Is Crowdfunding
Crowdfunding is a fairly new method of project or investment financing. Born out of the internet age, investors from all over the world can invest into a project or concept.
Perhaps you are familiar with crowdfunding platforms such as Kickstarter where crowdfunders can sponsor projects or help those in need.
Such crowdfunded real estate investment platforms have taken a step further by transforming this method of capital, raising it into an investment. You could back up an investment and get securities instead of backing a product that you will ultimately get.
Thanks to crowdfunding the way we collect funds will never be the same. In 2015 alone, crowdfunding efforts have raised more than $34 billion worldwide. Think of thousands of people throwing in money all over the world for a project or investment. The possibilities are infinite!
What Is An Accredited Investor
Most of the private real estate investment is reserved only for approved investors. There are a number of crowdfunded real estate investments that operate the same way, too. No, this isn’t an exclusive club you didn’t get the invitation to. This is federally controlled.
An accredited investor is someone who is licensed to participate in investments which may not be registered with financial authorities. Public investment available to average retail investors is heavily supervised by authorities such as the SEC and the FINRA.
Such organizations seek to protect investors against unexpected risks. They can not control every investment out there, so there are those that go unregulated. They think that due diligence should be done by the individual investors. Consequently, they want to ensure that these investors have the financial capacity to face the risk.
Most of these private real estate deals are completely legal, but you need to know what you want. Also those approved investors were able to invest in these private or “closed door” real estate offerings before these crowdfunded real estate platforms appeared.
How To Become An Accredited Investor
- $200,000 or more per annum ($300,000 for married couples)
- Net worth more than $1,000,000 (excluding primary residence)
Such individuals have the means of burdening the risks associated with offers of unregulated private investment. This includes deals with private real estate, hedge funds, deals with venture capital and other uncontrolled investment. You need to be an accredited investor in a variety of the real estate investments mentioned in this report.
Crowdfunded Real Estate vs REIT
Many people wonder why you’d be going through the trouble of investing in a crowdfunded real estate platform when you can just go out and buy a REIT. That is an entirely understandable issue!
If you’re not familiar with this, a REIT is a real estate investment trust. It is a company that owns and operates real estate generating income. This may range from office buildings to cell towers to residential, commercial or industrial real estate. REITs trade in major stock exchanges, just like the ones we know. You can just as easily buy a share of a REIT as an Apple share.
So the problem is this… why not purchase a REIT only because you’re looking for diversification? Here are some of the reasons why.
Why Don’t You Buy A REIT
Since these REITs trade on the same stock exchanges, they can compare with one another. This means that rates change in tandem. One of the biggest reasons for real-estate diversification is to have less overlap with your investments. Your stocks may be down but your investment in real estate is up! Asset correlation poses a major REIT downside. Stocks rise, REITs rise. Stocks fall, REITs fall.
2. Panic Selling
As most REITs trade in large markets, they are vulnerable to panic selling. This is exactly why they associate with stocks, another security that is vulnerable to panic selling. Bad news is circulating quickly and everyone who has owned individual stocks knows what it feels like to sell off a panic induced sale.
You can sell them in an moment, because these are extremely liquid investments. This high volume of sales can cause drastic price moves, something you’re just not going to see with a private investment in real estate. REITs are often caught up in stock market related panic selling.
Since REITs are a highly liquid property, they change hands every second of the day. The price shifts every few seconds just as in stocks. This liquidity results in much more volatile public investments than private investments.
The price goes up and down all of the time, in a nutshell. This is not the case for investments in private real estate. For certain cases, they may also lock you in for the investment’s duration. It is a plus for some and a con for others. Less uncertainty in most situations means that you’ll be able to sleep better at night.
There are certain instances where a REIT makes more sense than an investment in crowdfunded real estate. Here are a couple.
Why You SHOULD Buy A REIT
Investors seeking highly liquid investments should stay away from crowdfunded immovables. In that case a REIT makes a lot more sense. Just to summarize, liquidity is an measure of how simple it is to turn an asset into cash. You can sell a REIT in a matter of seconds, and turn it into cash.
In these crowdfunded real estate deals the securities you are issued are not highly liquid investments. Many of those platforms do not actually guarantee liquidity. Some have periods of redemption where you can liquidate but not all of them. That’s because real estate itself isn’t a highly liquid investment. When everybody wants to try to cash out at once, they will have to sell property and that won’t happen overnight.
2. Time Horizon
Generally speaking, you shouldn’t spend money you’ve earmarked in the near future for a big buy or life event. For example, Fundrise suggests investors investing in the platform have a minimum time horizon of 5 years.
If you don’t want to lock up your cash for that time span, don’t invest! You could invest in a REIT for a shorter time horizon, just understand that your REIT assets would likely see the same decline if the stock market experiences a decline. Remember, a lot of connection exists between those assets!
Debt vs Equity Investments
When addressing real estate investments, you’ll also hear about debt and equity investments. Before deciding on a crowdfunded real estate investment, it is necessary to understand the difference. You want to make sure that this form of investment aligns with your investment priorities and objectives.
Private real estate debt funds ballooned in popularity after the 2008 financial crisis. Banks were in trouble and unable to satisfy the need for financing, so private real estate developers got involved. This was, at the time, allowed only to the high net worth accredited investors who could then invest in these deals. Now, real-estate markets are much healthier and these private real-estate debt investments are still a common investment option.
You loan funds with a debt investment to someone who owns real estate or is buying real estate. It is just like going to a mortgage shop. However, it is a group of private real estate investors that backs the loan instead of a bank. There has been a select number of high net worth individuals in the past who had access to such offers. Now ordinary retail investors will get in on the action thanks to crowdfunding and the JOBS Act.
Here is what you need to know about debt investing.
1. Short Term
Generally such loans range from 6 months to 24 months. Debt investments are typically for projects relating to real estate development.
2. Secured Debt
The real estate backs the loan. That mitigates some of the investment-related risk. If the borrower defaults, by selling the property in bankruptcy, the creditors can theoretically recover some of the losses.
3. Interest Payments
These interest payments are often on a fixed schedule, thus giving investors a steady cash flow source. This is similar to dividend-buying stock investors.
4. Limited Upside
The loan terms are set restricting your possible return. Whichever interest rate you set is what you are getting. If the developer flipping the property you back as a debt investor makes a killing, you don’t share in the profits. To do so, you’d need to be an equity investor.
Equity investors have an interest in ownership of the property. As a consequence, if there is an upside, they stand to gain, and lose if there is any downside. If the property appreciates and shares the cash income, equity owners share the upside if the building generates revenue.
Consider, for example, a flip. Equity investors are pooling their money to buy several townhouses in a hot real estate market. They receive a lending from the above listed debt investors. In the next year, they upgrade the townhouses and hold on to them for another three years, renting them out.
If the properties generate cash flow, they share the income with the equity holders. The equity investors pay interest on the loan from the debt investors over this entire duration. They sell the townhouses after the fourth year for a considerably higher profit. All the equity holders will share the upside of the value of the properties.
Here is what you need to know about equity investments.
1. Higher Risk/Reward
For equity investments, the risk is higher, and the opportunity for profit is higher too. You are along for the property’s journey, appreciating or depreciating as you are a part owner of the property.
2. Tax Deductions
Ownership in immovables comes with a range in tax advantages. This is something that creditors will take advantage of and hopefully see a lower tax bill at year-end. Debt creditors are unable to deprive themselves of these tax deductions.
3. Long Term
Equity investors are in it for the long haul. It’s not as easy as a one-year or two year loan of money to a real estate developer. The minimum investment time period for equity investors should be 5 years.
In most situations, having a combination of debt and equity investments in the real estate portfolio makes sense. Equity investments are more militant, with more cautious debt investments. Speak to a financial advisor about the risks you can take with your money when in doubt.