According to The College Investor, 90% of the world's millionaires over the last two centuries have been created by investing in real estate.
Buying real estate has been one of the best investments you can make for many decades. There are countless benefits to owning property and being a real estate investor.
One of the problems faced by investors looking to get started with a real estate investment is the high barrier to entry. If you are looking to buy a rental property, get ready to shell out a down payment of 20% or more in most cases!
Real estate crowdfunding platforms have created a unique solution to this problem. Now, you can pool your money with other investors all over the world thanks to crowdfunding.
Every little bit of money adds up, and this money is put to work through private real estate investments. You can start investing with some of these platforms with as little as $500, in some cases even less.
In this article, we will be reviewing the top 11 best crowdfunding platforms out there right now in 2020 to help you navigate this new investment.
It is important to remember that this is a new investment, giving us limited operating history to look back on. However, returns from these crowdfunded real estate platforms have been very solid!
There is one setback to investing in these different platforms, and that is the fact that many of them are only available to accredited investors. This is a type of investor who meets specific income or net worth requirements.
Many of these platforms are offering private placements, which is the sale of securities to a relatively small number of investors. Since this is considered higher risk, the SEC only allows accredited investors to participate.
In order to be an accredited investor, you need to have a net worth of over $1,000,000. The catch here is that this cannot include the value of your primary residence. Another way to qualify for this is by having an income of $200,000 or more for two years, or $300,000 if you are married.
The good news is, not all platforms require you to be an accredited investor!
The minimum to begin investing is just $500 with the Starter Portfolio.
More importantly, you do not need to be an accredited investor. Fundrise has portfolios for growth and income investors, as well as one that delivers a blend of both. The fee structure is very straightforward and transparent at just 1% per year. For that reason, it is our top pick for beginners!
Income investors are looking for consistent dividends or distributions from their investments.
RealtyMogul delivers that through their Mogul REIT I which pays monthly distributions. These can be reinvested back into the REIT or deposited directly to a bank account. This REIT is available to all investors. The $5,000 minimum is a bit steep, however.
This crowdfunded real estate platform is backed by a major real estate firm known as Mission Capital.
This gives them close to two decades of experience in real estate. This platform allows you to invest in pre-vetted properties with a minimum investment of $10,000. Less than 5% of the properties reviewed are added to the platform.
When it comes to a low minimum investment, you can't beat $5.
As crazy as it sounds, that is the minimum required to invest in the Student Housing REIT. This investment is available to all investors. This REIT specifically invests in student housing within walking distance of major universities.
For those looking for a less common approach to real estate investing, you may want to consider farmland.
AcreTrader is a platform for accredited investors only that lets you invest in shares of working farms. Income is earned by renting that land out to farmers, or selling the land for a higher price years later. The minimum investment is around $5,000.
Fundrise is at the top of our list for a number of reasons. First of all, Fundrise was founded in 2010 giving it one of the longest operating histories compared to other platforms out there.
This crowdfunded real estate investing platform offers a number of different investment portfolios. The starter portfolio has a minimum balance of $500 and the advanced plans have a minimum balance of $1,000.
The second reason why Fundrise tops our list is because they offer the most diverse selection of investment portfolios. The selections available from other crowdfunded real estate investing platforms are often quite limited.
We believe that Fundrise offers something for everyone. In terms of the real estate investing strategy, Fundrise follows a value investing approach. They aim to buy properties below the market value and then build equity through improvements.
The Fundrise property acquisition team has purchased over $7.5 Billion in real estate over their careers. If you are looking to learn more, here is our Fundrise review.
Fundrise has three different plans that vary in their features offered and the minimum funding required to open the account.
The account levels are Starter, Core, Advanced, and Premium. As you add additional funds over time, you can move upwards through the levels and unlock the advanced features.
The Starter Plan is available to all investors on the Fundrise platform.
On the Starter Plan you don't have any options as to how your money will be invested. You're limited to exclusively investing in the Starter Portfolio.
The Fundrise Starter Portfolio is for new investors who would like to test out the platform without going all in.
The minimum opening balance is just $500. This portfolio consists of 50% growth and 50% income holdings. If you want to upgrade to a core or advanced plan down the road, it is completely free and you can do so at any time!
The Core Plan is available to investors with $1,000 or more on the Fundrise platform.
Reaching the Core Plan provides you with three options: supplemental income, balanced investing, and long term growth. These portfolios differ in how they are structured and they types of returns they provide to investors.
Next, we have the Fundrise Supplemental Income Portfolio.
This portfolio holds income producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Fundrise generates dividends through rental and interest payments in proportion to your share of the fund. You can reinvest these dividends for free or have them deposited to your bank account.
The Fundrise Balanced Investing Portfolio offers a blend of 50% growth and 50% income investments.
The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income generating real estate as well as real estate that is appreciating in value.
Finally, we have the Fundrise Long Term Growth Portfolio.
The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.
The Advanced Plan is available to investors with $10,000 or more on the Fundrise platform.
When moving to the Advanced Plan, you gain access to the "Plus" level of core plans offered by Fundrise. These funds provide you with a greater level of flexibility in your investing and apply more specialized strategies in order to achieve higher returns.
You also gain the ability to allocate funds directly to most of Fundrise's funds directly. Instead of being restricted to the 3 Core Plan buckets, you have the freedom to individually pick and choose which funds you want exposure to and how much exposure you want.
Three of the largest funds available to Advanced Plan investors are the Washington DC eFund, the Los Angeles eFund, and the National eFund.
The Washington DC eFund offers investors the opportunity to invest in one of the fastest growing real estate markets in the country.
The fund was created back in May of 2017 and currently holds 25 different active projects. Most of the projects are single family home renovations as a part of the fund's appreciation strategy.
Because the fund is focused on appreciation, it currently does not pay a dividend. Instead, the idea is to invest in the fund now and after the projects within the fund are renovated and sold, the gains and appreciation created will be paid out to the investors.
Most of the projects in the fund have an estimated return of 5% - 15% and are classified as having a medium level of risk.
The Los Angeles eFund is very similar to the DC eFund in that it is primarily focused on long term appreciation.
This fund was also established in May 2017 and has since grown to contain 31 different projects, mostly made up of single family homes and new home construction.
Risk levels in this fund are similar to those of the DC fund, however the returns are a bit lower, typically falling in the 5% - 12% range.
Given the relatively short track record of the fund, it's not possible to say how accurate those estimates will be in the long run. For now, this fund is best suited to buy-and-hold investors with a longer time horizon due to the nature of new construction projects and the fund's emphasis on appreciation over time.
Established in May 2018, the National eFund has a shorter track record than either of the other two Advanced Plan funds. The fund primarily hold single family houses in Los Angeles and Atlanta.
Long term rental-to-sale and renovations are the two primary strategies for this fund.
With rental-to-sale, the approach is to buy a house that need minor renovations, fix it up, and rent it out. Then after 7-10 years, sell the house and capture a significant amount of appreciation.
On their renovation projects, the time horizon is much shorter. These focus on purchasing significantly worn down or outdated properties in order to fix them up and sell them within a 1-2 year timeframe.
Given the fund's strategies, it's a good match for investors with at least a 7-10 year time horizon on their investment. If you sell out sooner than that, you risk missing out on the majority of the upside that this fund has to offer.
The Premium Plan is available to investors with $100,000 or more on the Fundrise platform.
Currently there are not any funds that are available only to Premium Plan investors. You're going to have access to all of the Core Plan and Advanced Plan offerings, but that't it.
Instead of providing more investment options, Fundrise provides priority support access by allowing you to schedule calls with their team to ask questions and set up an investing strategy.
Over time it's likely that Fundrise will continue to add more offerings for the Premium Plan, but for now the perks for moving from Advanced to Premium are minimal.
These crowdfunded real estate investing platforms are relatively new. As a result, there isn't a lot of data to look back on. That being said, the historical performance of Fundrise has been solid. It is important to remember that these returns are "net of" or "after" fees.
Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front load fee with Fundrise. One of the main reasons why Fundrise is #1 on our list is because of this straightforward, transparent fee structure.
Realty Mogul formally launched in 2013. This platform offers a number of different investment options, however some are limited to accredited investors only. These investors have to meet net worth requirements in order to invest.
Realty Mogul offers two portfolios that are not limited to accredited investors, but the minimum balance to start out with them is $5,000. For that reason, we are partial to Fundrise.
The Realty Mogul Private Placements are available to accredited investors only.
Realty Mogul has a unique approach when it comes to property acquisitions.
First of all, they do not invest in projects that are not producing cash flow. This includes ground up construction and raw land.
Second of all, they only work with a select group of real estate partners that have a proven track record.
Third and finally, they seek out properties with leases in hand. Ideally, this approach mitigates some of the potential risks associated with this investment.
Mogul REIT I is a public non traded REIT holding commercial debt and equity investments.
The goal of Mogul REIT I is to generate income through a variety of real estate investments. With the aim to preserve, protect and grow your investment over the long term, Mogul REIT I has the objective to pay attractive and consistent cash distributions. The minimum investment for Mogul REIT I is $5,000. This REIT pays monthly distributions.
Mogul REIT II is a public non traded REIT focused on the growth of capital over the long term. This REIT has the goal of paying out quarterly cash distributions to investors.
Mogul REIT II mainly invests in residential real estate, primarily apartment developments. One of the main strategies of the REIT is renovating and repositioning multifamily homes with the goal of capital appreciation over time.
Mogul REIT II looks for properties in established and revenue consistent areas and neighborhoods. The minimum investment for Mogul REIT II is $5,000.
Realty Mogul also offers a variety of private placement investments. These private placements are limited to accredited investors only. You must have a net worth of $1,000,000 or annual income of $200,000 ($300,000 if married).
For the most part, all private placement offerings are slightly different within this platform. Some may have investment minimums as well as lock-up periods for your initial investment. The investment objective for private placements is for long term capital appreciation and income over time.
According to the site, the annualized distribution rate for the Mogul REIT I is 6.00%. The Mogul REIT I pays distributions on a monthly basis, while Fundrise pays these on a quarterly basis.
According to the site, the annualized distribution rate for the Mogul REIT II is 4.50%. The Mogul REIT II pays distributions on a quarterly basis, just like Fundrise.
It is important to note that the goal of this REIT is to earn a return based on asset appreciation, not income from distributions.
Realty Mogul platform charges fees based on the type of investment you select. For example, debt or equity investments. These fees include an asset management fee ranging from 1% to 1.50% annually.
There are also legal fees for certain investment types. These fees can be up to 3%. Overall, the fee structure is very unclear. We prefer the transparent, easy to understand 1% fee structure of Fundrise.
This is another private REIT that primarily focuses on office buildings that are producing cash flow. It is open to both accredited and non accredited investors.
Streitwise investors are subject to a 1 year lockup period when they invest, meaning they cannot sell during this period. After this, they offer quarterly redemption. This platform is led by three founders who combined have over 40 years of real estate experience which amounts to over $5.4 billion in real estate transactions.
One of the key differences between this platform and many others is that Streitwise directly owns and operates the buildings you can potentially invest in. Most of the other platforms offer investments in properties owned by other people, making them a middleman who simply raise money and collect a share of the profits.
Currently, they only have one investment available and that is the 1st Streit Office Inc which is available to both accredited and non-accredited investors. The minimum to begin investing in this REIT is just $1,000.
The Streitwise investment strategy is to "acquire and manage a portfolio of value oriented investments home to creditworthy tenants that provide a source of steady and growing dividends."
In particular, they focus on something known non-gateway markets, where prices are more reasonable. A gateway market is a major city that serves as an entry point to the country by air or sea. These markets are often red hot, meaning prices are through the roof. They avoid these markets entirely.
When adding properties to the portfolio, Streitwise aims to find properties that have a few characteristics. They look for properties near amenities, with a strong base of established employers and industries. They also look for buildings with quality construction and a sustained occupancy.
They also target properties with creditworthy tenants.
A few of these tenants include:
Stiretwise applies 3% of your invested funds towards organizational and offering costs. This one-time amount does not reduce the shares you own.
The sponsor is paid a 2% annual management fee and is reimbursed for acquisition and operating expenses. For the on-going 2% fee, that's taken out of the distribution and all returns quoted are net of fees.
Streitwise does not charge acquisition fees, servicing fees, special servicing fees, financing fees, or disposition fees.
It is important to note that these historical Streitwise returns are "net of" or after fees. Since inception, they have generated 9.75% annual dividends for investors. This has been the return since Q2 of 2017. They also offer a dividend reinvestment program so you can either take your dividends as cash or automatically buy more shares of the REIT.
Do keep in mind that returns are never guaranteed with investments like this, but we certainly hope these numbers keep up for investors. They have paid on average 9.75% in dividends for 11 quarters straight so far.
While this may not be the most seductive form of earning passive income online, AcreTrader lets you invest in farmland! You know, that stuff we use to grow a very important resource called food?
Picture this. You take a piece of farmland and then divide it up into shares. Then, investors buy individual shares of that land! As an asset class, farmland has provided investors with average annual returns of 11-12% over the last 30 years.
These returns are similar to the returns generated in the S&P 500 over the same timeframe. The difference is, over the last 30 years farmland prices have been less than half as volatile as stock prices. That means a similar amount of return for much less risk.
There are two potential ways to get paid:
The minimum investments on AcreTrader typically range from $5,000 to $10,000 depending on the size and price of the farm. It is important to note that AcreTrader is currently available to accredited investors only. That being said, if it seems like a good fit for you, it is definitely worthy of bragging rights at your next cocktail party!
Here's our full review of AcreTrader for more info!
The team over at AcreTrader is reviewing land on a day to day basis. Of all the parcels they review, less than 1% are selected for the site. Once a parcel is added to the site, it is split into shares. Each share represents 1/10th of an acre. So, if you purchased 10 shares you would own 1 acre of farmland. The typical minimum investments for AcreTrader offerings range from $5,000 to $10,000.
If the land goes up in value while you own it (known as asset appreciation) you will earn money when you sell it! Historical appreciation of farmland has been 5.9% annually over the last 50 years.
Each offering as an estimated ownership duration, after which they plan to sell the land. While there are liquidity opportunities available during the investment, farmland should still be viewed as a long-term investment.
Coming in at #5 on our list is the EQUITYMULTIPLE platform. This is an online commercial real estate investing platform backed by an established real estate company called Mission Capital.
Founded in 2002, Mission Capital is a leading real estate and debt capital markets solution provider.
While EQUITYMULTUPLE is a relatively new venture, they have over a decade of experience with real estate through Mission Capital. This gives them one of the longest track records of involvement with real estate of any platform mentioned on our list.
Unfortunately, EQUITYMULTIPLE only has offerings for accredited investors.
EQUITYMULTUPLE allows you to invest directly into individual real estate projects. Investors can build their own real estate portfolios from scratch. They follow a four step process when assessing potential investments:
This crowdfunded real estate investing platform is designed for active accredited investors. It is up to you to select individual real estate projects to invest in. EQUITYMULTIPLE offers screening tools and has a growing list of live offerings you can invest in.
The minimum to invest in each project is $10,000. You can build your own portfolio of real estate investments on EQUITYMULTIPLE by investing in multiple deals on the platform. Potential investments fall into one of three categories; equity, preferred equity or debt deals.
This type of deal has the highest risk, but the highest return potential as well. Equity investors are the last to get paid in a liquidation situation, however they have uncapped upside as a direct owner in the property. Typical investment term is 2 to 5 years.
This type of deal has a slight advantage over an equity deal and that is because they are paid before deal sponsors or equity holders. However, instead of uncapped upside, they earn a fixed monthly or quarterly return as well as a portion of the upside. This makes it less risky, but also lowers your potential return. Typical investment term is 1 to 3 years.
Through this type of investment, each loan is a first lien loan, meaning you are first to get paid. However, as a strictly debt investor you do not participate in any of the project upside. Instead, you collect your interest payments. This makes it low risk, but lower return as well. Typical investment term is 6 to 24 months.
With fund investing, instead of selecting individual projects to invest in you're able to invest in targeted funds following a specific strategy.
This option is effective for investors looking for easy diversification without sorting through dozens of projects. The minimum to invest in funds is $20,000.
Each of EQUITYMULTIPLE's four funds follows a distinct strategy:
The first two categories are fairly straightforward, however the last two could use a bit more explaining.
Opportunity Funds invest in Opportunity Zones as defined by the Opportunity Act of 2017. This act identified specific zones across the country where the government wanted to incentivize development and thus decided to offer tax advantages.
These tax advantages include reduced capital gains rates on investments in these areas or potentially no capital gains at all if held for 10+ years.
By investing in the Opportunity Fund you can take advantage of these tax incentives and reduce your tax burden on these investments.
CRE Securities or commercial real estate securities are loans on commercial real estate that you can invest in. When you own these securities you essentially own the mortgages on commercial properties. That means instead of owning equity in the properties, you are investing in the debt.
Typically debt is considered a safer investment because if the project goes under, the debt holders are first in line to get whatever is left over. While equity holders on the other hand only get paid out if there's enough for all of the debt holders first.
This feature leverages of two popular tax advantages for real estate investors: Opportunity Zones, and 1031 Exchanges. In order to effectively benefit from these strategies, typically a longer time horizon of at least 5-10 years is needed.
The minimum to invest in tax-deferred investments is $40,000.
Tax-deferred investments are best for investors who are already generating significant capital gains and wish to minimize their additional tax burden.
A 1031 exchange is a tax-advantages real estate transaction that involves exchanging one property for another and deferring your gains.
For example, if you bought a property for $500,000 and it appreciated to $1,000,000 you would have a $500,000 capital gain if you sold the property. With a 1031 exchange however, you could exchange the property for another that you expected to appreciate faster or generate more cashflow without recognizing any gain.
EQUITYMULTIPLE's 1031 Exchange Investments follow this strategy and allow you to continue to defer your taxable gains.
According to the site, EQUITYMULTIPLE aims for a net APR of 7 to 12% for for debt deals. For equity deals, they aim for a cash on cash return of 6 to 12% for investors. In certain major real estate markets, they will accept equity deals with lower projected cash on cash returns.
The fee structure for EQUITYMULTIPLE differs based on the structure of the deal. All of them include a 2% placement fee, paid by the sponsor. This fee is not paid by the investors.
Equity deals carry a 0.5% to 1% asset management fee paid by the investors. EQUITYMULTIPLE also collects a 10% carry on the profit of the deal. Preferred equity and debt deals have different fee structures based on the preferred return and interest rate on the debt. However, they will waive the fees for some deals if you refer a friend.
Roofstock provides investors with a very unique real estate investing option.
This platform only offers single family residential real estate. Roofstock aims to be a platform that pleases both buyers and sellers involved with single family rentals.
Buyers have a marketplace of vetted homes they can invest in with cash flow potential. Sellers have a place to list their single family rentals for sale without disrupting tenants or lost income by selling it vacant.
Roofstock allows investors to focus on building a real estate portfolio without worrying about property management. The property management team takes care of operational responsibilities like collecting rent, handling vacancies, repairs and other day to day property management.
Roofstock is offering you the opportunity to take advantage of the benefits of owning real estate without dealing with the hassles of being a landlord.
One huge benefit to investing through Roofstock opposed to investing locally is that you can invest across many real estate markets. They don't just limit you to the deals in your area. Roofstock has teams of property managers all over the US. This could allow you to take advantage of a hot real estate market or diversify across many markets.
With Roofstock, you can invest in single family real estate with as little as 20% down.
At the time of writing this review, there were over 300 different properties available for purchase on the platform. Just like with a traditional real estate investment, investors should be ready to put down tens of thousands of dollars to buy an investment property.
Another option for investors is to buy into a portfolio of properties for sale on Roofstock. This is for high net worth investors with hundreds of thousands or millions of dollars to deploy. You are essentially buying an entire portfolio of single family rentals. Some of these portfolios on the site were as much as $10 million.
The third way to invest through Roofstock is to purchase property shares. This investment is available to accredited investors only. The minimum investment to purchase these property shares is just $5,000. Property shares allow you to have fractional ownership in a single family rental, along with other investors.
Every property for sale on Roofstock has financial data investors can look at. Each property is going to have a different anticipated return. For example, a few properties we saw on Roofstock had a Cap Rate ranging from 5.25% to 7.76%.
The fee structure for Roofstock is very straightforward.
Buyers pay a marketplace fee of 0.5% and sellers pay a listing fee of 2.5%. That is a total fee of 3%, which is far lower than the typical commissions you pay to a real estate agent.
Origin Investments started in 2007, just before the financial crisis tore through the real estate industry.
The company was founded on the premise of creating value in real estate through buying distressed multi-family properties, fixing them, and selling them for a profit. While this is a common strategy for real estate investors, what sets Origin apart is the scale they have been able to reach in their investing and their market knowledge.
This platform is limited to accredited investors only with a minimum investment of $100,000.
Origin only invests in eleven markets across the US and has boots on the ground in these locations to get to know the area and assess opportunities closely. These are high growth areas with big upside potential. This includes Atlanta, Austin, Charlotte, Dallas, Denver, Houston, Nashville, Orlando, Phoenix and Raleigh.
Currently the platform serves over 1,100 individual investors and boasts a 30% gross IRR for their investors since 2014.
Another differentiator for Origin investments is that they have skin in the game. Unlike many other crowdfunding sites where you as the investor puts up most or all of the money for the company to work with, Origin's principals have invested over $56 million of their own capital into deals.
By aligning the interests of the company and the investors, it's clear that they have an incentive to make decisions in your best interest when it comes to the projects up for investment.
It's important to note that with Origin, investors buy shares of funds instead of individual properties or projects.
The minimum investment required for their funds can range from $100,000 to $500,000 and investing is limited to accredited investors.
This fund is designed to generate a mix of income and appreciation through investment in six large multi-family developments across the country.
Operating with a 50/50 debt and equity split provides a balance between lower risk and higher risk positions to investors.
The current dividend yield on the IncomePlus Fund is 6.50%.
A $100,000 minimum is required to invest in this fund.
The QOZ fund is focused on tax-advantaged Qualified Opportunity Zone projects.
An opportunity zone is an area identified by the government where they wish to incentivize growth and development. In exchange for developing in these areas, you're able to defer capital gain recognition until 2026 or pay no capital gains if the investment is held for 10+ years.
Currently the portfolio is structured around new development projects within opportunity zones and does not offer a dividend. As these projects are completed the fund plans to acquire and develop additional cash flowing assets.
There is a $100,000 minimum investment for the QOZ fund.
Origin keeps its fee structure straightforward and simple.
There is a 1.25% annual management fee on all funds invested on the platform. Beyond this fee, there are three additional fees that may or may not apply based on your individual situation.
In 2012, Uncle Ray launched the Rich Uncles real estate investing platform.
A key differentiator between Rich Uncles and the other crowdfunded real estate investing platforms is that you can start investing with just $5. Unfortunately, at this time Rich Uncles only offers investors two separate portfolio options. The limited portfolio selection is one of the main reasons why Rich Uncles came in lower on our list.
Each week, Rich Uncles is researching and evaluating over 1,000 potential investment properties.
Of those evaluated, only the top 0.3% are added to investment portfolios. Rich Uncles is extremely selective about what real estate deals make the cut. One of the unique characteristics of Rich Uncles is that they purchase properties with 50% or more cash down payment, giving them a huge equity stake.
The property tenants are names we all know like Walgreens, Chevron and Costco.
The National REIT aims to invest in industrial, retail and commercial real estate throughout the United States.
The minimum to invest in the National REIT is $500. Currently, the National REIT is limited to investors in just over 20 states. This REIT invests in strictly commercial real estate, meaning there is no residential real estate in the mix.
This REIT aims to invest in student housing throughout the United States.
Rich Uncles focus on student housing in broadly diversified markets around high demand universities. Rich Uncles searches for housing with greater than 90% occupancy rates and a minimum capacity of 150 beds. The minimum to invest in the Student Housing REIT is $5. Currently, this REIT is open to investors in all US states.
According to the site, the estimated annualized dividend of the Student Housing REIT is 6%. The estimated annualized dividend of the National REIT is 7%.
Rich Uncles takes a unique approach to their fee structure. Most traditional REITs charge significant maintenance and investment management fees.
Rich Uncles, on the other hand, does not make money unless the investor makes money. They will pay out the first 6.5% of profits to investors. Then, Rich Uncles then takes 40% of any profits that exceed 6.5%. This fee structure ensures the investment goals of the investors align with the compensation paid to Rich Uncles.
CrowdStreet is an online commercial real estate investing platform that launched back in 2014. On the site, they claim to have had projects that exceeded returns of 22% for investors and sponsors. This platform differs from the others mentioned above because there are three different ways you can invest with them:
CrowdStreet allows investors to pick and choose individual projects to invest in. This platform also focuses solely on commercial real estate, meaning there is no residential real estate in the mix. On their site, they claim to review around 400 potential investment opportunities each month. After CrowdStreet reviews them, they only accept less than 3%.
One of the key reasons why CrowdStreet is in fourth place on our list is because of the high upfront investment.
For the direct investing approach, a $25,000 or $50,000 minimum is common.
They recently lowered the minimum investment for the portfolio option from $25,000 to $10,000. Finally, the fully managed portfolio option has a minimum investment of $250,000. This makes CrowdStreet out of reach for many new investors. Due to SEC regulations, CrowdStreet investments are for accredited investors only.
Through direct investing, you pick and choose properties to invest in.
This is ideal for the active investor with a sizable amount of capital to deploy. CrowdStreet offers research tools for investors and is very transparent. Currently, the deals available on CrowdStreet have a minimum investment range of $25,000 to $50,000.
Investing in a portfolio of real estate projects is a great approach for passive investors.
CrowdStreet has already done the research on these real estate investments. Each portfolio holds anywhere from 30 to 50 commercial properties. The minimum to invest in the CrowdStreet Blended Portfolio is $10,000.
Finally, there is managed investing.
CrowdStreet will personally manage your portfolio to help you reach your investment goals. CrowdStreet experts will build you a personalized real estate investment portfolio and invest in deals on your behalf. This service is reserved for high net worth investors, as the minimum to invest is $250,000.
With the direct investing approach, each project has a targeted investor IRR or internal rate of return. Of the 11 projects available when we did our research, the targeted investor IRR ranged from 10% to 22% based on a number of different factors.
Unfortunately, we could not find any historical return data for the CrowdStreet Blended Portfolio. Since the managed plans are tailored to each specific person, returns will fluctuate. CrowdStreet boasts about a number of past projects that have generated exceptional returns.
This crowdfunded real estate platform has a unique approach when it comes to fees.
The deal sponsors pay all the fees, meaning there are no fees for the investors. CrowdStreet is very transparent about who the sponsor is for each deal. This fee approach is one of the highlights of this platform.
PeerStreet merges the world of peer to peer lending with crowdfunded real estate.
This platform supplies a marketplace where accredited investors can invest in real estate debt. PeerStreet relies on cutting edge technology like advanced algorithms and big data analytics to review each potential investment.
Most of the loans available on the PeerStreet platform are shorter term, ranging from 6 to 24 months in duration.
PeerStreet goes through a strict due diligence process on both the loans added to the site and the origination partners. PeerStreet only works with the highest quality originators that have a track record of success in the private lending industry.
With this platform, investors can select potential investments by hand or invest in prebuilt portfolios. PeerStreet matches investors with loan originators.
PeerStreet offers strictly debt investments, meaning you do not have any equity in the properties.
The minimum investment for PeerStreet is $1,000 which is quite low, however, they limit it to accredited investors only. It is important that investors understand that there is no secondary market for the loans either. Once you invest, Peerstreet will lock you in for the duration of the loan.
Platforms like Fundrise, for example, offer quarterly redemption periods.
The expected annual returns according to PeerStreet range from 6 to 12%.
You might be wondering why this is higher than traditional mortgage rates. The reason is that PeerStreet looks for specialty loans that are higher risk and higher potential returns.
One example of this is property rehab loans. We recommend that investors have a vast knowledge of real estate lending before investing through this platform.
PeerStreet may apply a servicing fee to each loan being offered on the platform for investment. The fee varies from investment to investment. Typically, it ranges from 0.25% to 1% and it is disclosed on every investment opportunity.
This is another peer to peer real estate lending platform, similar to PeerStreet.
This platform pairs up accredited and institutional investors with borrowers on the platform. Patch of Land specializes in high yield, short term loans backed by collateral. They aim to streamline the process of connecting lenders with borrowers through the use of technology and data oriented systems.
Many of the real estate projects found on these peer to peer real estate lending platforms are bypassed by traditional lenders due to the risk involved. This makes these investments of higher risk and higher potential return.
Diversifying across many different loans on the platform is one way to reduce the risk. Like many of the other crowdfunded real estate investing platforms out there, Patch of Land is reserved for accredited investors only.
Investors are tasked with selecting investments by hand, making this an active investment. After you select properties you want to invest in, you simply fund the account and start earning interest on the loans.
Patch of Land requires a minimum investment of just $5,000 to get started.
One of the pros of investing with Patch of Land is that they pre-fund all of the deals on the platform. That means that investors begin earning interest on day one. If these deals were not pre-funded, investors would have to wait until projects were fully funded in order for funds to be released. During that time period, you would not be earning any significant returns.
According to Investor Junkie, stats as of July 2017 show that Patch of Land has funded 655 loans, delivering an average rate of return of 11.12% since inception. On the Patch of Land site, they claim you can earn 12% in as little as 12 months.
Now, we reach the ugly side of this investing platform. The fee structure of Patch of Land is greedy. Patch of Land collects 1 to 2% of the interest of each loan. This fee structure is significantly higher than other real estate investment options out there.
There are numerous other crowdfunded real estate platforms out there, and more are popping up every single year. We will do our best to maintain this list and update it a few times per year.
Here is a brief summary of a few of the other platforms out there today. Most of these sites have very similar offerings, but you will find some differences when it comes to specific investments and fee structures.
As we do more research on each of these platforms, we will update our list above.
This platform is available to all investors, not just accredited investors.
Anyone who has $10 or more can invest with this platform and loan their money to flippers. Groundfloor connects investors with borrowers who are looking for short term financing for real estate flips.
For those who are not familiar, this is when you buy a property in need of repair, fix it up and then sell it. The loans available on the platform fall into different grades based on the level of risk. This platform offers strictly debt investments in real estate flips.
This is a brand new concept of having non-accredited investors financing real estate flips, which can be high risk. Investors should consider all risks involved here.
This platform is available to accredited investors only.
With this platform, you will be reviewing prescreened investments and choosing which ones are a good fit for you. You can invest in one specific property if you want to or a fund holding many different individual investments. One of the key advantages to this platform is that investors are not charged any fees.
This is an investment that is meant to fit under the category of “doing good for others.” This crowdfunded real estate platform invests in distressed mortgages with a low minimum of just $100. It is open to both accredited and non-accredited investors.
A distressed mortgage is a property what is under foreclosure or being sold by the lender. This occurs when the property owner is unable to pay the mortgage or taxes on a property.
American Homeowner Preservation (AHP) steps in and purchases these distressed mortgages from lenders at steep discounts. These lenders simply want to get these loans off their books, and they are willing to take a loss. Then, AHP works with these borrowers to see if they can modify the terms of the loan so they can afford to make payments.
If they are able to make payments, AHP will package this loan up with others and resell them. They were able to help the homeowner stay in their home and avoid foreclosure. If they are unable to help the homeowner, they foreclose on the property and sell it.
This platform aims to help investors diversify into commercial real estate, hence the name, which has been an investment that has helped the top 1% wealthiest individuals grow and preserve wealth.
One of the big differences between DiversyFund and other platforms is that their REIT owns the properties. They purchase properties and manage them. As a result of this unconventional structure, they are able to offer this investment with no fees.
You don’t need to be an accredited investor to invest, and the minimum is just $500.
This REIT primarily focuses on multifamily apartment complexes. The justification behind this is that everyone needs a place to live, and this has been a proven investment for decades. Instead of just investing in one property, they invest in many across different real estate markets.
This platform is for accredited investors only with a minimum investment of $10,000.
Unlike other platforms out there that let investors pick and choose investments, AlphaFlow is completely hands off and passive. Investors simply put their money to work by investing and leave it up to the experts to make decisions. These experts will create curated portfolios for each investor.
If you are an accredited investor looking for a hands off approach to private commercial real estate investing, this is definitely a platform to consider. You can sit back and relax while they vet the properties and manage your investment.
This is another peer to peer lending/crowdfunded real estate hybrid.
The minimum investment is $50,000 and it is open to accredited investors only. Loans on LendingHome are prefunded, meaning you cash is not sitting idle while funding is secured. They actually prefund the loans themselves, then they sell the whole loans to institutional investors or issue notes to individual investors.
Each of these notes has a minimum investment, some being as low as $5,000. Investors are able to buy many different notes, which allows them to diversify across many different loans. The risk for each note is different, and there is a corresponding risk grade for each loan. Higher risk loans have higher potential returns, but a greater risk for default.
This platform has a low minimum of just $5,000 however it is available to accredited investors only.
Like numerous other platforms, Sharestates connects sponsors with investors. A sponsor could be a real estate developer for example, looking to raise funding for a project. The Sharestates team vets these projects. They only add a small handful to the site.
The investor gets to review different investment opportunities available and pick and choose which ones you want to invest in. Investors supply the offering material so investors can perform their own due diligence.
Sharestates offers both debt and equity investments.
For those who are not familiar with real estate crowdfunding, let’s go ahead and cover some of the basics.
You might be wondering why all of these platforms are relatively new with limited operating history. This is because crowdfunded real estate is a new investment opportunity that came around in 2012.
The Jumpstart Our Business Startups or JOBS Act passed under the Obama administration. The point of this law was to loosen restrictions on small businesses, particularly by easing securities regulations. Prior to this law passing, it was illegal for companies to use crowdfunding to issue securities.
Now, it is perfectly legal to raise money in this fashion!
Before this law, your options to invest in real estate were slim. You could go the traditional route and buy physical real estate of course, but the upfront costs make this out of reach for most investors. Beyond that, the other options included private deals for accredited investors only or buying into a REIT.
Crowdfunding is a relatively new way to finance a project or venture. Born out of the internet era, investors from all over the world can kick in a few bucks to back a project or idea.
You are probably familiar with crowdfunding sites like Kickstarter where crowdfunders can back ideas or help those out who are in need.
These crowdfunded real estate investing sites took it a step further by turning this practice of raising capital into an investment. Instead of backing a product that you would eventually receive, you could back an investment and receive securities.
The way we raise money will never be the same thanks to crowdfunding. In 2015 alone, crowdfunding efforts raised over $34 billion worldwide. Think of thousands or tens of thousands of people all over the world kicking in money towards a project or an investment. The possibilities are truly endless!
A lot of the private real estate investments are reserved for accredited investors only. A number of these new crowdfunded real estate investments are too. No, this isn’t some exclusive club that you didn't get the the invite to. This is a federal regulation.
An accredited investor is someone who is allowed to be involved with investments that may not be registered with financial authorities. Governing authorities like the SEC and FINRA heavily regulate public investments that are available to average retail investors.
These agencies aim to protect investors from unforeseen risks. It is impossible for them to regulate every investment out there, so some go unregulated. They expect the individual investors to do their own due diligence. As a result, they want to make sure these investors have the financial capacity to take this risk.
Most of these private real estate deals are completely legitimate, but you need to know what you are looking for. Before these crowdfunded real estate platforms emerged, only these accredited investors were able to invest in these private or “closed door” real estate offerings.
In order to be an accredited investor, you must meet either of these two requirements:
These individuals have the means to burden the risks associated with unregulated private investment offerings. This includes private real estate deals, hedge funds, venture capital deals and other unregulated investments. A number of the real estate investments reviewed in this article require you to be an accredited investor.
A lot of people are wondering why you would go through the trouble of investing through a crowdfunded real estate platform when you can just go out and buy a REIT. This question is totally understandable!
If you aren’t familiar, a REIT is a real estate investment trust. It is a company that owns and operates income producing real estate. This could be residential, commercial or industrial real estate ranging from office buildings to cell towers. REITs trade on major stock exchanges just like the stocks we know and love. You can buy a share of a REIT just as easily as a share of Apple.
So the question becomes… why not just buy a REIT if you are looking to diversify? Here are a few reasons why.
Since these REITs trade on the same exchanges as stocks, they can correlate with each other. This means the prices are moving in tandem. One of the main reasons for diversifying into real estate is to have less correlation with your investments. Maybe your stocks are down, but your real estate investments are up! Asset correlation is a huge downside of the REIT. Stocks go up, REITs go up. Stocks go down, REITs go down.
Since most REITs trade on major exchanges, they are susceptible to panic selling. This is exactly why they correlate with stocks, another investment susceptible to panic selling. Bad news spreads quickly, and anyone who has held individual stocks knows what a panic driven sell off looks like.
Since these are highly liquid investments, you can sell them in an instant. This high volume of selling can cause drastic price moves, something you just won’t see with a private real estate investment. REITs frequently get caught up in panic selling that relates to the stock market.
Since REITs are a highly liquid investment, they are changing hands every second of the trading day. Just like with stocks, the price changes every few seconds. This liquidity makes public investments a lot more volatile than private investments.
In a nutshell, the price goes up and down all the time. This is not the case with private real estate investments. In some cases, they can even lock you in for the duration of the investment. For some this is a pro and for others this is a con. In most cases, less volatility means you will be able to sleep better at night.
There are some instances where a REIT makes more sense than a crowdfunded real estate investment. Here are a few.
Investors looking for highly liquid investments should stay away from crowdfunded real estate. A REIT makes a lot more sense in that situation. Just to recap, liquidity is an indicator of how easily an asset can be converted into cash. You can sell a REIT and convert it into cash in a matter of seconds.
The securities these crowdfunded give you are real estate deals that are not highly liquid investments. In fact, many of these platforms do not guarantee liquidity. Some have redemption periods where you can liquidate, but not all. The reason behind this is because real estate itself is not a highly liquid investment. If everyone tried to cash out at once, they would have to sell off properties which won’t happen overnight.
In general, you should not invest money that you have earmarked for a major purchase or life event in the near future. Fundrise, for example, recommends that investors have a minimum time horizon of 5 years when investing in the platform.
If you are not willing to lock up your cash for that period of time, don’t invest! You could invest in a REIT for a shorter time horizon, just understand if the stock market experiences a correction you will likely see the same correction with your REIT investments. Remember, there is a lot of correlation between these assets!
When real estate investments are discussed, you will often hear about debt and equity investments. It is important to understand the difference before deciding on a crowdfunded real estate investment. You want to make sure this type of investment aligns with your goals and investment objective.
Private real estate debt funds ballooned in popularity after the financial crisis of 2008. Banks were in trouble and unable to fulfill the need for loans, so private real estate investors stepped in. At this time, this was only the high net worth accredited investors who were able to invest in these deals. Now, real estate markets are far healthier and these private real estate debt investments are still a popular choice among investors.
With a debt investment, you are loaning funds to someone who owns real estate or is purchasing real estate. It is just like going to the bank for a mortgage. However, instead of a bank it is a group of private real estate investors backing the loan. In the past, this was a small group of high net worth individuals who would have access to these deals. Now, thanks to crowdfunding and the JOBS Act, average retail investors can get in on the action.
Here is what you need to know about debt investments.
These loans are usually anywhere from 6 months to 24 months. Debt investments are usually for real estate development projects.
The property backs the loan. This mitigates some of the risk associated with the investment. If the borrower defaults, the investors can potentially recuperate some of the losses by selling off the property in foreclosure.
These interest payments are often on a fixed schedule, giving investors a steady source of cash flow. This is similar to income investors who buy dividend stocks.
The set terms of the loan limit your potential return. Whatever interest rate you set is what you get. If the developer makes a killing flipping the property you back as a debt investor, you don’t share in the profits. You would need to be an equity investor to do so.
Equity investors have an ownership interest in the property. As a result, they stand to gain if there is any upside and lose if there is any downside. Equity investors share the upside if the property appreciates and share the cash flows if the building is producing income.
Consider a flip for example. Equity investors pool their money together to buy a number of townhouses in a hot real estate market. They secure a loan from the debt investors mentioned above. They upgrade the townhouses over the next year and hold onto them for an additional three years, renting them out.
If the properties are producing cash flow, the equity investors share the profits. During this entire duration, the equity investors are paying interest on the loan from the debt investors. After the fourth year, they sell the townhouses for a significantly higher price. All of the equity investors would share the upside from the asset appreciation.
Here is what you need to know about equity investments.
The risk is higher with equity investments, meaning the reward potential is higher too. You are along for the ride of the property appreciates or depreciates as you are a part owner of the property.
Real estate ownership comes with a number of tax benefits. Investors can take advantage of this and potentially see a lower tax bill at the end of the year. Debt investors cannot take advantage of these tax deductions.
Equity investors are in it for the long haul. It is not as simple as loaning money out to a real estate developer for a year or two. Equity investors should have a minimum investment time horizon of 5 years.
In most cases, it makes sense to have a blend of debt and equity investments in your real estate portfolio. Equity investments are more aggressive and debt investments are more conservative. When in doubt, talk to a financial advisor about the risks you should be taking with your money.