Maintaining a well-diversified portfolio is often accomplished by holding a variety of stocks found in traditional equity markets. However, technological advancements combined with the increasing popularity of crowdfunding in the real estate sector makes further diversification more possible than ever.
Crowdfunding expands the traditional pool of investors from owners and venture capitalists to average investors.
As the housing market continues to experience record breaking growth, real estate crowdfunding companies, like CrowdStreet, have benefited by this increased popularity. As a result, these real estate crowdfunding companies have created unique and valuable business offerings for the average investor looking for increased diversification.
CrowdStreet is a relatively new commercial real estate investment platform that launched in 2014. Since launch, the CrowdStreet Marketplace has closed 560 commercial real estate investment offerings (76 have been fully realized), raised over $2.6B in capital, and has distributed over $360M to the CrowdStreet Marketplace investors.
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Creating a CrowdStreet account to browse and invest in opportunities on the CrowdStreet Marketplace is absolutely free. While all investors can browse the Marketplace, only accredited investors have the option to invest in Marketplace offerings.
The CrowdStreet platform offers three unique investment opportunities to its users.
Since creating an account is free, what value does the CrowdStreet Marketplace provide investors? Additionally, are there any hidden fees?
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Sponsors are a vital component of CrowdStreet and are those who are seeking to list investing opportunities on the CrowdStreet Marketplace. In other words, the CrowdStreet Marketplace has deals populated by external companies and CrowdStreet helps connect the deal.
These sponsors go through an extensive background check before listing on the Marketplace. CrowdStreet also lists classifications and additional information about the sponsor to help the individual investors understand more about the potential partner in the deal.
While CrowdStreet does not charge fees, sponsors do have the ability to charge fees directly to the investor for access to investment opportunities. These fees vary based on the individual sponsor.
In addition to limiting platform use to only the best sponsors, CrowdStreet also will evaluate the potential deals before listing on the platform.
CrowdStreet has recorded that only 5% of deals pass sponsor and deal evaluations. Below are a few key points performed by CrowdStreet in the deal evaluation phase.
These benefits are included in the investors free account and there are no hidden fees.
Even with this deal evaluation, CrowdStreet encourages all investors to complete their own research before investing in any deal.
CrowdStreet records that since launching in 2014, the average IRR is 18.6% on fully realized deals. While CrowdStreet does not charge a fee for self-directed investments on the Marketplace, there is a fee for the tailored portfolio options.
This fee is just one of three ways that CrowdStreet makes money. Additional details on the tailored portfolio and the other two methods CrowdStreet uses to make money are detailed below.
Sponsors often have expensive administrative burdens associated with real estate deals. Traditionally, these burdens become more extensive as sponsors take on multiple deals.
In order to help reduce these administrative burdens on sponsors, CrowdStreet sells its software as a solution. This is especially valuable as sponsors enter the world of crowdfunding.
Remember that crowdfunding differs from traditional funding by increasing the amount of investors that can participate in the deal. This increases administrative burdens on sponsors that CrowdStreet’s software as a solution mitigates..
There is always a cost associated with raising capital. In the case of CrowdStreet, sponsors are charged a fee to raise money on the platform. This expense is always charged directly to the sponsors and not to the individual investors.
Sponsors are willing to pay this fee because they are then able to leverage the CrowdStreet technology to raise money in a fast, dependable, and cost effective method.
Using these first two methods of gaining revenue, no fees are ever charged directly to the investors. However, it is important to understand that the sponsors will then build in these expenses when creating deals and investment opportunities (so ultimately the investor is indirectly paying at least a piece of the fees).
CrowdStreet does have one final, and completely optional, method of earning revenue. The platform offers CrowdStreet Advisors, which was created to provide interested investors extra help on the platform. These advisors create investors tailored portfolios aligned with the investors personal strategy.
Unfortunately, to receive a tailored portfolio the investor must have a minimum balance of at least $250k.
Once interested, qualified, and invested, a fee is charged directly to the individual investor. While fees vary depending on investments, CrowdStreet has created an example of the typical fee schedule for each deal.
During the first year, CrowdStreet Advisors charge 2.0-2.5% of assets under management. This is where the bulk of the fees come in as during the first year majority, if not all, of the portfolio design and deployment occurs.
During the remaining years of the deal, CrowdStreet Advisors charge 0.25% of assets under management. The fee is significantly reduced from years 2 and on because the advisors focus on ongoing maintenance and service at this time.
Below are some of the key benefits that having a CrowdStreet Advisor offers.
Additional information about the CrowdStreet Advisors’ products can be found on the official CrowdStreet website.
CrowdStreet is a great platform for those who want to diversify their investment portfolio. With zero fees to create an account, there is no reason not to check it out to see if any of the investment opportunities match your particular needs.
In general, the team at InvestingSimple finds that CrowdStreet is a good fit for the following:
That being said, CrowdStreet is not recommended for those looking to invest less than $25k at a time since that is usually the minimum investment requirement.
If you feel like CrowdStreet is a good fit for your investment portfolio, sign up and create a free account!