It is well known that the path to wealth and riches often passes through the land of real estate in one way or another. The formula is simple… Own real estate investments and become wealthy!
However, getting down and dirty in the trenches of real estate investing – like acquiring property and dealing with the headaches of being a landlord – that stuff isn’t for everybody.
Introducing a somewhat new and innovative way of investing in real estate by utilizing crowdfunding real estate platforms! This investment opportunity has taken the internet by storm over the last decade and has disrupted a market that was previously only available to certain privileged people.
What is Crowdfunding Real Estate?
You’ve probably heard the phrase ‘crowdfunding’ before, with popular sites like Kickstarter and Indiegogo being two of the most famous.
The idea with these is that a creator has an idea that they want to turn into a real thing and a group of interested backers provides funding to get that project off the ground. Projects can be anything creative, from a board game or photography project to a film or music album.
Following a similar concept, crowdfunding can also be used as a real estate investing method.
There are certain rules in place for non-accredited investors (most of us will fit into this category), but as long as you stick to the rules, you can invest.
There are two ways of investing in crowdfunding real estate:
- Equity investments (like owning shares in an apartment building) – allow investors to share in cash flow from rents and appreciation when the property is sold.
- Loans that are secured by real estate (similar to a bank making a loan); these loans pay monthly interest, and the investment is secured by the property. (Source)
Crowdfunding is becoming a more popular way for people to invest in real estate. It is a form of collective investment that allows small-scale investors to pool funds together and invest in properties with much larger returns.
For example – crowdfunding can help small-scale investors gain access to commercial real estate deals that they otherwise wouldn’t dream of pursuing on their own.
What’s the difference between crowdfunded real estate investments and REIT’s?
Crowdfunded real estate investments work similarly to REITs except that they do not have high regulatory requirements like public companies do, which makes them more accessible for those who want to invest smaller amounts of money into a more diversified portfolio of properties.
A REIT (Real Estate Investment Trust) is a company that owns or invests in real estate properties. It can be publicly traded on the stock market or privately owned by an individual or group of individuals. A REIT has many benefits, including tax advantages, diversification, and liquidity, among others. One disadvantage is that they have high regulatory requirements, which can make it more difficult to start one up and maintain it in the long term.
Crowdfunded real estate investments are different than REITs because they are not publicly traded, and they don’t have the same liquidity as a REIT. Think of it this way…
With a REIT, it’s just like investing in the stock market. You can put your money in and take it out whenever you please. With crowdfunded real estate, it’s more like owning an investment property – where you can’t just sell it on a whim one day and get your money out all at once. You are at the mercy of the group running your crowdfunding platform, as you own just a small fraction of the properties that they invest in.
How Much Money Can You Make Crowdfunding Real Estate?
Just like with any other investment of this type, where you are investing money with expectations of earning a return, the amount you can earn is dependent upon how much you are willing or able to invest.
Crowdfunded real estate investments typically pay out by a percentage rate, and the return rates can vary based on term levels and risks associated with certain investments. For example – if a certain crowdfunded investment paid out 10% for the year – you would earn $2,000 on a $20,000 investment.
What return rate can I expect with crowdfunded real estate investments?
Crowdfunded real estate investments have average overall return rates in the 11% to 15% range.
After studying many reports and online publications on the topic, it is clear that the general consensus on average return rates for crowdfunded real estate investments is well above 10%. Several platforms have reported average realized return rates over 15%, with a few of them even exceeding 20% in returns for investors!
One specific blogger that I found, a guy who wants to ‘Retire Before Dad’, discloses his exact overall weighted average return rate of 12.3% over several years within his Fundrise review post.
Sam, from Financial Samurai (one of my favorite personal finance blogs), tells it like this…
“Since 2016, I’ve earned an internal rate of return of roughly 12% a year from my 18 real estate crowdfunding equity investments around the country. The real estate crowdfunding investments have provided for a solid way to diversify my real estate portfolio.
What’s better, I’ve spent ZERO time having to deal with the properties after my investments were made. What a blessing, especially as a father of two young children now. In fact, real estate crowdfunding makes up roughly $100,000 out of my estimated $310,000 in annual passive income for 2022.”
The Financial Samurai Blog by Sam Dogen
How much should I invest in real estate crowdfunding?
Real estate crowdfunding is a long-term investment. Therefore, the amount you invest should not endanger the amount of money that you will need for living expenses for at least the next 3 to 5 years.
How to Invest in Real Estate with Crowdfunding
Real estate crowdfunding deals can be accessed very easily these days by simply choosing a crowdfunding platform, getting signed up, linking your financial account(s), and then investing money based on your investment goals.
As an example, one of the leading real estate crowdfunding platforms is Fundrise, which allows even nonaccredited investors (that’s most of us, including me) access. Fundrise makes it easy to get started with real estate crowdfunding and start buying into both residential and commercial properties by teaming up with other investors. Any sums that you wish to invest are pooled into REITs, and used to purchase properties, buy land, develop real estate, and otherwise pursue private real estate deals.
A simple-to-use and intuitive website, like Fundrise offers, makes the process of online real estate investment extremely easy and more fun than you would ever imagine.
Is crowdfunding a good way to invest in real estate?
Crowdfunding is a fabulous way to invest in real estate if you don’t want to deal with the hassles associated with acquiring your own physical properties and then put up with the headaches of managing tenants.
However, it is important to consider that crowdfunded real estate investment opportunities are still considered risky. Just the same as investing in stocks, there is no guarantee of positive return rates. Although it is highly unlikely, you can lose 100% of the money you invest via crowdfunding platforms.
Illiquidity is another aspect that you should be aware of with crowdfunding investments. Unlike stock investments, you can’t just withdraw your money on a whim. You need to be prepared to let your money stay tied up in the investment for at least several years – much the same as if you were to purchase a piece of physical property on your own.
10 of the Best Real Estate Crowdfunding Platforms
The JOBS Act was passed into law in the United States back in 2012, giving birth to this brand-new industry of online real estate syndication (AKA crowdfunding). As a result, there are now dozens of reputable crowdfunding platforms to choose from.
Some platforms have come and gone, and many others have stood the test of time (it’s only been 10 years so far). Listed here are ten of the very best real estate crowdfunding platforms – each with different advantages and some specializing in different aspects of the real estate market.
- Fundrise
- Crowdstreet
- RealtyMogul
- RealCrowd
- PeerStreet
- Roofstock
- AlphaFlow
- Alpha Investing
- Groundfloor
- 1031 Crowdfunding
Fundrise
The company was founded in 2012 by Ben Miller, Dan Miller and Brian Dally. The three of them had previously worked together at a private equity firm. They realized that there was an opportunity to fill a gap in the market for people who wanted to invest in real estate but didn’t have the capital or expertise to do so themselves.
Fundrise is a leading crowdfunding real estate investment platform that is the first company of its kind to offer SEC-approved real estate investment trusts (REITs) in the United States. Fundrise allows nonaccredited investors and boasts an industry-low minimum investment amount of only $10.
That’s right! Get started today with an initial investment as low as only $10! It’s a great way to get your feet wet and see how the platform works before investing more of your money.
Built to help smart investors invest smarter.
“With Fundrise, you can invest in a low-cost, diversified portfolio of institutional-quality real estate. We combine state-of-the-art technology with in-house expertise to reduce fees and maximize your long-term return potential.
Real estate has traditionally been one of the most sought-after asset classes for professional investors1 — now it’s available to you.”
CLICK HERE to learn how Fundrise works
Crowdstreet
Crowdstreet provides a new approach to investing in real estate. The company has managed to create an innovative crowdfunding platform that helps people invest in real estate from all over the world.
Crowdstreet was founded by Darren Powderly in 2012 after he identified the need to radically improve people’s access to commercial real estate investments via technology.
The company offers a variety of investment opportunities for both accredited and non-accredited investors, including commercial, residential, and mixed-use real estate investment opportunities.
You should be earning like a landlord, not working like one.
“Our investments are passive, giving you the potential to earn income without the maintenance or operational responsibilities of owning a building.”
The value of real estate, without buying an entire building.
“Invest in large-scale real estate projects with other investors, without having to foot the entire bill. Leverage the power of the Crowd.”
Learn more about Crowdstreet here
RealtyMogul
RealtyMogul is the first and largest crowdfunding marketplace for real estate. It was founded in October 2012 with the mission to democratize the way people invest in real estate.
“While working in wealth management, RealtyMogul’s CEO Jilliene Helman identified three key insights that separated the wealthiest clients from the rest. Her goal of sharing these insights would soon lead to the founding of RealtyMogul.”
Learn more about RealtyMogul here
RealCrowd
RealCrowd is a crowdfunding-powered investment platform that provides investors with access to commercial and residential real estate opportunities. Investors can choose from various property types, including office, retail, multifamily, and industrial properties.
Here is the RealCrowd story, as told by one of the co-founders…
“In 2012, I was working on another real estate transaction for an institutional investor and by then had helped investors like them make hundreds of millions of dollars investing in real estate projects around the country. So when my friend who had $50,000 to invest in real estate asked me what he should do, I had to tell him that just wasn’t enough. At that moment I realized there had to be a better way.
Earlier that year, a massive piece of legislation – The JOBS Act – had been passed, paving the way for a revolutionary step in the capital markets. Normal investors would now have access to the same private investments that institutions, endowments and professional investors have enjoyed for decades.
The better way was right in front of us, we just had to go build it!”
Learn more about RealCrowd here
PeerStreet
PeerStreet claims to be the first marketplace for investing in real estate debt.
“It’s simple. Borrowers pay monthly interest on real estate loans, and you get your share of those payments as they are received. That is real estate debt investing.”
We’re making investing in real estate debt easier than ever
“PeerStreet introduced the first and largest two-sided marketplace for investing in real estate debt. On one side, we source loans from our nationwide network of private lenders and brokers, then aggregate, service, and manage those loans for individual and institutional investors on the other.”
Learn more about PeerStreet here
Roofstock
Roofstock is a platform that gives individual real estate investors access to residential properties, focusing primarily on single-family rentals. Co-founded by Gary Beasley, Gregor Watson, and Rich Ford – Roofstock’s mission is to make ownership of investment real estate radically accessible, cost-effective and simple.
“Our platform lets everyone from first-time investors to global asset managers evaluate, purchase and own residential investment properties with confidence from anywhere in the world.”
Learn more about Roofstock here
AlphaFlow
AlphaFlow is another leading online platform that uses technology to connect the capital markets to local real estate. Think big Wall Street investment firms who want access to the $75 billion industry that is lending for local real estate.
“AlphaFlow invests in short-term, asset-backed mortgage notes, in a first lien position, providing security and assurance of repayment. Portfolios target a maximum loan-to-value of 75%, providing a minimum 25% equity cushion.”
Learn more about AlphaFlow here
Alpha Investing
Alpha Investing focuses heavily on building relationships with its network of investors and operators. Their investment criteria emphasizes private real estate assets consisting mostly of multi-family housing, senior housing, and single-family rentals.
“Many investment firms boast that they review and reject thousands of projects. We see that as a total waste of time.
Each Alpha Investing deal starts with the relationship with our operating partners. By building relationships with best-in-class operators, we ensure that the deals we invest in are managed and operated at a level of excellence on par with the highest-tier global operators.”
Note: Alpha Investing is only open to accredited investors with high income and net worth thresholds.
Learn more about Alpha Investing here
Groundfloor
Groundfloor is a great option for nonaccredited investors who may be looking to get started in real estate investing with a very low minimum investment. They self-proclaim that they are “built for everyday investors”, they have consistent returns of 10%, and they have no fees.
“Groundfloor offers the best of all worlds: short-term investments with high-yield returns, and it takes only $10 to get started. With recurring investments and short-term loans, your portfolio can generate cash flow in as little as nine months.”
Learn more about Groundfloor here
1031 Crowdfunding
1031 Crowdfunding is a unique platform in that they specialize in 1031 exchanges for investors who wish to parlay their payout from a traditional real estate sale into an online real estate investment. So, if you’re looking to sell a physical property and move your “winnings” to online real estate investment platforms, without paying taxes on your gains, then this is where you may want to start.
“One of the requirements for a 1031 exchange is to take on “equal or greater debt” in the replacement property to what you had in the property you are exchanging. A DST takes the headache out of arranging financing and already has non-recourse financing set up for you. If you’re reinvesting real estate funds through a 1031 exchange, our experienced professionals can guide you through the entire process.”
Learn more about 1031 Crowdfunding here
Investment Limits For Crowdfunding
The United States Securities and Exchange Commission (SEC) does have investment limits in place for what they call “Regulation Crowdfunding.” Real estate crowdfunding does fall under this umbrella – as the SEC does not differentiate it from other crowdfunding platforms that tend to fund riskier investment opportunities. Here is what the SEC website says on this topic…
Anyone can invest in a Regulation Crowdfunding offering. Because of the risks involved with this type of investing, however, you may be limited in how much you can invest during any 12-month period in these transactions. If you are an accredited investor, then there are no limits on how much you can invest.
If you are a non-accredited investor, then the limitation on how much you can invest depends on your net worth and annual income.
Learn more and see updated investment limits on the SEC website here
How much can you invest in crowdfunding?
If you are an accredited investor, the amount you can invest in crowdfunding is unlimited. For nonaccredited investors, the limited amount you can invest is based on your annual income and/or net worth.
I purposely choose not to publish specific figures in this article, as the numbers change yearly for nonaccredited investors. For specific limitation numbers, please see the investment limits on the SEC website here.
Real Estate Crowdfunding Platforms for Non-Accredited Investors
Among the many crowdfunding platforms for real estate, some allow accredited investors only, while others are open to nonaccredited investors as well. Most of us ‘normal’ folks fall under the category of nonaccredited investors, as an accredited investor is somebody with a very high annual income and net worth who also might hold special certifications or credentials.
Can non-accredited investors invest in crowdfunding?
Yes, non-accredited investors are allowed to invest in crowdfunding with certain limitations as outlined by the SEC (for United States investors).
One of the most popular real estate crowdfunding platforms that does allow nonaccredited investors is Fundrise where investors can get started with an initial investment as low as $10! I personally have an investment portfolio with Fundrise and I’ve seen many other financial bloggers talk highly about the platform as well.
Risks Associated with Crowdfunding Real Estate Investments
As is the case with any investment, there are risks involved. There is no 100% guarantee of a positive return rate, in addition to some of the more practical risks.
Crowdfunding real estate investments are a relatively new phenomenon in the United States. The industry is still so new that there are few specific regulations or laws to protect investors. Investors should be aware of the risks associated with crowdfunding real estate investments before making an investment decision.
- The first risk is that it might be difficult to find accurate information about the property (or properties) being invested in. There can be a lack of transparency about how much money has been raised, who the investors are, what types of properties are involved, and if they have tenants or liens against them.
- The second risk is that some crowdfunding platforms may not have enough capital to cover all investor funds if something happens to the property, such as a natural disaster or foreclosure.
- The third risk is that there may not be enough protection for an investor’s personal assets if they invest in a project and something goes wrong with the project or investment.
Can you lose money with real estate crowdfunding?
As is the case with any investment, it is possible to lose money with real estate crowdfunding investments. However, real estate crowdfunding is considered less risky, as compared to other crowdfunding investments, because the investment money is tied to tangible real estate assets.
For example, if you back a project on another popular crowdfunding platform and the project goes bust – you could potentially lose the entirety of your investment. But, with real estate crowdfunding platforms like Fundrise, your investment money is typically spread across several different real estate holdings to minimize your risk.
Is Real Estate Crowdfunding Considered a Good Investment?
For some, real estate crowdfunding is a good investment, and for others, it isn’t. It all depends on the type of person you are and what your goals are.
If you’re looking to score a big payday with a quick-win real estate deal, crowdfunding would not be your best option. If this is the case, you may want to look into private market offerings in real estate.
But if you want long-term investments with steady and proven growth, then crowdfunding might be perfect for you! Real estate crowdfunding platforms typically boast rates of return that are similar to (or slightly better than) stock market returns without the volatility.
As always, be sure to do your due diligence when considering any real estate investment options. Research past performance for any real estate crowdfunding sites that you are considering to get a sense of what future performance might be. Seek investment advice from a professional if you are unsure or uneasy about any aspect of real estate crowdfunding sites.
Related Read: 27 of the Best Passive Income Ideas for Everyday People
Matthew Allen
