Real estate is a terrific way to grow long-term wealth. I’d even contend that real estate is one of the best ways to build wealth outside the stock market. Just one problem: real estate investing often costs a lot of money. As a result, for years there was little opportunity for the masses to invest in real estate and diversify their wealth. Thanks to real estate crowdfunding sites, that’s no longer the case.
Crowdfunding may seem like an odd thing for real estate investing. However, in essence, it’s the perfect avenue for those who want to add real estate to their investing strategy and do so in a limited fashion.
What is Real Estate Crowdfunding?
You may be asking yourself, ‘what is real estate crowdfunding, and how can it help me?’ Traditionally, investing in real estate requires significant sums of money or the ability to manage properties.
Crowdfunded real estate investing lowers that barrier of entry so you can invest in small amounts and not deal with physically managing a property. In short, real estate crowdfunding platforms allow you to pool investments with others to finance buying a property or properties.
This gives you as the investor the ability to invest in real estate and not deal with physical management. Each platform operates differently, but some real estate crowdfunding companies allow you to start investing with as little as $500 or $1,000.
Accredited Investors vs. Non-Accredited Investors
Before we discuss the top real estate crowdfunding sites, it’s important to point out one issue. There are two types of investors, accredited and non-accredited. You must meet one of the following requirements to be an accredited investor:
- Have a net worth of at least $1 million
- Earn at least $200,000 per year
If you don’t meet one of those requirements, you are a non-accredited investor. There’s nothing wrong with that classification, but not all platforms accept non-accredited investors.
It’s important to know whether the platform accepts non-accredited investors before attempting to open an account.
One other factor to consider with crowdfunded real estate is many funds are illiquid. This provides the benefit of increased dividends, but they’re not liquid, and returns are taxable.
Various platforms offer the ability to invest in an electronic real estate investment trust (eREITs). Think of this as a basket of properties. REITs were the only way to invest in real estate for many years.
They’re publicly traded, and you can invest in them today. eREITs, on the other hand, are typically privately held and available through crowdfunding sites.
Best Real Estate Crowdfunding Sites
There are dozens of real estate crowdfunding platforms. Not all companies are equal, so do your due diligence before opening an account to ensure it meets your needs and is a legitimate opportunity.
Below are the best real estate crowdfunding sites to consider if you want to add real estate to your portfolio.
Fundrise is one of the best real estate crowdfunding sites for non-accredited investors. As an investor, you can open an account with either $500 or $1,000. For $500, you go into their Starter Portfolio.
The Starter Portfolio invests in a mix of real estate projects throughout the country. You receive quarterly dividends, plus the opportunity for your investment to grow.
If you choose to invest $1,000 to start, you have the choice to go into their Core Portfolio. The Core Portfolio provides the following investment choices:
- Supplemental income – focusing on dividend income
- Balanced investing – a mix focusing on long-term wealth creation
- Long-term growth – focuses on higher returns over the long-term
Your investment choices are a bit more limited when starting with $500. But, once you reach $1,000, you have more options and the ability to focus your investing in a certain sector or geographic area.
Fundrise provides a variety of real estate investing options, including:
- Commercial property
- New home construction
Average annualized returns for 2018 was 9.11 percent, according to the Fundrise site. This is net of their investment fees of .85 percent, which is competitive within the industry.
Although earnings are taxable, Fundrise offers self-directed IRAs, allowing you to shelter income from taxes and diversify retirement investments.
RealtyMogul is a platform that serves both accredited and non-accredited investors. The platform focuses on commercial real estate, which includes any of the following:
- Office buildings
- Retail establishments
- Multi-family residences must be at least a fourplex to qualify
You can open an account with RealtyMogul with $1,000, making them a great way to invest in real estate on an average income. The platform offers both debt-backed investments and equity possibilities through REITs.
It’s possible to invest in one of two REITs through RealtyMogul, known as MogulREIT I and MogulREIT II, respectively. The former focuses on commercial and retail properties, while the latter focuses on apartment buildings.
Below is what you can expect to earn through each REIT through dividends:
- MogulREIT I – eight percent annual dividend yield
- MogulREIT II – four and a half percent annual dividend yield, but greater long-term potential
If you invest with at least $5,000 RealtyMogul allows you to select individual properties. Below that amount, you choose one of the two REITs, which you can also hold in an IRA.
RealtyMogul charges lower fees than other real estate crowdfunding sites, charging just .30 to .50 percent annually.
PeerStreet is the first on our list for accredited investors. Where PeerStreet sets themselves apart is they invest solely in short-term debt tied to real estate.
If you’re familiar with peer-to-peer lending, PeerStreet is similar to that. It’s a marketplace of loans you get to choose that’s backed by the underlying property. These aren’t commercial properties, but single-family residential properties.
Similar to Fundrise, you get to choose your investment style with PeerStreet. They allow you to select specific loans, or you can choose a portfolio based on your investment goals. PeerStreet also offers IRAs for those wanting to shield investment returns from taxes.
Though only for accredited investors, PeerStreet shines in being a low-cost leader among crowdfunded real estate sites. Many platforms charge an annual fee of at least one percent. PeerStreet charges between .25 and one percent.
You can open an account with PeerStreet for just $1,000 and can expect returns of six to nine percent, according to their website.
Do you like the idea of buying turnkey rental properties? If so, Roofstock is the platform for you. With other real estate crowdfunding platforms, you invest your money in projects that a developer plans to rehab or list.
Roofstock is different. You buy the property outright through the Roofstock platform. These are turnkey properties you buy to rent. You don’t physically manage the property; the platform handles this. Plus, they have properties in over 40 markets.
There are no minimums to open an account with Roofstock. Additionally, you don’t need to be an accredited investor to invest with Roofstock. To buy properties, you must have 20 percent to put down with the option to do so inside of an IRA.
Fees are cheaper than you’d typically pay a realtor to locate a property for you. Roofstock charges an account set up fee of .50 percent to open an account.
The Roofstock platform is relatively simple to use and lets you locate properties based on numerous factors, such as locations, schools, and rent. If you’re not satisfied with your property, Roofstock offers a 30-day satisfaction guarantee.
5. Rich Uncles
Rich Uncles is perhaps the best option for real estate crowdfunding for non-accredited investors. While most platforms require $500 or $1,000 to start, you can start investing with as little as $5 with Rich Uncles.
Rich Uncles offers two REITs to choose from. Those are:
- Student Housing REIT
- Commercial Property REIT
The Student Housing REIT requires just $5 to start. It focuses on housing local to Division 1 college campuses. The housing must have at least 150 beds and have a 90 percent, or more, occupancy rate.
This REIT if a newer offering by Rich Uncles, starting in 2018, and offers a six percent annual dividend, paid monthly.
The Commercial Property REIT has a higher minimum requirement of $500, which is still attainable for most. This is their original investment option and focuses on retail buildings for investments.
Rich Uncles does not charge fees to buy investments. They charge when you sell a holding. Those fees are:
- Owned less than a year – three percent administrative fee
- One – two years – two percent administrative fee
- Two – three years – one percent administrative fee
- Owned more than three years – no administrative fee
When buying commercial properties, Rich Uncles only does so with 50 percent equity, therefore reducing risk. The one drawback to Rich Uncles is you’re only able to invest in the Commercial Property REIT if you live in 24 states.
If you live outside that region, a choice like Fundrise would be better.
stREITwise is an excellent choice if you’re looking for real estate crowdfunding platforms for non-accredited investors. The site requires a minimum investment of $1,000 and promotes the potential of ten percent dividend returns.
The platform focuses primarily on retail and commercial buildings for investments. They also have a transparent fee structure, which they say is cheaper than other platforms.
stREITwise charges an upfront three percent fee, and an ongoing two percent management fee. These come out before dividend distribution.
stREITwise is best for those looking for long-term investments. Your money must remain invested for at least five years to receive full redemption value. You must hold any investment for at least one year, and they offer the option to reinvest dividends if you wish.
7. Patch of Land
Patch of Land is one of the legacy platforms for crowdfunded real estate investing, starting in 2012. While the site does have a low minimum requirement of $1,000, they only allow accredited investors.
The Patch of Land platform works similar to PeerStreet as they’re a lending marketplace. Investors lend money to real estate developers wanting to improve and rehab residential and commercial properties.
Loans mature between one to three years, and Patch of Land takes between one and two percent of the distributions made to investors. You can expect to earn up to 12 percent on one-year loans, according to their site. Like other sites, you can invest through a self-directed IRA.
EquityMultiple is another accredited investor only site for real estate crowdfunding. Investors can open an account with as little as $5,000, and the site offers both debt and equity investments.
EquityMultiple sets itself apart by approving a small number of loan requests, just ten percent according to their site. This helps ensure a lower level of defaults for investors.
The platform charges competitive fees, .50 percent in administrative fees plus ten percent of all profits. Investments range between one and ten years. You can expect to earn as much as 17 percent, according to their site.
AlphaFlow is the final of our choices for best real estate crowdfunding sites. The site only accepts accredited investors, and they have the largest minimum investment on our site, coming in at $10,000, and investments range from one to four years.
AlphaFlow offers both debt and equity investments, with all being in residential real estate. They take your investment and places your cash in up to 100 properties, and they actively manage your investment from there. Think of it as the real estate equivalent to an actively managed mutual fund.
The site claims a return possibility of up to nine percent. You can withdraw earnings, or reinvest them to increase return potential. AlphaFlow charges one percent in fees, which is competitive within the market.
Investing in crowdfunded real estate is like any other investment. There are risks involved, and you can lose money. On the positive side, real estate is one of the best passive income ideas to pursue.
Below are a few must-follow tips whenever you’re considering investing in real estate:
Diversification is key. Real estate is a great way to diversify your investment portfolio. Just like you diversify stock market holdings, you want to consider the same with real estate. This includes considering both commercial and residential properties, as well as debt and equity holdings.
Do your own research. Investing requires research. Do your due diligence to ensure a property fits your risk profile and right for your needs. Platforms offer an offering circular for each property, which is your best place to start for research.
Don’t overlook retirement. Many of the above real estate crowdfunding sites allow you to invest through a self-directed IRA. This can be an effective way to shield dividend income from taxes, plus it adds valuable diversification.
Consider investing in multiple platforms. Each platform is different. You may want to invest in multiple platforms to add necessary diversification and access various properties.
Benefits of Investing in Real Estate Crowdfunding Platforms
Thanks to technology, it’s possible to invest in crowdfunded real estate. Investing in real estate presents several benefits, including:
- Passive income
- Growing long-term wealth
- Helping those who may need a property
- No need to physically manage properties
- Low barrier to entry to invest
- Potential tax benefits
- Transparency from the property management
Each situation is different, but many of the above provide solid opportunities for most. Do keep in mind that most opportunities are illiquid investments, but that’s the case with real estate investing as a whole and not strictly an issue with crowdfunding platforms.
Best Crowdfunding Real Estate Sites: Bottom Line
Investing in real estate has often been something only available to those with means. That is no longer the case with the growth of crowdfunding real estate sites. You can invest at virtually any income level, allowing you to create long-term wealth.
Illiquidity aside, investing in crowdfunded real estate provides an opportunity for building wealth without a lot of upfront time or financial investment.
Do you currently invest in real estate? What apprehensions do you have about using a real estate crowdfunding platform? Other than investing, how else are you growing your wealth?
Source: Frugal Rules