Invest In Real Estate Crowdfunding: Expectations vs. Reality

There are several ways to invest in real estate crowdfunding. First, there are online platforms that allow individuals to contribute to a variety of real estate projects and earn returns. Second, investors can purchase real estate directly from another person or company who is looking for funding.

Best Overall: CrowdStreet

• Fees – 0.5% – 2.5% for CrowdStreet funds; other fees vary by deal
• Minimum Investment – $25,000
• Average Annual Returns – 11.5% to 26.4%, depending on the investment
• Total Investor Distributions – $135 million
• Investment Options – Funds, individual deals, and a professionally managed, tailored portfolio
• Accredited Investors Only – Yes

The Crowdstreet platform has been used by 101,000 investors throughout the U.S. Direct access to vetted institutional-quality real estate investments is provided by its innovative approach. An accredited investor can choose a single property or invest in a fund.

This Portland, an Ore.-based company, founded in 2014, offers over 473 commercial real estate investment opportunities. To date, 44 of those offerings have been fully realized.

Pros

• User-friendly platform with a helpful chatbot
• Institutional-quality offerings
• Easy to find investment details (once you sign up for a free account)

Cons

• Accredited investors only
• Steep investment minimums
• No early withdrawals

Best REIT Option: DiversyFund

• Fees – 2% to 8% developer fee
• Minimum Investment – $500
• Average Annual Returns – 10% to 20%, depending on the investment
• Total Investor Distributions – $135 million
• Investment Options – Real Estate Investment Trusts (REITs)
• Accredited Investors Only – No

DiversyFund offers a unique crowdfunding model for real estate. Rather than acting as a broker who connects investors with projects, DiversyFund acquires, develops, and manages its portfolio of properties, collects the cash flow, and distributes the profits to its investors.

Unlike some crowdfunding platforms, it does not charge management or broker fees. Currently, you can invest in the DiversyFund Growth REIT ($500 minimum).

Pros

• Zero management fees for investors
• One of the few platforms with a mobile app
• Low minimum investment

Cons

• Limited investment choices
• No early withdrawals
• Payment at the end of the investment term

Best for Institutional Commercial Real Estate: EquityMultiple

• Fees – 1% on equity investments; other fees vary by offering
• Minimum Investment – $10,000
• Average Annual Returns – 14.5%
• Total Investor Distributions – $62.8 million
• Investment Options – Institutional commercial real estate; equity, preferred equity, and senior debt; Opportunity Zones, and 1031 exchange investments
• Accredited Investors Only – Yes

Investments at EquityMultiple are almost exclusively in institutional commercial real estate. It also offers equity, preferred equity, and senior debt investments. Tax-advantaged real estate investments (Opportunity Zones and 1031 exchanges) and fund products were recently added to the company’s offering. Periodic distributions are usually made monthly or quarterly depending on the deal.

Pros

• Good investment selection
• Variety of target hold periods
• Easy-to-use platform

Cons

• Accredited investors only
• Steep minimum investment
• Limited redemption options

Best for Beginners: Fundraise

• Fees – .15% Advisory fee, .85% Asset Management fee
• Minimum Investment – $500 to $100,000 depending on account level
• Average Annual Returns – 7.42% to 12.42%, since 2014
• Total Investor Distributions – $100 million+
• Investment Options – Varies depending on the selected account level
• Accredited Investors Only – No

Founded in 2012, Fundraise has invested more than $5 billion in real estate across the country. More than 150,000 individual investors trust the company with over $1.5 billion in equity.

Fundraise offers five levels of accounts: Starter, Basic, Core, Advanced, and Premium. In addition to varying investment strategies and potential returns, each level has a minimum investment amount.

Pros

• No accreditation required
• Well-rated mobile app
• Request share redemption at any time (possible fees and redemption not guaranteed)

Cons

• Nonqualified dividends

Best for Investing in Loans: PeerStreet

• Fees – 0.25% to 2%
• Minimum Investment – $1,000
• Average Annual Returns – 2% to 9%
• Total Investor Distributions – $225 million+
• Investment Options – Real estate debt
• Accredited Investors Only – Yes

PeerStreet is a marketplace for private real estate loans offered to accredited investors. You (the investor) get a share of the monthly payments. Your investment provides lenders with capital to lend to real estate borrowers. PeerStreet collects the payments from the borrowers.

Diversifying your portfolio manually or automatically can include investments from different locations, lenders, borrowers, asset classes, loan-to-value (LTV) ratios, and interest rates.

Pros

• Unique offering among real estate investment platforms
• Diversification across various parameters
• Low-interest rate risk because loans are a maximum of 36 months

Cons

• Accredited investors only
• Only offers investments in debt
• Higher risk than some other crowdfunding options

Best Property Research: RealtyMogul

• Fees – 1% to 1.5%
• Minimum Investment – $5,000
• Average Annual Returns – 5% to 19%
• Total Investor Distributions – $136 million
• Investment Options – REITs, individual properties (multifamily, office, industrial, self-storage, retail, and medical office), 1031 exchanges
• Accredited Investors Only – No

Since its creation in 2013, RealtyMogul has attracted more than 212,000 investors. Every potential property of the company is inspected personally, and its proprietary methods and models are applied to each deal.

In addition, the company works only with real estate partners that have proven track records and experience managing assets. The fund does not own raw land or build ground-up projects, which are non-cash-flowing investments. Investors can choose between three objectives: passive income, growth, and diversification.

Pros

• Good investment selection
• Thorough due diligence
• Monthly auto-investing in REITs starting at $250 per month

Cons

• Different fees associated with each investment
• Investments not easily sold or traded
• Some long hold periods

FAQs

What Is Real Estate Crowdfunding?

Crowdfunding refers to the process of gathering small investments from a large group of investors to finance projects or ventures. When a large number of people make small investments, it’s possible to raise substantial amounts of money quickly. There are several well-known crowdfunding sites, such as GoFundMe, which raises money for a variety of purposes, including creative projects and medical costs.

Crowdfunding for real estate raises capital for real estate investments. In some cases, investors and developers do not want to (or cannot) finance the entire investment themselves. In these cases, crowdfunding is used to help finance the project. It allows investors to invest in real estate without owning, financing, or managing properties.

Pros

• Real estate exposure without having to own, finance, or manage properties
• Low minimum investment, so you can access assets that would be unaffordable otherwise
• High-profit potential through distributions and a lump-sum return at the end of the investment
• Automatic investing on most platforms

Cons

• Illiquid, so your money may be tied up for at least three to five years
• Higher risk than other types of equity investments
• High fees, depending on the platform and investment you choose
• Some opportunities only for accredited investors

How Does Crowdfunding Work in Real Estate?

Platforms for investing in real estate connect investors with funding. The majority of real estate crowdfunding deals involve a sponsor, a crowdfunding platform, and investors. Let’s take a look at how it works:

1. An individual or company that sponsors a project is responsible for it. A sponsor purchases the investment, manages it and sells it.
2. Fundraising platforms connect the sponsor to investors. By explaining deals to investors, handling regulatory issues, and collecting money from investors, it assists the sponsor.
3. Investments for the project are collected as payment for the project.
   Profit share.

How Can You Start in Real Estate Crowdfunding?

Real estate investors and sponsors can connect with crowdfunding platforms. Getting started in real estate crowdfunding is as easy as browsing various crowdfunding sites for opportunities that interest you — whether it’s one property or a fund with dozens.

You should pay close attention to the platform’s vetting process for deals and sponsors. By doing high amounts of due diligence, the top platforms ensure that any sponsors—and any deals they have to offer—have been thoroughly evaluated.

Can You Crowdfund in Commercial Real Estate?

Yes, investors can invest in real estate crowdfunding platforms for hotels, apartment complexes, medical facilities, self-storage facilities, and retail projects. They would not be possible without crowdfunding.
A large investment would otherwise be unaffordable for most people.

Can You Make Money from Crowdfunding?

Real estate crowdfunding has the potential to earn competitive returns.
An average return from real estate crowdfunding is estimated at 10%
or more per year.3

The investment of real estate crowdfunding remains risky, however. There are no guaranteed returns in the stock market, and you could lose your entire investment. Additionally, unlike the stock market, your money may be locked up for a long period of time depending on the investment.

Investors can find investment opportunities on real estate investment platforms. While it is possible to earn competitive returns, you may also lose everything you invested. Do your research before you invest in a crowdfunding platform, sponsor, or opportunity.

How We Chose the Best Real Estate Crowdfunding Sites

In order to select the top real estate crowdfunding sites, we considered a variety of factors, including:

• Investing minimums
• Platform fees
• Total number of investors
• Total investor dividends
• Historical annual returns
• Reinvestment opportunities
• Website transparency (how easy it is to find platform fees, minimums, and redemption options)
• Better Business Bureau ratings
• Educational offerings

Furthermore, we examined each platform’s online reputation, including its search volumes, news stories, and customer reviews to make sure it is legal and well-respected

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