Real estate crowdfunding sites give investors low-cost opportunities to invest in real estate. What are the best commercial real estate crowdfunding sites & is it worth the risk?
The majority of millionaires – 90% of millionaires, according to many sources – have built their wealth through real estate investments.
Real estate investments offer some significant benefits. Real estate provides passive cash flow, as well as tax benefits. It also generally appreciates in value over time, and you can leverage real estate to put towards other investments.
The problem is that most people don’t have tens or hundreds of thousands of dollars ready to invest, meaning it’s cost-prohibitive for the majority of people to start investing in real estate.
Buying rental properties has become one of the more accessible options, but you’re still dealing with tenants and repairs, and your livelihood can be on the line if you go through an extended period without a renter.
Overall, investing in real estate has been out of reach for the vast majority of people.
That’s changed with the introduction of real estate crowdfunding sites that allow accredited and unaccredited investors to fund a variety of projects for as little as $1,000.
These sites are all a little different. Some offer portfolios and others let you pick individual investments. There are also tax-deferred options and REITs (real estate investment trusts).
There’s a risk when you invest in real estate of any kind, but this hands-off and low-cost option is really appealing to anyone who wants to try out the market. Plus, the peer-to-peer model is inherently millennial.
To help you navigate this whole new world, I’m going to tell you about 7 of the best sites for crowdfunded real estate. There are dozens of options right now, and dozens more have already dissolved. This is important to think about and it’s why I’m also explaining how to get started and choose the right company.
7 of the best real estate crowdfunding sites for 2020
Founded in 2012, Fundrise is possibly the most well-known real estate investment site. There are more than 130,000 active investors who have earned more than $79 million in net dividends.
There are a wide range of projects from single-family homes, subdivisions, apartment complexes, and commercial properties.
Fundrise offers investors three account levels:
- Core – $1,000 minimum: You can choose between three diversified real estate portfolios that are focused on cash flow, long-term growth, and a balance between the two.
- Advanced – $10,000 minimum: Comes with core features, plus you can allocate a portion of your portfolio to specific investments.
- Premium – $100,000 minimum: Includes Advanced and Core features, plus access to Fundrise’s investment team and periodic access to private equity funds.
Investors pay fees of 1% annually, which is divided between a 0.15% annual advisory fee and a 0.85% annual asset management fee.
Read more in my Fundrise Review 2020: Commercial Real Estate Investing for All
Crowdstreet was founded in 2014 and allows investors to browse through real estate investment opportunities and manage their own accounts. Crowdstreet also has a team of in-house advisors if you want help matching investments with your goals.
Before you can start investing with Crowdstreet, you’ll have to meet the guidelines as an accredited investor, which are:
- Earn more than $200,000 in annual personal income, or
- Earn more than $300,000 in joint annual income with a spouse, or
- Have more than $1,000,000 in net worth not including your personal residence
Crowdstreet projects include options like charter schools, apartment complexes, student housing, and commercial properties.
Minimum investment amounts range from $25,000-$100,000 and vary by fund. There’s no fee to register for Crowdstreet, but annual fees vary by project and can be anywhere from 0.50% to 2.5% of invested capital on an annual basis.
PeerStreet was founded in 2008, lists projects in 44 different states, and has returned more than $175 million in interest to investors.
PeerStreet has real estate crowdfunding investments start at $1,000, and the maturity rate on your loans is around 6 months to a year. Investors can manually diversify their portfolio or invest automatically across different locations and asset classes.
You need to be an accredited investor to use PeerStreet (same requirements as above), and fees range from 0.25% to 1.00%, varying by fund. Funds include commercial, residential, and single-family homes.
EquityMultiple was founded in 2015, and they’ve shown investors historic returns of 14.1% in the past five years. You must be an accredited investor, and they offer three different real estate crowdfunding approaches:
- Fund Investing: Requires a minimum investment of $20,000, offers immediate diversification, and the target duration of the projects is 1.5 to 10+ years.
- Direct Investing: Investments minimum start at $10,000, last 6 months to 5+ years, and allow investors to invest in one property at a time.
- Tax-Deferred Investing: Minimum investment of $40,000, target duration of 5 to 10+ years, best for investors with substantial recent or potential capital gains.
For equity investments, the fees are 0.5% and the rest of the fees vary by offering.
Launched in 2013, RealtyMogul has financed more than $2 billion in properties and paid out more than $172 million to investors.
You can invest in REITs (real estate investment trusts), individual properties (commercial, storage, industrial, medical office, and multifamily), or 1031 exchanges – these are for investors looking for a capital gains deferment.
Accredited investors can invest in any of RealtyMogul’s offerings, and unaccredited investors can only invest in their REITs. Fees range from 1% to 1.5% based on the fund.
DiversifyFund was founded in 2015 and is unique because it’s a no-fee platform that’s open to real estate crowdfunding investors for as little as $500. You also don’t need to be an accredited investor to get started.
There are limited offerings on DiversifyFund – they currently specialize in multi-family properties in California and Texas.
DiversifyFund’s investment terms are approximately five years, and they don’t offer options for early withdrawal. It’s a solid budget option for crowdsourced real estate, but a highly illiquid investment overall.
Launched in 2017, Streitwise is not technically crowdsourced real estate, instead, it’s a real estate investment trust (REIT) that is accessible to newbie investors. Investors don't need to be accredited, and you can start investing with as little as $1,000.
Streitwise only offers investors one option – a REIT, but it is broadly diversified. There’s also a 3% upfront fee, and you pay 2% annually.
They pay dividends annually, and they are very upfront and transparent about the REIT’s performance so far.
Background crowdfunding real estate
You probably noticed that none of these companies were around before 2012, and there’s a reason for that.
The JOBS (Jumpstart Our Business Startups) Act, which was signed in 2012, allows crowdfunding to be used for funding private investment projects. Companies could then raise (or technically borrow) money from the public to fund large scale real estate projects.
Overall, the returns on real estate crowdfunding have been really appealing to anyone who’s wanted to start investing in real estate. Annual returns are anywhere from 8% to 25% depending on the investment.
However, there’s a very limited history – less than 10 years overall and less than 5 years for several of these companies.
How do I start crowdfunding in real estate?
Because none of these companies have been around for very long, start by looking for one that’s well-capitalized. That means there is already a lot invested, which reduces the risk that the company or fund will go under.
Ideally, the founders need to be well-invested so you know they have skin in the game. Look at their background and make sure they have previous industry experience.
You also want to look for:
- Transparency: You wanted documentation of accounting on past deals.
- Location, location, location: If there’s the option to select where your funds go, research the location by looking at demographics, local rental market, job outlook and growth, crime statistics, tax rates, utility costs, etc.
- Defaults: Check into the number of defaults and how transparent a company is about that number.
- Vetting process: These companies all vet the projects before accepting them and opening them up to private investors – examine what that process is like.
I know that’s a lot, but this isn’t something you want to take lightly, even if the barrier to entry is low.
The next step is thinking about the kind of investment you want or can make. Fundrise, Streitwise, and DiversifyFund are the lowest cost options with minimums starting at $500. What’s also unique about these companies is that you don’t have to be an accredited investor.
But if you do have accredited investor status, then you may want to consider an alternative, like CrowdStreet or PeerStreet. Other options like RealtyMogul and EquityMultiple both have tax-deferred investment options if that’s one of your goals.
Is real estate crowdfunding safe? The final word
Unfortunately, I can’t give you a definitive “yes” or “no” to this question. Real estate is an inherently risky investment, and the crowdfunded aspect is still relatively new.
People have made money from commercial real estate crowdfunding sites, and I expect that to continue to happen. But there’s always a risk.
You can mitigate that risk by not putting your entire life savings or investing your retirement funds solely in real estate – this is just common sense though.
There’s a potential high-reward that comes with high-risk investments. Not everyone is up for it, but it’s an option.
Just remember, diversity is key in any good investment strategy. Don’t let real estate be your only investment.