Real estate investing has always been out of reach for average investors. That’s where real estate crowdfunding comes in. This is a newer concept that involves creating a large pool of small investors to fund large-scale real estate projects.
Considering that most millionaires — 90% of millionaires, according to many sources — have built their wealth through real estate investments, real estate is an attractive investment opportunity.
Now all you need is $500 to start investing in real estate, but since this is a brand new world, you’ve probably got some questions. Like, exactly what is real estate crowdfunding, which platforms are best, and whether or not it’s worth it.
7 Best Real Estate Crowdfunding Sites & What to Know Before You Invest
What is real estate crowdfunding?
Real estate crowdfunding is a relatively new investment option that is exactly what it sounds like: getting lots of people to invest money in real estate projects. Instead of having a small handful of big investors, crowdfunding real estate investments involve a large pool of small-time investors.
Real estate crowdfunding opens the door for average people to invest in real estate. Seriously, you can start with as little as $500.
The crowdfunded real estate market opened up to investors with the Jumpstart Our Business Startups Act (JOBS Act) of 2012. It allows crowdfunding to fund private investment projects. Companies could then raise (or technically borrow) money from the public to fund large scale real estate projects.
It took several years for real estate crowdfunding companies to start up after the JOBS Act was signed in 2012, but a number of companies have taken off since they got the green light from regulators. Like Equity Multiple, Fundrise, and RealtyMogul, those companies have seen impressive returns for investors in a few short years, anywhere from 5% to 25%, depending on the investment.
Benefits to investing in crowdfunded real estate
Considering that real estate is seen as a relatively stable market (can’t forget the subprime mortgage crisis of 2007-2010), crowdfunded real estate is an exciting investment opportunity for lots of reasons.
- You can start investing for as little as $500. The minimum investment varies by company, but DiversifyFund, Fundrise, and Streiwise let unaccredited investors start with $500 to $1,000.
- You’re not directly managing properties. Being a property manager is a major turn off for some people, and crowdfunded real estate is a super passive investment.
- You can choose the specific investment opportunity. Some sites let you choose the sector, geographic market, and specific asset you’re investing in.
- You may see higher than average returns. I say “may” because guarantees are a red flag when it comes to investments. But historically these investment platforms have done well. Even during the covid crisis, companies like Fundrise saw ~7% returns.
There are risks to crowdfunded real estate
Crowdfunded real estate is still new and hasn’t been tested by any kind of long-term financial downturn. That’s why it’s so important that you understand the risks before you start investing.
There are no guaranteed returns.
Real estate crowdfunding sites like to boast their returns because they’ve been impressive. Who wouldn’t want to get in on a deal that’s shown 15% returns! But none of those numbers are guaranteed.
Investing is risky because there are so many factors outside of your control, and that’s true for real estate and the stock market. You can’t go in thinking you’re going to get strong dividends every quarter or a high yield once the project has been realized.
You’re at the will of the platform.
At the beginning of 2020, even before covid shut down the U.S., some real estate crowdfunding sites began warning investors that they may limit or suspend redemptions because of what looked like a potential downturn. This is a conservative strategy that helps companies hold on to cash so they don’t go bankrupt, but it’s frustrating if you need or want access to your funds.
There’s low liquidity.
Unlike the stock market, you can’t just pull your cash out whenever. Most investments require at least two years before you can have your capital returned, and it will take even more years to realize a good return.
Not all real estate investing sites are created equal.
Every platform has a different vetting process for selecting projects. Some are super selective (this is good!), but others are less scrutinous.
Your investment rides on how well the sponsor vets each project, so go with a platform that clearly explains the vetting process. You can always ask questions and be wary of a sponsor who doesn't want to talk in detail about their track record.
Several real estate crowdfunding sites have already shut down because of things like not doing their due diligence. The best bet as an investor is to look for companies with a strong track record, and I can help you get started with a list of the best real estate crowdfunding sites.
Below are well-known platforms that have a solid track record, took precautions at the start of 2020 to weather the storm, and continue to grow.
7 Best real estate crowdfunding sites
Founded in 2012, Fundrise is possibly the most well-known real estate investment site. With more than 150,000 active investors, Fundrise manages over $1.5 billion on equity on their behalf.
Fundrise’s projects include single-family homes, subdivisions, apartment complexes, and commercial properties. These are real estate projects across the U.S., in areas like the sunbelt, midwest, east coast, etc.
Fundrise offers investors three account levels:
- Starter Portfolio – $500 minimum: This is a diversified mix of eREITs and eFunds with underlying real estate projects throughout the U.S. The Starter Portfolio pays quarterly dividends and appreciation in the value of your shares.
- 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.
Fundrise is one of the best real estate crowdfunding sites for beginners because you can start investing for as little as $500 and easily move up as your comfort level grows.
Read more in my Fundrise Review 2021: 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 gives detailed research on each investment offering, including a detailed video webinar. Investors can submit questions in advance and watch later to get answers to their questions and others.
CrowdStreet projects include options like charter schools, apartment complexes, student housing, and commercial properties. Depending on the project, some start paying returns immediately, while others can take years to pay out. CrowdStreet returns your money if the project you’ve invested in fails to fund.
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 and lists projects in 44 different states. PeerStreet has made more than $225 million in interest payments and over $4 billion in principal to investors.
PeerStreet has real estate crowdfunding investments starting 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 CrowdStreet), 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 are one of the best real estate crowdfunding sites if you have $10,000 to invest comfortably. You must be an accredited investor to work with EquityMultiple, 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.
Many real estate investors like EquityMultiple because they offer specialized investments including senior debt (lowest level of risk and prioritized payment order), mezzanine debt, preferred equity, common equity, funds, opportunity zones, and 1031 exchanges — these are for investors looking for a capital gains deferment. They also have one nontraded REIT.
Fees vary by type of investment, but the range is from 0.5% to 1.5% and is most often 1%.
Launched in 2013, RealtyMogul is a top crowdfunding real estate site for accredited and unaccredited investors. According to RealtyMogul, they have over 212,000 investors with over $3.10 billion in deals posted on the platform.
There’s a $5,000 minimum to start. You can invest in REITs (real estate investment trusts), individual properties (commercial, storage, industrial, medical office, and multifamily), or 1031 exchanges.
Accredited investors can invest in RealtyMogul’s offerings, and unaccredited investors can only invest in their REITs.
Fees range from 1% to 1.25% 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.
DiversifyFund owns and runs its investment properties, which is another unique feature. They buy property they can improve and resell within five years. The downside to this is that they have limited properties located in California, North Carolina, and Texas.
DiversifyFund’s investment terms are approximately five years, and they don’t offer options for early withdrawal. That’s because they don’t pay out until a property sells.
Because of its $0 fees and low investment minimum, DiversifyFund is one of the best real estate crowdfunding sites for budget investors.
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 upfront and transparent about the REIT’s performance so far.
How to get started
Because none of these real estate investing sites have been around for long — all less than 10 years — investors need to spend time researching their options before starting to invest.
Start by looking for a platform that’s well-capitalized. That means a lot of money has already been invested, reducing the risk that the company or fund will go under.
Ideally, the company’s 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.
That might sound like a lot, but real estate crowdfunding 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, Stretiwise, 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.
Should you invest in real estate crowdfunding?
Real estate crowdfunding presents an exciting new investment potential. So far, investors have experienced solid returns, and the best real estate crowdfunding sites have taken measures to protect their investors during a volatile year.
If you are interested in investing in real estate, these platforms can help you diversify your portfolio. This isn’t the place to dump your life savings, but it’s worth considering if you’re already investing for retirement and have at least $500 to comfortably invest.
Fundrise is one of the best real estate crowdfunding sites for beginners, but make sure you do your research and shop around.