After extensive research, the best real estate crowdfunding platforms for non-accredited investors are:
Real estate crowdfunding is the real estate investment wave of the future. Individual investors can now buy pieces of commercial real estate projects around the country that were once limited to institutions and ultra-high net worth individuals.
I live in San Francisco, California where cap rates are only about 2.5% – 3%, or barely higher than the risk-free rate of return. To come up with a $300,000 downpayment on a median priced $1.5 million home is daunting. Instead, investors should consider real estate crowdfunding as a way to gain exposure to real estate.
Real estate crowdfunding has become one of the most popular investing mechanisms since the JOBS Act was passed in 2012. Much like peer to peer lending, real estate crowdfunding as an investment has gotten attention for some of the same reasons.
Unlike P2P lending, there's actually collateral with real estate crowdfunding. This is why I'm so much more bullish on real estate crowdfunding than P2P lending. The borrowers can't just runaway with your money and disappear because there's an asset.
One of the problems with many of the sites is that you need to be an accredited investor to participate. Therefore, let me present to you the best real estate crowdfunding platform for non-accredited investors.
Best Real Estate Crowdfunding Platform For Non-Accredited Investors
Fundrise is my favorite real estate crowdfunding platform today. They were founded in Washington D.C. in 2012, and they are the creators of the eREIT asset class.
They have a low minimum of only $500, which can be invested in one of their eREITS or individual commercial real estate deals.
There are several eREITS but they invest in a mix of commercial assets and loans, collecting cash flow from interest payments, rents, and other profits from the properties.
There are no transaction fees for buying into the eREITs but you do pay a 0.85% annual asset management fee.
Here's a detailed Fundrise overview.
RealtyMogul offers two eREITs, called Mogul I and Mogul II, that non-accredited investors can invest in.
MogulREIT I is an online REIT that offers cash flow and equity appreciation with its investments in a mix of loans, equity and other “real estate related assets.”
They are open to investing in pretty much everything – “multi-family, office, industrial, self-storage, retail, medical office, and hospitality.” RealtyMogul is also actively looking for opportunities in Gateway cities. The only obvious omission is single-family homes.
RealtyMogul's minimum is $1,000. The rest of their commercial real estate deals are for accredited investors only. Here is a detailed RealtyMogul overview.
Publicly Traded REITs
If you want broader real estate exposure, then you can consider buying a publicly traded REIT.
VNQ by Vanguard is one of the largest and well known REITs. It has an expense ratio of just 0.12% and it holds a lot of property companies, like Simon Property Group (malls) and Public Storage (storage). Their number one holding is the Vanguard Real Estate II Index Fund, which is itself a mutual fund that holds a variety of REITs.
There are other REITs like O and OHI which I am a long-time shareholder of. REITs are an easy way to gain real estate exposure, but it doesn't have the same amount of focus as eREITs and individual commercial real estate deals.
For example, Fundrise has an East Coast eREIT, West Coast eREIT, and a Heartland eREIT.
Accredited Investor Definition
To be an accredited investor, you must have $200,000 in annual income ($300,000 for joint investors) for the last two years with the expectation that you'll earn the same or more this year. You can also be considered an accredited investor if you have a net worth over $1,000,000, individually or jointly, excluding their primary residence.
The requirement exists because the SEC wants to make sure that investors in unregistered securities can afford to lose money and not be financially ruined.
These deals are often called private placements and they don't need to register with the SEC, so they don't provide as much information as you'd expect from, say, a publicly traded company. The accredited investor requirement assumes that someone who is accredited can do the due diligence on their own.
Based on my experience as an accredited investor who has invested in private funds and companies for over 15 years is that nobody ever checks. You just self-accredit based on your word. The SEC has also expanded the definition of accredited investor, making it easier for more people to qualify.
Real Estate Crowdfunding Is The Future
I'm bullish on the heartland of America give then lower valuations and much higher cap rates. I think there will be continued migration away from high cost of living cities to the heartland cities due to cost and technology.
If Google is investing $13 billion in 2019 and beyond to buy heartland real estate and expand their workforce, we probably should too. It's all about following the money.
In addition to Fundrise, also check out CrowdStreet if you are an accredited investor.
I've personally invested $810,000 in real estate crowdfunding to diversify my real estate holdings away from expensive San Francisco and Honolulu. Below is my real estate crowdfunding dashboard.
If you want to learn more about real estate crowdfunding, you can visit my real estate crowdfunding learning center.
About the Author: Sam worked in investing banking for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.