Real estate is one of the best asset classes to build long term wealth. This post looks at the best real estate crowdsourcing platforms for 2020 and beyond. I personally have invested $810,000 in real estate crowdsourcing across 17 deals since 2016.
As an owner of four properties (three in San Francisco, one in Lake Tahoe, and one in Honolulu), I’ve seen my net worth soar over the past 15 years as my principal values and rents have increased far beyond inflation. Real estate alone accounts for roughly $200,000 in gross passive income a year.
Now that I’m over 40, my attitude towards buying more physical real estate has changed because of three key reasons:
1) Property taxes. I’m already paying $50,000 a year in property taxes.
2) Dealing with bad tenants. Most of my stress comes from dealing with bad tenants who wreck my property or don’t pay rent on time.
3) Too much financial risk. To add hundreds of thousands of dollars in illiquid real estate exposure near the top market in coastal cities sounds like a bad move.
Given these reasons, I decided to sell my rental house in San Francisco in mid-2017 for 30X annual gross rent and redeploy $500,000 of my $1,800,000 in proceeds in real estate crowdfunding to take advantage of lower valuations and higher yields in non-coastal city markets.
Best Real Estate Crowdsourcing Platforms
Real estate crowdsourcing is the best solution I’ve found for investors who want to continue investing in real estate, but more surgically with lower amounts, for potentially higher returns, and less hassle.
Based on my first-hand research meeting with various real estate crowdsourcing CEOs and testing out their platforms, I’ve decided that Fundrise is the most trusted real estate crowdsourcing platform today for non-accredited investors.
Fundrise offers a mix of fix-and-flip loans, preferred equity and mezzanine products, joint venture equity and commercial loans. They also offer eREITs for those investors who would like to invest in funds.
If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
Best Real Estate Marketplace For Accredited Investors
For accredited investors, individuals who make over $250,000 a year or have a net worth of over $1 million, I believe CrowdStreet is the best real estate marketplace today. They were founded in Portland, Oregon in 2014 after observing how other platforms stumbled and bumbled their way in 2012.
With roughly $25 million in funding, $12 million mostly recently by platform investors in November 2019, CrowdStreet has the capital, experience, and expertise to thrive in this new frontier.
Further, CrowdStreet allows investors to invest directly with the sponsor, thereby improving the efficiency of the process.
Minimum Investment: $10,000, with most deals having a $25,000 minimum.
Account Fees: None for investors in individual deals, as the fees are borne by the Sponsor.
Offering Types: Mainly equity and preferred equity deals.
Property Offerings: Mainly commercial real estate and apartment complexes.
Regions Served: All 50 states.
Secondary Market: None.
Self-Directed IRA: Available.
1031 Exchange: Available.
Pre-vetted: Yes. Every investment opportunity applying for inclusion to the CrowdStreet Marketplace is subjected to a rigorous, objective vetting process. Only 2% of all applicants successfully pass this process and appear on CrowdStreet’s marketplace.
Special Feature: Investors invest directly with Sponsors. CrowdStreet is a rare marketplace to operate under a direct-to-investor model, whereby investors are able to invest directly with the sponsor instead of through a special purpose vehicle.
The direct-to-investor model may result in lower overall risk to the investor, as it removes the platform risk of a marketplace insolvency and any associated disruption to the administration of funds contained in special purpose vehicles.
CrowdStreet Sponsor Vetting Process
One of the absolute most important value-adds a real estate marketplace can provide is a thorough vetting process. Ideally, only the best-of-the-best real estate deals are allowed onto the platform for investors to then do their own research and individually choose.
CrowdStreet’s vetting and screening process includes vetting the sponsor, the specific real estate property and the sponsor’s specific offer. Here is their vetting process:
1) Analyze the sponsor’s background and results with corresponding designations:
- Emerging — 2–5 years’ experience with portfolio activity up to $100M, experience in both geographical region and proposed asset class.
- Seasoned — 5+ years’ experience with portfolio activity over $100M, with an existing network of repeat investors and established banking relationships.
- Tenured — 10+ years’ experience with portfolio activity of over $500M, with principals who have invested together through multiple real estate cycles, and the company has a dedicated staff for investor relations and accounting.
2) After the sponsor meets the criteria, the asset the sponsor is funding is screened based on the business plan, market data, operating statements, pro formas, appraisals and other due diligence documents.
3) Finally, the terms of the sponsor’s specific offer are vetted and evaluated resulting in a classification of:
- Common equity;
- Preferred equity; or
- Mezzanine or 2nd position
CrowdStreet’s Capital Markets team declines around 75% potential sponsors through their initial screening process. If they approve a sponsor and their potential deal, it then goes to our Investments team where it is run through our quality-control process.
In the end, less than 5% of potential deals that enter our pipeline ultimately launch on the CrowdStreet Marketplace.
CrowdStreet’s Value Proposition
According to CEO and Co-Founder Tore Steen, CrowdStreet’s goal is to provide the broadest range of institutional-quality commercial real estate investment opportunities to individual investors. They want to make investing in commercial real estate as easy and as transparent as possible and bring the entire process online.
To date, they’ve had over 367 deals in 40 states on the CrowdStreet Marketplace, from a broad range of asset classes (multifamily, hotel, office, industrial, etc.) and investment profiles (core plus, value-add, opportunistic, etc.).
One of the things that sets CrowdStreet apart from other online syndicators (aka crowdfunding platforms) is that CrowdStreet provide investors with direct access to the real estate sponsors and developers behind the deal.
You invest directly into the equity stack of a deal, not into a special purpose vehicle managed by the platform. That means you can reach out to the sponsor and ask questions, hear from them on the live deal launch webinars, receive project updates like other equity investors, and more.
CrowdStreet’s online platform makes investing easy–sort and compare individual deals, learn more about commercial real estate, and dig into the background of the sponsors. Once you’re invested in a deal, our platform makes tracking the performance of your investment straightforward and simple.
CrowdStreet Business Track Record So Far
CrowdStreet is on track to raise $500MM this year on its platform (soon to cross $1B in total capital raised since they started in 2014).
The size and scale of CrowdStreet’s platform helps create a wide range of investment opportunities for our investors. As CrowdStreet grows, they will attract more and more top-tier sponsors which ultimately means more investment opportunities for their investors.
Total Number Of Offerings So Far: 200+
Average Project Value Per Offering: $36 million
Average Equity Per Offering: $16.5 million
Average Target Annual Internal Rate Of Return: 18.5%
Average Annual Cash Yield: 9.6%
Average Member Investment Per Offering: $50,000
Areas Where CrowdStreet Sees The Most Opportunity
What I love about CrowdStreet is that they source deals precisely where I think there is most opportunity: in the heartland of America. International cities such as San Francisco, LA, New York, and Washington D.C. are great. But they are already very expensive.
An investor’s goal should be to look for the NEXT New York City or the next San Francisco. CrowdStreet likes to call these cities: 18-hour cities.
CrowdStreet is primarily focused on secondary metro markets, also known as 18-hour cities. 18-hour cities (recent success stories have been cities like Denver, Austin, and Nashville) tend to have above-average population and job growth and a lower cost of living relative to 24-hour cities like New York, San Francisco and LA.
Projects in these secondary markets can sometimes be overlooked by large institutional investors (creating equity gaps) and therefore create investment opportunities for individuals. Filling the equity gaps on institutional-quality real estate in growing secondary markets has become the hallmark of the CrowdStreet Marketplace.
According to CrowdStreet’s research report, Market Views, it believes think that Charleston, South Carolina has the best claim as the next big up-and-coming 18-hour city.
Here’s also a post they wrote on how commercial real estate is being affected by COVID-19. You can see they know their stuff and are very thorough.
One big point in the city’s favor is its economic growth–Charleston’s average five-year job growth of 2.9% is nearly double the national average of 1.6%. CrowdStreet recently raised over $5 million for a 50-key, luxury boutique hotel development in the French Quarter of Charleston.
Here are some previously funded CrowdStreet details to get a flavor. You can sign up for free and explore the existing offerings for yourself.