Real estate is my favorite asset class to build long-term wealth. In my 20s and early 30s, I accumulated three properties in San Francisco and one property in Lake Tahoe. It was a great ride that earned me a small fortune, but after I turned 40 and became a father, I no longer wanted to spend time dealing with tenants, maintenance issues, and ever-rising property taxes. As a result, I sold one rental property to simplify life.
With the ~$1,800,000 in proceeds, I re-invested $550,000 in real estate crowdfunding to earn passive income from lower valued heartland real estate with much higher net rental yields. Due to the remote work trend, I strongly believe there will be a long-term demographic shift towards lower cost areas of the country.
Since 2016, I’ve earned an internal rate of return of roughly 12% a year from my 18 real estate crowdfunding equity investments around the country.
What’s better, I’ve spent ZERO time having to deal with the properties after my investments were made. As a father now, my goal is to generate as much passive income as possible.
By crowdfunding capital, investors can now easily own a portion of multi-million dollar commercial real estate projects in promising cities with lower valuations, strong job growth, and higher net rental yields that were once unavailable.
Now with the stock market aggressively rebounding after a big decline in 1Q2020, there’s an opportunity to buy real estate from sellers who still think the world is going to end. I’m personally on the hunt to buy more property during the 2020 lockdowns.
The key is to invest with the best platform, and I think Fundrise is the best platforms for non-accredited investors. They were founded in 2012 and are the pioneers in the eREIT product category and they created a new Opportunity Fund to take advantage of tax law changes.
For accredited investors, those who earn more than $200,000 or have a net worth of over $1,000,000, I like CrowdStreet the best.
CrowdStreet has a direct-to-sponsor model, which allows for more efficiency and greater transparency. They were founded in 2014 and are based in Portland, Oregon. I’ve met many of their team members in 4Q2019 and really like their focus on investing in “18-hour” cities, which are emerging secondary city markets in lower cost areas of the country.
Here are some detailed articles I’ve put together for those of you interested in real estate crowdfunding. Once you’ve read all the articles, I’m confident that you’ll have more confidence making better real estate investment decisions.
Real Estate Crowdfunding Basics
Real Estate Crowdfunding Investing
Top Real Estate Crowdfunding Platform Reviews
As a real estate crowdfunding investor, it’s important to stick to the largest platforms. The largest platforms will garner the most amount of funding, attract the best deals, and also have the savviest investors with the strongest underwriting. As we saw with RealtyShares closing its doors, there is platform risk.
All crowdfunding companies investing in equity and preferred equity set up LLCs and operating companies for the specific purpose of managing our investments. Therefore, investments continue to perform regardless of what happens to the platform.
Real estate crowdfunding companies are marketplaces to match investors with sponsors of real estate crowdfunded projects around the country. Investors in real estate crowdfunding companies have no lien agains the separate LLCs set up for each of our investments on the platform.
As with any investment, only invest what you can afford to lose. Real estate crowdfunding is an illiquid investment compared to stocks, and carries risks. Utilize each platform to thoroughly analyze each deal and diversify your holdings so that you have at least five investments, if not 10+ investments. Building wealth is about investing for the long-term, and I believe real estate crowdfunding is here to stay.
With the 10-year bond yield and mortgage rates back down to a 5-year low in 2019, wage growth reaching new highs, and an accommodative Federal Reserve, demand for real estate is heating up for 2020 and beyond.
Take a look at Fundrise if you are a non-accredited investor and CrowdStreet if you are an accredited investor. They are the two best platforms on the market today with the strongest balance sheets and the most stringent vetting process. All are free to sign up and explore.
To get rich, you must identify long-term trends and invest. Thanks to technology, real estate crowdfunding, and the rise of 1099 freelance work, I strongly believe that investing in the heartland is going to be a multi-decade trend that is going to make investors a lot of money. Investors need to stick with the best platforms that do the most due diligence.
About the Author: Sam bought his first property in San Francisco on his 26th birthday in 2003. He liked real estate investing so much that he bought three more properties in San Francisco and one vacation property in Squaw Valley, Lake Tahoe. Real estate now makes up roughly 35% of Sam’s net worth. The rest is in stocks, bonds, private equity, and his business.
In 2012, Sam was able leave Corporate America 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, taking care of his baby boy, and writing online to help others achieve financial freedom.
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