Investing in private real estate (or real estate crowdfunding) is one of my favorite ways to generate passive income. Real estate is also my favorite asset class to build wealth for the average person.
I’ve been investing in private real estate since 2016 to build more wealth, capture strong demographic trends, and diversify my expensive coastal real estate holdings. Investing in the sunbelt / heartland is a multi-decade investment trend I want to ride.
Real estate is a tangible asset that is less volatile, provides shelter, and generates income. As a result, I've spend hundreds of hours creating the real estate crowdfunding learning center for all potential investors.
I've currently invested $953,000 since 2016 in real estate crowdfunding to help me generate more passive income. In an inflationary environment, real estate is a real winner as rents and prices go up.
Favorite Private Real Estate Platform
My favorite private real estate crowdfunding platform is Fundrise due to its diversified funds. Fundrise invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher.
For most people, investing in a diversified real estate fund is the way to go as opposed to investing in individual deals. Given I believe in Fundrise's investment thesis and product offering, I agreed to form an affiliate partnership with the company and invest $143,000 in their Flagship Fund.
Below is a chart highlighting that I've received $624,270.53 in distributions so far from a private real estate fund. I expect far more passive income distributions as life gets back to normal post pandemic.
Further, I expect there to be a greater influx of foreign capital investing in U.S. real estate. The pandemic served to throttle foreign real estate demand for 2-3 years. But now the wave of foreign capital is coming. As a result, I believe its wise to stay long and strong U.S. real estate.
Real Estate Is My Preferred Asset Class
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. I put in a lot of sweat equity to remodel several fixers as well.
But after I turned 40 and became a father, I no longer wanted to spend time dealing with tenants or remodeling headaches. Maintenance issues and property taxes were also a bear. 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. My goal was to earn passive income from lower valued heartland real estate with much higher net rental yields.
Due to the remote work trend, especially after the pandemic, I strongly believe there will be a permanent long-term demographic shift towards lower cost areas of the country.
Steady Rate Of Return
Since 2016, I've earned an internal rate of return of 7-12% a year from my real estate crowdfunding equity investments around the country. The real estate crowdfunding investments have provided for a solid way to diversify my real estate portfolio away from expensive San Francisco and Honolulu real estate.
What's better, I've spent ZERO time having to deal with the properties after my investments were made. What a blessing, especially as a father of two young children now. In fact, real estate crowdfunding makes up over $100,000 out of my estimated $380,000 in annual passive income for 2023.
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. You no longer have to only invest in your backyard, which is great for diversification purposes.
Real Estate Opportunities Today
Technology and real estate have historically been the two best-performing sectors in a Fed rate-hike cycle. Yes, mortgage rates have increased, but they are fading once again as inflation moderates. As a result, I think there are plenty of real estate buying opportunities in 2023 and beyond.
Once you're neutral real estate by owning your primary residence, one of the easiest ways to go long real estate is to invest in private real estate funds. I think Fundrise is one of the best platforms for the average real estate investor. It has over 400,000 investors and manages over $3.3 billion in assets.
Fundrise was founded in 2012 and is the pioneer of the private eREIT. Fundrise is a vertically integrated private real estate platform that identifies, sources, and manages its portfolio of properties.
As a result, it is more efficient and can pass on its savings to you. Further, I've spoken to Ben Miller, the CEO multiple times and he is much more conservative than the average CEO.
Private Real Estate For Accredited Only Investors
For accredited investors, those who earn more than $200,000 or have a net worth of over $1,000,000, consider exploring CrowdStreet as well. I met their team before the lockdown and like their focus on investing in 18-hour, secondary cities.
CrowdStreet has a direct-to-sponsor model, which allows for more efficiency and greater transparency. CrowdStreet is also focused on emerging 18-hour cities, which is where I believe there is the most opportunity. They were founded in 2014 and are based in Portland, Oregon.
CrowdStreet mainly focuses on individual real estate deals. However, occasionally, they also have fund offerings. Some examples include a Build-To-Rent fund, an industrial storage fund, and it's C-REIT offering.
If you have the time and interest in building your own select real estate portfolio, then platforms like CrowdStreet and RealtyMogul offer individual deals.
If you are to invest in individual private real estate deals, it's important to do further due diligence on every sponsor. Platforms like CrowdStreet screen the sponsors and deals, but as the investor, you must understand the sponsor's track record, know the background of management, and carefully analyze the structure of each deal.
This requirement of further due diligence and understanding the intricacies of real estate deals is one of the reasons for the accredited investor requirement. Diversification and due diligence are important if you plan to build your own select portfolio.
Financial Samurai has affiliate partnerships with CrowdStreet and RealtyMogul as well. We try to identify the strongest platforms out of a sea of hundreds for investors to consider using.
The Importance Of Diversification And Individual Due Diligence
If you are to invest in individual deals make sure you thoroughly review the sponsors before investing in any deal. Understand the sponsor's track record and management experience. Know how much of their own money they are investing in each deal. The more the better.
The fewer individual deals you invest in, the more concentration risk you have. Therefore, the more due diligence you have to conduct on each sponsor.
Again, for most people, investing in a diversified private real estate fund from the likes of Fundrise is a more appropriate investment. You have to really be an enthusiastic with a lot of time to create your own select real estate portfolio. Invest based on your knowledge, interest, and time.
Private Real Estate Crowdfunding Learning Center
Below are some detailed articles I've put together over years of research. Once you've read all the articles, you'll have more confidence making better real estate investment decisions.
The key to investing properly is to understand what you are investing in, determine your risk exposure, and invest according to your risk exposure. There is no guaranteed returns with any investment. Therefore, you must do your due diligence.
After buying another home during the pandemic, I have roughly 50% of my net worth in real estate and real estate crowdfunding. I plan to stay long real estate for at least the next decade as the millennial generation is firmly in its prime home buying years.
The real estate crowdfunding learning center is here to answer all your real estate-related questions. Again, I have over $800,000 invested in private real estate, hence it is very important I stay on top of the space.
Why Invest In Private Real Estate Opportunities
Private Real Estate Crowdfunding Fundamentals
Private Real Estate Crowdfunding Investing
Real Estate Crowdfunding Risks To Be Aware Of (including platform risk and sponsor risk)
Private Real Estate Crowdfunding Trends
The Best Cities To Buy Real Estate Today (based on demographics)
The Best States To Buy Real Estate Today (valuations and tax rates)
Top Real Estate Crowdfunding Platform Reviews
It's important to stick with the top real estate crowdfunding platforms. Here are my more detailed reviews after meeting and speaking with them both.
The largest real estate crowdfunding platforms will garner the most amount of funding. They will also attract the best deals and have the strongest underwriting. As we saw with RealtyShares and PeerStreet closing their doors, there is platform risk. However, all deals are their own LLCs that will operate regardless of the platform once the deal closes.
Most real estate 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.
As with any investment, only invest what you can afford to lose. Private real estate investing is an illiquid investment compared to stocks, and carries risks like all investments.
Utilize each platform to thoroughly analyze each deal. Carefully analyze the sponsor. Diversify your holdings so that you have at least five investments if you are investing in individual deals. Building wealth is about investing for the long-term, and I believe real estate crowdfunding is here to stay.
The Best Real Estate Crowdfunding Platform
Fundrise is my favorite platform because they have diversified funds that invest in residential and industrial properties in the Sunbelt. For most people, investing in a diversified real estate fund is the most appropriate way to gain real estate exposure.
Fundrise has been around since 2012 and is the oldest and largest real estate crowdfunding platform with over 400,000 investors and over $3.3 billion in assets under management. Investors can invest as little as $10 on the Fundrise platform. Returns have been very steady over the years, even during down years in the stock market.
In mid-2023, I interviewed Ben Miller about his real estate, stock market, and economic outlook. You can hear on the podcast interview how he thinks about risk, recessions, sourcing deals, and investing in mega trends.
I highly encourage you to listen to episode before investing. This way, you can gain comfort and better understanding about how Fundrise works, its investment process, and its goals.
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 believe investing in the heartland/sunbelt is going to be a multi-decade trend that is going to make investors money.
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. Real estate and real estate crowdfunding now makes up roughly 50% 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 $310,000 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.
FinancialSamurai.com was started in 2009. It is one of the most trusted personal finance sites today with over 1.2 million organic pageviews a month. Financial Samurai has partnerships with all private real estate platforms on this page. We earn a commission from partner links on Financial Samurai.
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