The state of the real estate crowdfunding industry has never been better. For example, Fundrise has emerged to be the leading real estate crowdfunding platform with over 150,000 users and over $1 billion in assets under management.
Fundrise was recently highlighted in the New York Times as a leading institutional real estate investor competing against tradition institutional real estate firms like BlackRock.
If you are an accredited investor, take a look at Crowdstreet. They operate at a smaller scale, but have more stringent underwriting in my opinion. They were founded in 2014 and are focused on long-term profitability. Further, CrowdStreet focuses on investment opportunities in 18-hour cities where valuations are cheaper and growth rates are higher.
State Of The Real Estate Crowdfunding Industry Post-Pandemic
The housing market is likely to stay strong for years to come post-pandemic. With billions of people spending more time at home, the intrinsic value of real estate has gone way up. Further, more people will be working from home as well. With the government focused on supporting the real estate industry, you can rest assured the real estate crowdfunding industry will remain strong as well.
The survey finds that 40 percent of Americans aren’t sure what type of investment has performed the best since 2000 when asked to choose among stocks, real estate, commodities, bonds, cash equivalents such as oil, gold and cotton, and other.
One-quarter of Americans (25 percent) thought that stocks have been the top-performing asset class since 2000, while only 16 percent of Americans believed it has been real estate. Among the remaining asset classes, 9 percent believed commodities have performed the best, 6 percent chose cash equivalents, while 3 percent of those polled thought bonds have performed the best.
The reality is, commercial real estate in the form of REITs, private eREITs, and private real estate syndication have consistently performed the past over the past 20+ years.
More Capital Will Invest In Real Estate
Along with past returns, investors should consider the growth taking place in the U.S. real estate investing market. Residential real estate as an asset class is a $29 trillion market, and the commercial sector adds another $10 trillion. And as a leading real estate crowdfunding platform, Fundrise, for instance, has seen the number of new investors joining its platform nearly double year over year. To be sure, current growth of the market may not be a good predictor of ongoing growth.
Appetite For Real Estate Investing Is Growing
While only 15 percent of Americans are currently investing in real estate other than their primary residence, 77 percent of respondents aged 35-44 believe that house flipping is a good way to make money, followed closely by millennials (18-34) at 72 percent. Roughly two-thirds of American men and women agree that flipping a home is a good way to make money (64 percent of men and 68 percent of women).
However, a majority of Americans (two-thirds) believe investing in real estate, whether for a flip or a renovation, is just too hard, too costly and too far out of their expertise — especially compared with other types of investing. Here are the perceived barriers stopping investors from investing in real estate:
Perception Of Difficulty
According to the Harris/RealtyShares survey, more than two-thirds (70 percent) of Americans think investing in real estate is more difficult than investing in other asset classes. This makes sense, as hands-on real estate investing requires seemingly endless research, inspections, bank loans and mortgages, contract negotiations and headaches that few people want to take on willingly, especially when compared with reviewing stock performance charts and making a buy or sell order.
This “too difficult” attitude suggests a general lack of knowledge about platforms, such as real estate crowdfunding, designed to make the real estate investment process easier. To that point, only 2 percent of Americans claimed they were very familiar with the term “real estate crowdfunding”.
Conversely, a majority of Americans aged 18-44 claimed they would be more likely to invest in real estate if there were technology available to make the process easier. In reality, resources do exist that can make real estate investing easier, but the prevailing perception is that real estate’s sheer difficulty turns potential investors elsewhere.
In addition, only about 8.25 percent of American households qualify as accredited investors, according to Federal Reserve data, making the probability of those interested in investing actually being qualified even lower.
Perception Real Estate Investing Is Too Costly
Nearly 70 percent of respondents stated they are less likely to invest because it requires more money than other investment options. This coincides with actual costs; becoming a landlord usually requires 20 percent of a property’s purchase price as a down payment. Likewise, when flipping a house, one can expect to pay as much as $4,000 for initial financing costs and about $10,000 for rehab, on top of realtors’ fees and carrying costs.
These initial costs may stop potential investors cold. But many Americans are unaware of real estate platforms that require much less initial capital than traditional opportunities. Some sites ask for as little as $5,000 to invest. Similarly, Real Estate Investment Trusts (REITs) may also have relatively low entry costs. Many REIT options start at $500 for a share in such a trust.
Too Specialized An Investment Class
As it turns out, house flipping is also perceived as a more specialized investment choice, impenetrable to those new to real estate. In the survey, fewer than 2 in 5 (38 percent) Americans believe they would be able to complete a home flip, an understandable outlook given the fact that home flippers must have the necessary funding, skills and network needed to buy and fix up a home to resell.
However, there are now resources that pair pre-vetted professional developers with pre-vetted projects and investment opportunities, lowering the bar and making it potentially easier for investors to get into real estate investing. The real estate crowdfunding industry has receive a tremendous amount of new capital in recent years.
Millennials are the most interested in entering real estate
Of all the age groups surveyed, millennials (those aged 18-34) gave responses that best illustrated their enthusiasm for real estate investing. More than 80 percent of millennials surveyed wish the process of investing in real estate were easier, and among millennial women, that percentage is even higher — 85 percent. Likewise, 63 percent of this age group would be more likely to invest in real estate if there were technology available to make the process easier, with 18 percent strongly agreeing with that sentiment.
Furthermore, on the initial question of which investment surveyees thought perform best since 2000, millennials were the only age group to correctly choose real estate at a higher rate than stocks. This suggests that the younger generation places more value in real estate than any other type of investing, which also coincides with the onslaught of real estate–themed cable TV shows and celebrities involved in house-flipping.
In today’s popular culture, real estate investing is often portrayed as an industry in which even non-professionals can dabble. It is possible that those aged 18-34 are consuming this content and then applying those experiences to their own perspectives on investing.
Related: Recommended Net Worth Asset Allocation By Age And Work Experience
Conclusion – The State Of The Real Estate Crowdfunding Industry Is Strong
Although the public generally lacks awareness regarding the potential of real estate investing, the findings of this RealtyShares/Harris poll suggest that a real estate investing resurgence may be on the horizon. Younger generations are more interested than ever in real estate.
And more and more technological advancements can allow the traditional complications of entering the market — now perceived as the highest barrier to entry — to decrease significantly.
METHODOLOGY
This survey was conducted online within the United States by Harris Poll on behalf of RealtyShares from March 16-20, 2020 among 2,198 U.S. adults ages 18 and older.
Invest On The Best Platforms
With real estate crowdfunding, you don’t need to risk $100,000 or more to invest in commercial real estate. Instead, you can invest for much lower amounts such as $5,000. The best real estate crowdfunding platforms today are:
The best real estate crowdfunding platforms today are:
1) CrowdStreet is based in Portland and connects accredited investors with a broad range of debt and equity commercial real estate investments. CrowdStreet focuses primarily on 18-hour cities (secondary cities) with lower valuations and higher net rental yields.
2) Fundrise, founded in 2012 and available for accredited investors and non-accredited investors. I’ve worked with Fundrise since the beginning, and they’ve consistently impressed me with their innovation. They are pioneers of the eREIT product.
Both of these platforms are the oldest and largest real estate crowdfunding platforms today. They have the best marketplaces and the strongest underwriting of deals. Sign up and take a look around as it’s free.
As always, do your own due diligence and only investment in what you understand. I’ve personally got $810,000 invested across 18 different commercial real estate projects around the country. My current internal rate of return is about 15% since 2016.
About the Author:
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu. He has $810,000 invested in real estate crowdfunding. The State Of The Real Estate Crowdfunding Industry is a FS original post.