Real estate is my favorite asset class to build long-term wealth. Unlike the stock market, real estate is tangible, provides utility, generates income, and is easy to understand.
With a real estate investment, I can paint the interior and exterior, refinish the floors, change the fixtures, landscape the front and back yards, expand the livable space, keep up with market rents, find higher-paying tenants and so forth. Then when rates get low enough, I can refinance my mortgage to improve my cash flow.
But getting into real estate often requires much more capital than buying stock. Further, once you buy real estate, you’re concentrating a lot of money into a single asset.
To solve these two problems, consider real estate crowdfunding. The industry blossomed in 2012 after the JOBS Act passed. Now, investors can invest as little as $500 to get real estate exposure all across the country that once required millions to invest.
What Is Real Estate Crowdfunding Investing?
Crowdfunded real estate investing lowers that barrier of entry so you can invest in small amounts and not deal with physically managing a property. Sponsors do the due diligence on each real estate deal, apply to be listed on a real estate crowdfunding platform, and then crowdfunds capital from investors on that platform.
Real estate crowdfunding gives the investor the ability to invest in real estate and not deal with remodeling, expansion, tenants, and ongoing maintenance of property.
In fact, one of the big reasons why I sold my San Francisco rental property in 2017 was because I was sick and tired of dealing with five rowdy guys always throwing parties and tearing up my house.
I ended up reinvesting $600,000 of the proceeds in real estate crowdfunding to earn a higher rate of return, 100% passively. Overall, I have invested $810,000 in 18 different commercial real estate projects across the country for diversification and simplification.
In other words, I put my money where my mouth is. Not only do I have almost a million dollars invested in real estate crowdfunding, I’ve also spent hundreds of hours meeting and speaking to various leaders of the top real estate crowdfunding platforms.
Accredited Vs. Non-Accredited Investors
What’s great about real estate crowdfunding is that it has democratized access to commercial real estate deals that were once only available to institutional investors or ultra-high net worth investors.
That said, some real estate crowdfunding platforms require you to be an accredited investor, defined as:
- Have a net worth of at least $1 million
- Earn at least $200,000 per year
If you don’t meet one of those requirements, you are a non-accredited investor. That’s fine. You will just only be able to officially invest in platforms that allow for unaccredited investors.
One other factor to consider with crowdfunded real estate is many funds are illiquid – they can often take 6 – 36 months to pay out. Make sure you know your liquidity needs before making an investment. I personally love to tie up my money for years to give it the best chance to compound over time.
Various platforms offer the ability to invest in an electronic real estate investment trust (eREITs). Think of this as a portfolio of properties with a speciality concentration in a region (West, MidWest, South, Coasts). The main alternative is a publicly traded REIT, which also offers real estate exposure, but not as focused.
Related: Real Estate Crowdfunding or REITs
Best Real Estate Crowdfunding Sites
After speaking to hundreds of people and doing thousands of hours of research, here are my top five picks for the best real estate crowdfunding sites.
They are determined by the following criteria:
- Quality of deals
- Platform health
Fundrise is my favorite real estate crowdfunding sites for non-accredited investors. As an investor, you can open an account with as little as $500. The Starter Portfolio invests in a mix of real estate projects throughout the country. You receive quarterly dividends, plus the opportunity for your investment to grow.
If you choose to invest $1,000 to start, you have the choice to go into their Core Portfolio. The Core Portfolio provides the following investment choices:
- Supplemental income – focusing on dividend income
- Balanced investing – a mix focusing on long-term wealth creation
- Long-term growth – focuses on higher returns over the long-term
What I love about Fundrise is their innovation and variety of deals. They are the creators of the speciality eREIT. They’ve also been around since 2012 and have a tremendous amount of momentum.
Fundrise provides a variety of real estate investing options, including:
- Commercial property
- New home construction
Although earnings are taxable, Fundrise offers self-directed IRAs, allowing you to shelter income from taxes and diversify retirement investments.
Fundrise has also demonstrated a solid 5-year track record of returns. When the S&P 500 was selling off in 2018, Fundrise continued to chug along and provide a positive return. You can sign up for Fundrise for free and see what they have to offer.
CrowdStreet is my favorite real estate crowdfunding marketplace for accredited investors because it employs a direct-to-sponsor model. In other words, you get great communication efficiency and transparency by being able to correspond directly with the sponsors of the real estate offerings.
CrowdStreet vigorously pre-screens all deals. They also have clear sponsor rating designations so investors clearly know the background of each sponsor as well as detailed information about each deal.
I’ve met up with seven of CrowdStreet team members in Palo Alto recently and really like their vision, how they treat customers, and they way of doing business. They specialize in “18-hour cities,” which are secondary emerging cities such as Austin and Memphis. This corresponds well with my long-term thesis of investing in the heartland of America due to better valuations, technology, and the rise of remote work.
RealtyMogul is my favorite real estate crowdfunding platform for accredited investors, although they also have eREITs for non-accredited investors. I had lunch with Jilienne Helman, the CEO and Founder in 2019 and I really liked how she focused on building a long-term business focused on the highest quality deals.
RealtyMogul’s main areas of investments are:
- Office buildings
- Retail establishments
- Multi-family residences must be at least a fourplex to qualify
You can open an account with RealtyMogul with as little as $1,000. The platform offers both debt-backed investments and equity possibilities through their two MogulREITs. MogulREIT I Focuses on commercial and retail properties, while MogulREIT II focuses on apartment buildings.
Below is RealtyMoguls previous returns for each REIT:
- MogulREIT I – 8% annual dividend yield percent annual dividend yield
- MogulREIT II – 4.5% annual dividend yield, but potentially higher upside potential
If you invest with at least $5,000 RealtyMogul allows you to select individual properties. Below that amount, you choose one of the two REITs, which you can also hold in an IRA.
RealtyMogul charges lower fees than other real estate crowdfunding sites, charging just .30 to .50 percent annually.
PeerStreet is different from others because they focus solely on short-term debt tied to real estate. Think about PeerStreet like Lending Club or Prosper for real estate crowdfunding.
I’ve met the founders of PeerStreet before at the LendIt conference in San Francisco and they are an impressive bunch. PeerStreet is a marketplace of loans you get to choose that’s backed by the underlying property, which are all single-family residential properties.
Similar to Fundrise, you get to choose your investment style with PeerStreet. They allow you to select specific loans, or you can choose a portfolio based on your investment goals. PeerStreet also offers IRAs for those wanting to shield investment returns from taxes.
Though only for accredited investors, PeerStreet’s debt-only investments are interesting because it is higher on the capital stack. In other words, debt investors are paid first followed by equity investors. PeerStreet charges between .25 and one percent.
You can open an account with PeerStreet for just $1,000 and can expect returns of six to nine percent, according to their website.
Roofstock is a real estate crowdfunding platform that focuses on single family residential homes to rent. You buy turnkey properties outright through the Roofstock platform. They then put you in touch with property managers in the area to manage your property for you. Roofstock has properties in over 40 cities to choose from.
There are no minimums to open an account with Roofstock. Additionally, you don’t need to be an accredited investor to invest with Roofstock. To buy properties, you must have 20 percent to put down with the option to do so inside of an IRA.
Fees are cheaper than you’d typically pay a realtor to locate a property for you. Roofstock charges an account set up fee of .50 percent to open an account.
The Roofstock platform is relatively simple to use and lets you locate properties based on numerous factors, such as locations, schools, and rent. If you’re not satisfied with your property, Roofstock offers a 30-day satisfaction guarantee.
6. Everybody Else
There are plenty of other real estate crowdfunding platforms out there, including: Streitwise, Equitymultiple, and Patch of Land. They all have the positive attributes. However, I would focus on investing with the largest, most well-funded, and innovative platforms today.
Real estate crowdfunding is an area where the best platforms will get even bigger and better. This is why going with a platform like Fundrise if you are a non-accredited investor or RealtyMogul if you are an accredited investor are smarter choices.
Invest In Real Estate Wisely
Real estate crowdfunding is absolutely one of my favorite ways to build passive income for financial freedom. It feels amazing to go from being a landlord of that one SF rental house to now being able to kick back and earn income while other people deal with the hassle.
However, like with any investment, there is risk. Therefore, it’s important to always thoroughly understand what you’re investing in. Always way to risks with the rewards.
Below are a few must-follow tips whenever you’re considering investing in real estate:
Diversify your investments. Buying a couple real estate crowdfunded deals is not enough. You should aim to have at least five individual deals, and preferably 10 individual deals in your portfolio. The easiest way to do so is to invest in an eREIT or fund.
Do your own research. You must read all the offering documents and read all the downside risk scenarios. Come up with your own scenarios before investing in a deal.
Make sure you have enough liquidity. Real estate crowdfunding is not as liquid as investing in stocks. Make sure the money you invest in real estate crowdfunding is not needed for at least the duration of the loan or equity investment.
Debt or Equity: Debt is higher on the capital stack and has a steady interest payment. Equity is lower on the capital stack and has less certain payouts or chunkier payouts. Decide whether you are a debt or equity real estate investor through my allocation guide.
Consider investing in two platforms. Each platform is different. You may want to invest in multiple platforms to add necessary diversification and access various properties.
Real Estate Crowdfunding Benefits
The key to building great wealth is to invest for the long-term. Owning real estate has proven to be one of the best ways to build wealth for the everyday person.
I’ve owned real estate in Honolulu, San Francisco, and Lake Tahoe for almost a dozen years now and I absolutely credit real estate investing as my #1 source of wealth creation. Once you own your primary residence, it’s worth diversifying into other real estate across the country.
Here are some benefits of real estate crowdfunding:
- Potentially higher passive income
- Diversification of real estate and overall investment portfolio
- No need to manage the properties or deal with tenants
- Lower capital required to invest in properties
- Access to commercial real estate properties that may have higher returns
- Pre-vetted deals
As a multi-property owner in some of America’s most expensive cities, I’m excited to be able to diversify into the heartland of America where valuations are cheaper and net rental yields are higher.
Thanks to technology, I believe there will be a multi-decade migration away from expensive cities and towards low cost areas of the country. As more companies like Google and Uber head inland to places like Nevada, Texas, Ohio, and so forth, job growth will increase. And when job growth increases, real estate prices should also follow suit.
Real Estate Crowdfunding Is The Future
Real estate crowdfunding will continue to gain steam as more investors look for a smart way to build wealth and diversify their portfolios. I never could have imagined that I’d be able to invest in a 200 unit student housing project or an airport hotel before for so little money.
As more capital invests in real estate crowdfunding, there will likely be even more competitively priced deals and lower costs. I’m looking forward to how real estate crowdfunding evolves over time. And I’m making a bet with $810,000 that the industry will turn out fine.