Ever since the JOBS Act was passed in 2012, there’s been an explosion of real estate crowdsourcing platforms to allow regular investors to invest in startups and participate in private deals. As a real estate investor since 2003, this article will discuss the top real estate crowdfunding sites today.
I have also personally invested $810,000 in real estate crowdfunding since 2016. My goal is to diversify my real estate investments across the heartland of America where valuations are lower and cap rates are higher. As a multi-property owner in San Francisco, it was important to spread out my real estate exposure. Further, as a new father, I wanted to start earning more passive income.
So far, so good. My 18 real estate crowdfunding investments have returned a rough IRR of 12% since inception. Further, I don’t have to deal as much with tenants and maintenance issues.
The Top Real Estate Crowdfunding Sites
When it comes to real estate crowdfunding, you want to stick with the top sites. The top real estate crowdfunding sites are:
The top real estate crowdfunding sites as of 2020 are:
- Fundrise – Founded in 2012
- CrowdStreet – Founded in 2014
- RealtyMogul – Founded in 2012
Let’s review the top real estate crowdfunding sites one by one.
Fundrise Company Overview
Total Equity Funding: $41 million
Headquarters: Washington DC.
Description: Fundrise is the leading online real estate investment crowdfunding platform. Starting in 2012, Fundrise was the first company to take commercial real estate public online and offer true equity ownership in local properties.
Sign up link: Fundrise
Fundrise is the leading online real estate investment crowdfunding platform. Starting in 2012, Fundrise was the first company to take commercial real estate public online and offer true equity ownership in local properties.
Comprehensive Fundrise review here.
Fundrise Funding History Details
Fundrise Management Team
Fundrise Growth And Performance
According to the latest public offering documents by Fundrise for its IPO, the firm manages roughly $1 billion in assets under management, has over 150,000 active investors, and 100 employees. Their AUM grow and investor signups have been very promising.
Fundrise’s five-year average platform portfolio has also done quite well, yielding a 10.5% return versus 10.2% for the Vanguard Total Stock Market ETF and 10% for the Vanguard Real Estate ETF. Their massive 14%+ outperformance in 2018 versus the Vanguard Total Stock Market ETF is particularly impressive.
Fundrise is a steady perform that’s much less volatile than the stock market. Publicly traded REITs move MORE than the S&P 500, as evidenced during the March 2020 sell-off. Therefore, if you want less volatility and real estate exposure, Fundrise is a good choice.
By generating a strong 5-year return, Fundrise has taken a huge step forward in proving out what they have believed for so long: that a model of individuals diversifying into real estate through a direct, low-cost technology platform is a superior investment alternative to owning only publicly traded stocks and bonds.
Real Estate Crowdsource Investing
One of the most efficient ways to invest in real estate around the country is through real estate crowdsourcing. Instead of flying around the country to kick some sheetrock, one can simply invest as little as $1,000 – $5,000 in various pre-vetted deals on Fundrise’s great platform. Fundrise only chooses the best operators. From there, the individual can analyze each potential deal.
What’s awesome about Fundrise is that it has easy eREITs to invest in. Each eREIT (West, Midland, East Coast, Growth, Income) is open for all investors where there is supply. An investor can simply ride the geographic/strategic decisions the eREIT manager chooses to make a potentially healthy 8% – 16% return based on historical performance.
Here are three examples of Fundrise’s eREITs. I’m partial to the Heartland eREIT due to the new administration that’s focused on bringing jobs back to middle America.
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.
Accreditation: Need to be an accredited investor, those with income over $200,000 or net worths over $1 million excluding primary residence.
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 is definitely one of the top real estate crowdfunding sites today for accredited investors. I love how they focus on 18-hour cities. Post-pandemic, there is a positive demographic trend towards lower cost areas of the country.
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
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
Diversify Your Investments
Finally, RealtyMogul is third on my list for top real estate crowdfunding sites. You can check out my RealtyMogul overview as well. Frankly, given the strength of Fundrise and CrowdStreet, I would just focus on them.
Everybody should seek to own their primary residence to get neutral inflation. After that, consider investing in stocks, bonds, and real estate crowdsourcing investments through companies like Fundrise.
Both Fundrise and CrowdStreet are the leaders in the exciting real estate crowdfunding space. They’ve opened up new opportunities for everyday investors to gain access to properties they otherwise would not have access to in the past.
Low interest rates are here to stay for likely the rest of our working lifetimes. It’s therefore best to invest in income producing assets because not only will they provide a higher income stream, they’ll also attract more demand, thereby boosting the principal value of your income investment.
Here are some reasons why it may be best to focus on investing in the heartland of America over expensive coastal city real estate going forward.
- There will be a net migration out of Blue states into Red states as more people realize it’s a great deal living in Texas if you can get 3X as much for 1/3rd the price.
- As our country gets older, more retirees will move out of Blue states to stretch their retirement dollar.
- The remote work trend will continue due to technology and a tight labor market.
- Sanctuary cities are at risk of seeing their federal funding pulled and reallocated to Red cities.
- Income growth should be higher in Red states due to demographic shifts.
- Now that investing in real estate is more efficient, Red State 10%+ cap rates compared to <4% cap rates in Blue cities are too hard to ignore. The spread should narrow.
- A potential expansion of who can invest in real estate crowdsourcing will lead to an increase in demand and prices.
- The rise of real estate crowdsourcing platforms increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments.
Explore Fundrise for free today. Fundrise is my favorite real estate crowdsourcing platform for all investors. It’s smart to gain exposure through a diversified eREIT.
But if you have a lot of capital, you can build your own best-of-the-best real estate portfolio with CrowdStreet. CrowdStreet focuses on fast-growing 18-hour cities with solid demographic trends.
About The Author
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
About Financial Samurai: FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.