What Are The Different Types Of Real Estate Crowdfunding Investments?

The different types of real estate crowdfunding investments

Real estate crowdfunding is one of the best ways to build wealth strategically and passively.

But in 2017, I decided to sell my rental house in San Francisco for 30X annual gross rent and redeploy $500,000 of my $1,800,000 in proceeds in real estate crowdfunding to take advantage of lower valuations and higher yields in non-coastal city markets.

My $2,740,000 property was providing me $60,000 a year in net rental income. Meanwhile, the housing market in San Francisco has gone ballistic and is starting to slow.

Meanwhile, If I can earn 12% on my $500,000 investment in real estate crowdfunding, I can equal my $60,000 net rental income figure while not having to spend a single second managing any of the properties. As someone with a 14 month old to take care of, this is music to my ears.

Real estate crowdfunding has allowed me to better manage my risk profile as I still have two properties in San Francisco, one property in Lake Tahoe, and one property in Honolulu.

The Different Types Of Real Estate Crowdfunding Investments

There are three different types of real estate crowdfunding investments: Debt, Preferred Equity, and Common Equity.

Please see an overview below.

The different type of real estate crowdfunding investments

I've personally invested all my real estate crowdfunding money in Preferred Equity and Common Equity deals because I want more upside and don't need income to fund my retirement. Given I'm in a high tax rate, real estate investment income will also be taxed at a higher tax rate.

With Equity investments, I can plan for my tax liability better by minimizing my investment sales, investment withdrawals, and business income when my Equity investments come due.

See: Debt Or Equity Investments For Real Estate Crowdfunding? And Investment Allocation Guide

Fundrise Growth And Performance

Take a look at the latest growth and performance by my favorite real estate crowdfunding platform, Fundrise. They started in 2012 and have the best run company with the most thorough vetting process in my opinion.

Fundrise AUM and Employee Count

Fundrise’s five-year average platform portfolio has also done quite well, yielding a 10.79% return versus 7.92% for the Vanguard Total Stock Market ETF and 7.4% for the Vanguard Real Estate ETF. Their massive 14%+ outperformance in 2018 versus the Vanguard Total Stock Market ETF is particularly impressive.

Fundrise Compound Annual Returns

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.

Surgically Invest In Real Estate

Instead of overly concentrating new money into one very expensive property, I'm now going to surgically deploy capital into multiple types of investments with potentially greater returns, less hassle, and more liquidity across the country. There's no way I'm going to buy expensive coastal city property today at these valuations.

If you're looking for yield in this low interest rate environment, don't want the hassle of managing rental properties, don't have the downpayment for a physical property, want to more easily allocate real estate dollars around the country, and are looking to diversify your investment portfolio with real estate exposure, take a look at the Fundrise platform.

About the Author: Sam has been 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 it by spending the next thirteen years after college working at Goldman Sachs and Credit Suisse Group.

During this time Sam earned his MBA from UC Berkeley with a focus on finance and real estate. In 2012 Sam was able to retire at the age of 34 largely due investments that today generate roughly $220,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.

FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites on the internet with over 1 million organic pageviews a month and growing. Financial Samurai has been featured in leading publications such as The Wall Street Journal, Bloomberg, and The LA Times.