Real estate has long been considered one of the best ways to build long-term wealth. After all, we all need roofs over our heads. The only problem is that it takes a small fortune to buy an investment property.
However, there is another option. You can now invest in private real estate deals through crowdfunded real estate sites.
If you don’t have the time, skills, or cash to own rental property, crowdfunded real estate lets you own rental property without all the headaches.
In addition, your investment might earn a 12% yield while the average historical return for the broad stock market is approximately 8%.
This article will help you find the best crowdfunded real estate companies to help you choose a platform that is best for you.
In This Article
- Top Crowdfunded Real Estate Websites
- How is Crowdfunded Real Estate Different?
- Tips For Investing in Crowdfunded Real Estate
Top Crowdfunded Real Estate Websites
There are roughly 100 different crowdfunded real estate sites you can invest with, but that doesn’t mean they’re all excellent opportunities.
Before you give just any company your business, give the below recommendations a try.
You can also open an IRA with many of these companies to minimize your tax bill.
If you’re a non-accredited investor, Fundrise might be your best option. Unlike other crowdfunding platforms, investors are welcome from all 50 states.
You only need to invest $500 to create your starter portfolio. Fundrise invests your money in a basket of commercial and residential properties located across the United States.
Some of the current property types include:
- Apartment development and renovation.
- Rent-stabilized apartments.
- Home construction.
- Commercial developments.
When your account balance reaches $1,000, you can begin investing in advanced plans that focus on local geographic areas like Los Angeles and Washington D.C. or some of these investing strategies:
- Supplemental income.
- Balanced investing.
- Long-term growth.
Investing in advanced plans lets you earn a potential annual dividend yield of up to 12%. And, you don’t have the daily stock price fluctuations you experience with publicly traded REITs.
Trustpilot score: 2.7 out of 5
Learn More: Fundrise Review
DiversyFund is another crowdfunded real estate platform open to all investors. You can invest in both its private growth and income REITs.
The DiversyFund team is based in California and they invest in what they know best, commercial real estate.
You can invest in one of the DiversyFund REITs with a minimum $500 investment. Investing in individual properties requires a larger initial investment.
Trustpilot score: 3.8 out of 5
Learn More: DiversyFund Review
RealtyMogul has a platform for accredited and non-accredited investors. Accredited investors can invest in individual commercial and residential properties, which even include mobile home parks.
Another option for both accredited and non-accredited investors is to invest in one (or both) of RealtyMogul’s REITs. MogulREIT I focuses on debt investments that pay a fixed monthly dividend.
But if you can invest for at least three years, you might want to consider the MogulREIT II. It has more upside potential as investment properties appreciate in value and generate more income.
The tradeoff is that you receive a smaller monthly dividend in the meantime.
The MogulREIT I portfolio offers an annual dividend yield of 7.81% with monthly payments, as of July 1, 2019. This REIT holds commercial and retail properties across the U.S. with debt-style investments.
There are also a few multifamily properties in the portfolio. You can view the current portfolio holdings on the RealtyMogul website.
The MogulREIT II pays only a 4.50% annual dividend (since January 1, 2018) and holds multifamily apartment buildings. However, there’s more long-term upside potential because this REIT is more equity-focused.
As equity projects appreciate in value, you can earn profits when they sell.
This REIT launched in September 2017 and currently holds six properties located in Illinois, New York, and Texas.
The dividend yield is less than the MogulREIT I because this REIT focuses on equity investments and can earn potentially more income when the property value increases.
The minimum initial investment for each REIT is $5,000. Subsequent investments must only be at least $1,000 at a time. If you can invest $10,000, you might decide to split your cash into both REITs to diversify your holdings between debt and equity investments.
Plus, you’ll have a great mix of commercial and residential properties.
Both of these REITs are available in an IRA or a non-retirement account, too.
If you already own rental property, you can also use RealtyMogul’s 1031 exchange to swap rental properties in a tax-advantaged manner.
You can also invest in individual properties. Most new offerings have a $10,000 minimum investment. To invest in handpicked properties or 1031 exchanges, you must be an accredited investor.
Trustpilot score: 3.3 out of 5.0
Learn More: Realty Mogul review
Groundfloor allows both accredited and non-accredited investors too. This company focuses on debt investments instead of equity investments.
Borrowers borrow funds for refinancing or rehabbing residential real estate properties. The borrowed funds are invested through crowdfunded real estate fundraising.
Potential investments are graded A through G so investors can decide on the level of risk they want to take with their investment.
Most investments through Groundfloor are short-term–no longer than 12 to 18 months and sometimes even shorter.
Groundfloor has a minimum investment amount of just $10. And there are no fees for investing with Groundfloor. The Groundfloor website says that the company’s average return on investment over the past six years is 10%.
Trustpilot score: 3.2 out of 5 (due to a minimal number of reviews)
Learn More: Groundfloor review
5. Modiv (Formerly Rich Uncles)
Modiv has redesigned REIT (Real Estate Investment Trust). This investment option lets you invest in a portfolio of reveunue-producing commercial real estate with a REIT.
As a non-traded REIT that owns a real estate crowdfunded platform, it is solely owned by its investors. They ave raised nearly $400 million directly from investors to create this platform.
Modiv owns two non-traded REITs. Modiv which has 40 properties. And Brix REIT, which focuses on purpose-built student and multifamily housing, convenience stores, fitness, and fast food restaurants.
Modiv is open to accredited investors that pays on a monthly dividend. Plus a 13th dividen annually. Their success is due to acquiring property leased to credit-worthy tenants under long-term, triple net agreements.
Benefits of a REIT include:
- Enjoy competitive returns
- May reduce overall portfolio risk
- Potential to earn steady dividend income
- Yearly tax savings
- Long-term capital appreciation
- Portfolio diversification
For non-accredited investors, your best option might be Fundrise.
Trustpilot score: No review
Learn More: Modiv review
CrowdStreet invests in commercial real estate, with a minimum $10,000 investment. You might like CrowdStreet because it focuses solely on commercial real estate, as opposed to other platforms that also invest in residential properties.
This gives CrowdStreet the privilege of being one of the very few crowdfunded companies that let you invest directly in commercial real estate.
Although other crowdfunding platforms invest in commercial real estate, with them, you’re still investing through the lender or managing company.
Being a direct investor offers a higher income potential, as you can easily find deals with a minimum projected yield of 20%. Of course, it also means potentially higher risk since the investing company can’t use other investment assets to offset losses.
To your benefit, CrowdStreet has a current 5% acceptance rate for borrower applications. Most crowdfunded platforms have a 5% to 10% acceptance rate.
Trustpilot score: 3.7 out of 5
Learn More: Crowdstreet Review
YieldStreet is another impressive real estate platform for accredited investors. Per their website, investments have an 8% to 20% target return. All projects have a maturity date of between one and three years.
If you want to diversify your portfolio beyond commercial and residential real estate, you can also invest in these assets:
- Marine shipping vessels (boats and vessel deconstruction)
- Legal assets (Invest in legal expenses and receive payment when settlement is made.)
- Small business financing
Of course, you can also invest in regular residential and commercial offerings.
Trustpilot score: 3.0 out of 5
Learn More: Yieldstreet Review
Anybody can invest in the Streitwise Office REIT, which has a 10% dividend target. You only need $1,000 to open a position and this is open to non-accredited investors.
There is a one-year lockout period on your invested funds, and in fact, to receive the full redemption value, your funds must be invested for at least five years. So, treat your Streitwise investments as the equivalent of a five-year CD.
But the current dividend rate is significantly higher than 5-year bank CD average rates of roughly 3%. So, Streitwise can be a better place to park your cash to triple your potential income.
Streitwise also tends to charge fewer fees than other crowdfunded companies.
Trustpilot score: 3.4 out of 5
PeerStreet specializes in debt investment loans for accredited investors. Most loan terms last from six to 36 months with a 6% to 9% return. You can consider using PeerStreet for your short-term investments in residential properties.
It’s also possible to invest in commercial and multifamily deals.
While most crowdfunded companies charge an annual 1% administrative fee, PeerStreet charges between 0.25% and 1% for each investment, making it a low-price leader.
Another reason to consider PeerStreet is its automated investing feature. You can create investing screens that filter open opportunities by several factors:
- Property type
- Loan maturity date
- Geographic region
Trustpilot score: Not listed
Accredited investors can invest in debt and equity offerings on EquityMultiple. It approves less than 10% of borrowing requests in an effort to ensure no loan application will default.
You can browse the open and closed listings to get an idea of the opportunities they offer.
Some of the property types include:
- Multifamily apartments
- Self-storage facilities
- Student housing
- Industrial properties
One recent closed offering was a 16-home residential subdivision in Kahuku, Hawaii. This proposal had a 12-month term with a 10% income rate.
In the offering proposal, you can view two proposed house drawings plus more information about the lender and borrower.
Trustpilot score: Not listed
While most crowdfunded REITs are aimed at non-accredited investors, accredited investors can have a similar experience investing with AlphaFlow.
You contribute the cash, and AlphaFlow automatically distributes your contribution among 75 to 100 open investments. All investments are residential properties with a 7.5% to 9% annual yield potential and a 6-12 month maturity date.
You can continually reinvest your matured investments to capture rising interest rate momentum. Or, you can withdraw your funds penalty-free sooner than other real estate investments that might have a three- to 5-year maturity date.
The $10,000 minimum initial investment is higher than on many other platforms, but it helps build a diversified portfolio to maximize your potential earnings.
If AlphaFlow invests $1,000 in each property, that’s equivalent to a “full position” for most stock market investors that are opening a new position.
Trustpilot score: Not listed
12. Fund That Flip
Another tried-and-true way to make money in real estate is to buy and flip homes. Like owning rental homes, flipping houses requires a lot of time and money if you’re doing it yourself. Fund That Flip lets you finance current property flips across the United States.
You will invest in distressed residential properties that need some TLC. All investments are debt-type loans with a $5,000 minimum investment. Most investments return 9% to 10% per flip.
At this time, only accredited investors can invest on Fund That Flip.
Trustpilot score: 3.7 out of 5
13. Senior Living Fund
With Senior Living Fund, accredited investors can invest in American senior housing. As a record number of Baby Boomers are retiring, there is a shortage of retirement housing.
As of Mar. 22, 2019, the website states you can earn projected returns of between 13% and 21% for each investment. Senior Living projects the annual loan term is five years from funding until project completion.
Trustpilot score: Not listed
Most individual investments require a minimum investment of $5,000. Sharestates reduces that requirement to $1,000 for your first five investments.
After that, each subsequent investment requires a minimum $5,000 investment.
You can invest in land construction projects and renovations for residential and mixed-use lots. Most annual yields are between 8% and 12%.
It’s possible to browse the current listings in the funding round. You can also see the projects that are in-progress and completed.
Trustpilot score: Not listed
15. Patch of Land
One of the original real estate crowdfunding sites is Patch of Land. Its website claims you can earn up to 12% in 12 months.
You can invest in new construction or rehab projects for residential or commercial properties.
Most properties come with a 12-month maturity term, but a few also have a 24-month loan term. After your loan investment matures, you can reinvest the balance or withdraw to your interest-bearing bank account.
Trustpilot score: 3.3 out of 5
How is Crowdfunded Real Estate Different?
Maybe you’re new to the real estate investing world and don’t know much about crowdfunded real estate. That’s OK!
Crowdfunded real estate is a relatively new investment opportunity that’s a result of the 2012 JOBS Act. Since the passage of this act, the general public has been able to invest in private real estate deals with relatively small amounts of cash.
Before 2012, your only options were to invest in real estate stocks or buy actual rental property.
Now, you can directly invest in real estate projects. You avoid stock market volatility, landlord headaches, and can earn a higher yield while investing less cash in each project.
Instead of having to invest $100,000 to a million dollars of your own cash per project, the initial investment can be as low as $500! Crowdfunding makes it easier than ever for average folks to afford investing in real estate.
Crowdfunded Real Estate vs. Publicly Traded REITs
Before crowdfunded real estate, the only way to invest in real estate with small amounts of money was to trade publicly traded REIT stocks (real estate investment trusts) on the stock market.
This option is still available today. Instead of directly investing in real estate deals, you invest in the companies that develop and manage real estate projects.
There are several differences between crowdfunded real estate projects and public REITs.
Crowdfunded Real Estate (Private REIT) Traits
Here are the key traits of crowdfunded real estate:
- It’s illiquid
- Pays higher dividends than public REITs because of the illiquidity
- Lets you invest in individual properties or a basket of properties
- Earns taxable income instead of capital gains
- Less volatile and not as subject to market sentiment
Crowdfunded real estate income is treated as taxable income, just like your salary or income you make from your side hustle.
To lower your tax bill, you may decide to invest in crowdfunded real estate with your IRA retirement account, which lets you invest pre-tax dollars.
Some crowdfunding platforms now offer eREITs, which invest in a basket of properties. Unlike some other crowdfunded REITs, eREITs are open to non-accredited and accredited investors (more on that below).
Compared to public REITs, they pay higher dividends and give you the benefits of being a direct investor.
By being a direct investor you get to pick the real estate investments you want to invest in, rather than investing in a company that you hope picks the right projects.
And because you’re not investing in the stock market, you avoid market volatility that can diminish a share’s price even if the company is doing everything right.
Public REIT Traits
Publicly-traded REIT stocks and funds share these common traits:
- Highly liquid
- Shares are purchased through your investment brokerage account (or one of these free investing apps).
- Share price fluctuates daily but the REITs pay consistent dividends
- You invest in a wide real estate portfolio
Both forms of real estate investments have unique advantages and disadvantages.
Crowdfunded real estate is a more appealing option if you want to enjoy the financial benefits of being a landlord without being personally responsible for vetting the tenants, collecting rent, and maintaining the building.
I personally invest in both crowdfunded real estate and publicly traded REITs for a diversified real estate portfolio.
Accredited vs. Non-Accredited Investors
Do you know the difference between accredited investors and non-accredited investors?
Accredited investors have a net worth of at least $1 million or earn at least $200,000 a year. Couples can have a combined annual income of $300,000 to qualify.
Non-accredited investors include anyone who doesn’t meet one of the above requirements.
Which category you fall into determines what type of crowdfunded real estate deals you can invest in. In fact, some platforms only let accredited investors in.
If you happen to be a non-accredited investor (like me), in most cases your only investment option will be a REIT that invests in a basket of properties.
These REITs usually invest in multifamily or commercial property. These funds hold debt and equity investments to optimize your risk-reward balance.
Some REITs focus more on debt financing to earn recurring passive income. Growth REITs have less dividend income but can have higher long-term potential by selling properties with rising asset prices.
As an accredited investor, you have full access to every crowdfunded real estate platform. You can invest in private REITs if you don’t want to handpick your investments.
The second option is investing in individual properties (private placements) that offer potentially higher investment returns.
The tradeoff of individual property investing is the extra risk of only investing in one property instead of multiple properties.
Individual properties also have a higher minimum investment than REITs. You can expect to invest at least $5,000 versus $1,000 (or $500 with Fundrise).
Debt or Equity Investments?
A third factor you need to consider when investing in real estate is if you want to invest in debt or equity properties.
Debt investments are similar to a mortgage or peer to peer loans in that you collect monthly interest payments.
Essentially, you’re the bank and you lend your money to the property owner and aren’t purchasing the property.
You receive fixed monthly payments but your average potential income is less than with an equity investment. For example, your debt crowdfunded properties might only earn 8% interest annually.
An equity investment may only earn 5% annual interest but can have annual returns closer to 12% These outsized returns happen when properties sell for a profit.
Equity investing is most similar to owning rental property, except it requires a smaller financial and time commitment.
You can make more money on an equity investment than on a debt investment, but you can also lose more.
If the project doesn’t find as many tenants as projected or property prices don’t appreciate as much as expected, you may lose money.
With either debt or equity investments, you’ll lose money if the project fails.
On the other hand, equity investments give you a more direct ownership stake. Instead of lending money to the apartment agency and earning a monthly interest payment, you’re a part owner.
As part owner, you receive a share of the monthly rental income. When the property sells for a profit, you receive a portion of the proceeds.
Tips For Investing in Crowdfunded Real Estate
There’s less risk with crowdfunded real estate than with traditional real estate investing because you can invest in many properties with small amounts of cash.
You still lose money if you pick the wrong investment. All investments have risk, after all.
Joseph Hogue of PeerFinance101 has been investing in real estate since 2001. In the past few years, he’s added crowdfunded real estate to his portfolio to diversify his holdings without being a landlord for more rental properties.
Specifically, crowdfunding lets Joseph build exposure to commercial property and to real estate markets across the country.
He primarily invests with PeerStreet to invest in individual deals, but his advice may help you successfully invest on any platform.
Invest in Debt and Equity
Diversification is the easiest way to minimize risk while maximizing returns. With crowdfunded real estate, you should own both debt and equity holdings, Hogue advises.
For debt investments, Hogue tries to look for a target return of between 9% and 12%. When it comes to equity positions, he aims to earn between 15% and 24%.
Of course, you need to take the maturity date and investment risk into consideration. You might only consider longer maturity dates if the upside potential is notably higher.
For example, you might decide to have a 60% equity and 40% debt portfolio. Equity positions might be riskier but have a substantially higher upside potential.
Owning debt investments might provide a lower rate of turn, but add a stable source of income that can perform better than other fixed income or stock market investments.
Own Commercial and Residential Properties
Besides debt and equity investments, you should also invest in a mix of commercial and residential real estate.
Many real estate investors who already own rental property like that crowdfunded real estate is one of the easiest ways to invest in commercial real estate.
Although you might think that commercial real estate is risky because of all the news headlines (i.e. the “retail apocalypse”), you gain exposure to a different type of borrower.
Investing in commercial real estate also doesn’t automatically mean you invest in retail store buildings. You can also invest in office parks, self-storage facilities, or mixed-use buildings.
If you invest in a crowdfunded REIT, you’ll most likely invest in both commercial and residential properties. And, the REIT fund manager will also include debt and equity loans.
If you don’t have the time to build a diversified portfolio (or you’re a non-accredited investor), private REITs can be the best option for instant diversification.
Research Potential Investment Properties
Regardless of which platforms you invest with, always perform your due diligence. Never invest blindly in any crowdfunded product, no matter how compelling the loan proposal is.
Your research should cover these factors before you make an investment:
- Location (i.e., safe neighborhood, growing community)
- Developer’s track record (Have they successfully repaid previous crowdfunded loans?)
- Are the proposal’s fundamentals realistic? (Are the tenancy rates or appreciation rates achievable?)
- Will you maintain a diversified portfolio with each new investment?
The various crowdfunded real estate companies have rigorous underwriting standards that reject 95% of all applications.
While most bad investments are eliminated, you still need to determine if the risk level reflects the projected investment return and loan maturity date.
You can perform your own due diligence by scouring the internet for local real estate market sentiment and current trends.
If you have connections in that market, give them a call and ask their opinion.
Until you get a deal or two under your belt, you might only pursue deals in nearby markets so you can research the potential property in person.
Legit crowdfunded real estate platform encourage investors to visit portfolio holdings. Seeing visual proof can increase your confidence and trust in the fund.
Read an Investment REIT’s Offering Circular
If you plan on investing in a crowdfunded REIT, take several minutes to read the offering circular.
The offering circular helps you understand how you can make money and the potential risks.
If you can’t find a circular, the investment might be a scam.
Each circular covers the following topics:
- Investing strategy (debt, preferred equity, equity)
- Types of properties (i.e. commercial, residential, multifamily)
- Potential locations of investment properties
- Maximum portfolio size
- Cash redemption policy (When can you withdraw your cash penalty-free?)
- Potential risk factors
- Management fees
An offering circular is similar to a mutual fund or ETF prospectus. You should be able to determine if the investing strategy will offer the potential returns you’re seeking.
If you still don’t understand the investment strategy or how the fund will generate the projected returns, you should call the investing platform for more information.
Or, you can choose a different investment for which you understand the potential risks and rewards.
Consider Investing on Multiple Platforms
Depending on how much money you want to invest in crowdfunded real estate, it might be worth your time to invest on multiple platforms.
For example, one platform might be better for residential investments while another has better commercial offerings.
You don’t have to fund an account to explore the open investments.
Plus, each company’s inventory is always changing, so investing on multiple platforms helps you find the best investment opportunity when you have spare cash.
Some crowdfunded real estate platforms fail. One of the most notable examples is RealtyShares. Existing investors still earn passive income but new investors cannot join.
Anybody in any income bracket can now invest in crowdfunded real estate. It can be an effective way to earn steady passive income while avoiding stock market volatility.
Crowdfunded real estate deals require a longer investment horizon than publicly-traded REITs. But investors can easily access real estate deals that normally cost a small fortune.