In a time not so long ago, investing in the US property space was no easy feat for everyday consumers. In effect, unless you were willing to go the conventional route of purchasing a house outright via a huge down payment and long-term mortgage agreement, you wouldn’t have been able to get a look in.
However, things are somewhat different in the modern era of online investing – with the growth of real estate crowdfunding.
In a nutshell, the phenomenon allows the average Joe Blogs to invest funds into real estate projects without needing to own the property 100%. Instead, you – alongside thousands of other investors, will pool your funds collectively in what is known as ‘crowdfunding’. In some cases, this allows you to invest from as little as $5. In return, you will own the property – or group of properties, at a percentage proportionate to your investment.
With that being said, real estate crowdfunding can be a highly complex battleground, so we would suggest reading our comprehensive guide before taking the plunge.
Within it, we’ll give you a full breakdown of everything you need to know – such as how crowdfunding works, the different types of investments you can make, how much you should expect to make, and what risks you need to make considerations for.
But first – we’ll list the best real estate crowdfunding sites currently active in the market.
Best Real Estate Crowdfunding Sites
- 1 Best Real Estate Crowdfunding Sites
- 2 What is Real Estate Crowdfunding?
- 3 Choosing a Real Estate Crowdfunding Site
- 4 Minimum Investment and Eligibility
- 5 Types of Investments at the Real Estate Crowdfunding Site
- 6 Lock-Up Period
- 7 Appreciation vs Income
- 8 Fees: How Much Will you be Charged?
- 9 Debt vs Equity: What are you Investing in?
- 10 Frequently Asked Questions
- 10.1 What is the minimum investment I can make at a real estate crowdfunding site?
- 10.2 What is the difference between debt and equity at a real estate crowdfunding site?
- 10.3 How can I reduce the risks of investing in a real estate crowdfunding project?
- 10.4 How long do I need to lock my investment up for before I can withdraw it from a real estate crowdfunding site?
Make sure you read the full guide so that you now have a firm grasp of what real estate crowdfunding is and how the process typically works.
Most importantly, you should now have a good understanding of the many metrics that you need to look out for prior to joining a new crowdfunding site, and especially – what your money is likely to be invested in.
With that being said, we have listed the main players currently operating in the ever-growing real estate crowdfunding space below.
If you like the sound of a particular site, just make sure that you perform your own due diligence prior to signing up.
Fundrise: Our Top Rated Crowdfunding Site of 2020
While you should still make some considerations on what our other listed real estate crowdfunding sites offer, our number one selection by a country mile is that of Fundrise. In a nutshell, Fundrise is a platform that is suited for budgets of all sizes – as it allows you to get started with an investment of just $500.
Since the platform was launched back in 2012, Fundrise claims to have attracted more than 500,000 investors to its site, subsequently resulting in $2 billion in real estate deals. In terms of the platform’s investment structure, the vast majority of what Fundrise offers is based on a conventional real estate investment trust (REIT).
For those unaware, REITs are very common in the traditional financial arena, and they see large-scale companies collect institutional funds to invest in real estate projects.
These REITs are usually reasonably liquid, as they are listed on a stock exchange – meaning that investors have greater freedoms when it comes to cashing out. However, Fundrise – via its eREIT structure, offers a non-traded version of the asset class.
As such, you won’t be able to cash your investments out on-demand as seamlessly. On the flip side, the platform does offer a redemption program is you wish to receive your money early. If this falls between 90 days and 5 years of making the investment, then you will need to pay a fee in order to do this.
Nevertheless, Fundrise offers four investment portfolios in total – each of which targets a specific segment of the US real estate space. For example, while some portfolios will focus on cash-flow generating properties like commercial buildings and multi-family residential units, others will focus on high-growth areas that are likely to yield gains in the form of appreciation.
Fundrise lists the historical gains that it has made on its platform since 2014. Specifically, this amounts to average annualized returns of:
In terms of the fundamentals, Fundrise will charge you annual fees on two fronts – an advisory fee and a maintenance fee.
The former – at 0.15% per year, covers day-to-day costs, such as facilitating the website and processing deposits. The maintenance fee – which costs 0.85% per year, covers the costs associated with finding and managing real estate projects.
All in, that means that you will pay a very reasonable fee of just 1% per year on your total investment amount.
Finally, it is worth noting that you will not have the option of choosing specific projects on a DIY basis. Instead, the platform will make investments on your behalf, based on the type of investment portfolio that you decide to sign up for.
In this respect, the most popular portfolio at Fundrise is that of its Balanced Portfolio – which targets a good blend of cash-flow generating and high-growth projects – all of which are based in the US.
You can read our full review of Fundrise here.
|Fundrise Real Estate Crowdfunding - Visit|
|Product Type||Real Estate eREITs and eFunds|
|Potential Return||Average return in 2018 was 9.11%|
|Fees||Around 1% (Asset Manage Fee 0.85% & Advisory Fee 0.15%)|
|Property Types||Commercial, Residential, Single Family|
Roofstock is an online real estate crowdfunding platform that focuses on single-family properties across the length and breadth of the US.
Unlike the other platforms that we have discussed thus far, Roofstock allows non-accredited investors to choose investments on a DIY basis. In other words, the Roofstock platform will list heaps of properties that it wishes to buy, with members able to choose the specific property that they wish to invest in.
This gives you much greater flexibility in where your money goes if you prefer to take a more hands-on approach to real estate investing.
Furthermore, you can view the full portfolio of investment opportunities simply by signing up. However, the purchasing process actually goes against the typical crowdfunding ethos, insofar that you will be required to purchase the property yourself – outright.
While you can engage in financing, you will be required to hold a sufficient amount of capital to be eligible.
Moreover, you also need to make considerations regarding the set-up fee, which is charged on every property investment that you make. This will amount to the greater of 0.5% of the amount that you invest, or $500.
You can read our full review of Roofstock here.
|Roofstock Rental Property Investing - Visit|
|Product Type||Equity, Direct Ownership|
|Potential Return||Varies by Property|
|Fees||0.50% setup fee|
|Min Investment||From $500 with Roofstock One|
|Property Types||Single Family|
EquityMultiple is a US-based online crowdfunding platform that specializes exclusively in real estate investments. In its most basic form, the platform will pool investor funds together, and then lend them out to ‘sponsors’. These sponsors – who are highly vetted, will then use the funds to invest in commercial real estate deals.
This could include anything from a multi-family complex in downtown Brooklyn, or a residential loan to a property developer in Los Angeles.
EquityMultiple allows you to get started from just $5,000 per deal, although most opportunities start at $10,000. Depending on the type of real estate venture that you wish to back, the platform offers returns of between 7% and 17% per year.
You can read our full review of EquityMultiple here.
|EquityMultiple Real Estate Crowdfunding - Visit|
|Product Type||Debt, Equity, Preferred Equity|
|Potential Return||7 - 17%|
|Fees||0.5%-1.5% Per Year + 10% of Profits on Exit|
|Property Types||Hotels, Multi-Family Complexes, Industrial Buildings, |
Office Units, Data Centers, Condos, Townhouses
RealtyMogul is a US-based real estate crowdfunding site that was also launched in 2012.
While not in the same league as Fundrise with its numbers, the platform has still managed to attract more than 185,000 investors since its inception – resulting in more than $400 million being injected in real estate projects.
In a similar nature to Fundrise, RealtyMogul invests in a range of real estate ventures, which includes residential buildings, commercial buildings, and multi-family complexes.
RealMogul is suited to both accredited investors and everyday retail investors – albeit, you will be required to make a minimum investment of $5,000.
As such, the platform might not be suited for those of you that are looking to start off with a smaller investment. Moreover, if you fall outside of the accredited investor threshold, then you will only have the option to invest in one of two private REITs that the platform offers. This gives you less flexibility in where your funds end up.
On the flip side, accredited investors have the chance to inject capital into specific, individual properties.
In terms of the lock-up period, the platform does not offer an early redemption program, nor is there a secondary marketplace to offload your shares to other investors. As such, you will need to hold on to your investment until the project term matures.
On average, this will sit between 3 and 7 years. Finally, RealtyMogul charges an annual asset management fee of between 1% and 1.25%, which is based on the total amount you have held at the platform.
If an initial investment of $5,000 is simply too much for you, then it might be worth exploring what Rich Uncles have to offer. With a minimum investment of just $5, this particular real estate crowdfunding site is suited for budgets of all shapes and sizes.
Rich Uncles will target both commercial and residential properties within its portfolio, and it even has a secondary market for those of you that wish to redeem your investment early.
If you’re happy to hold onto your investment until maturity, Rich Uncles typically executes a term of between 3 and 7 years on its projects.
On top of super-low minimums, we also like Rich Uncles because it does not charge any investment fees. Instead, the platform makes its money once a project term has matured.
Once sold, the first 6.5% of profits will be distributed to members of the platform. After that, Rich Uncles will take 40% of the remaining profits.
While this might sound like a lot at first glance, you need to remember that this is only based on successful projects. If a real estate venture does not result in gains, then Rich Uncles makes nothing.
As such, this is a further motivator for the platform to ensure it chooses its investments wisely.
While some of you might be best suited for smaller investment amounts, it is also important to point you in the direction of a real estate crowdfunding site that tailors specifically to accredited investors.
In this sense, it might be worth checking out Origin Investments. On top of being an accredited-investor-only platform, you will be required to invest a minimum of $100,000.
Launched way back in 2007 and facilitating more than $1 billion in real estate deals, Origin Investments will typically focus on income-generating projects.
Moreover, the platform will seek to engage in capital improvements and renovations on its purchased properties to increase the prospect of healthy appreciation once the property is eventually sold on.
Most investments at Origin Investments will require a minimum term of 5 years, and portfolios are packaged as private REITs. This means that you will find it difficult to redeem your investments until the term matures. Finally, the platform charges an annual maintenance fee of 1.25%.
In a similar nature to Origin Investments, AlphaFlow is a real estate crowdfunding site that is only suitable for accredited investors.
However, the platform allows you to start with a much smaller investment of $10,000 – as opposed to the $100,000 required by Origin. Nevertheless, AlphaFlow does all of the hard work for you, meaning that you will simply make an original investment, and the platform takes care of the rest.
There is no need to choose specific projects, nor is there any requirement to outline your preferred investment strategy.
Instead, your funds will likely be pooled across dozens of different properties, which usually focuses on residential and single-family homes.
The specific investment length at AlphaFlow is also much shorter than that of Origin, with terms typically averaging 12 – 48 months. In terms of fees, investors will pay an annual charge of 1% on equity instruments, and 2% on debt.
PeerStreet is a crowdfunding site that is potentially best suited for those of you with a higher appetite for risk.
In a nutshell, PeerStreet specializes 100% in debt instruments that see investors loan money to those operating in the real estate development space.
These developers will then use the funds to build residential and single-family units throughout the US. As developers are highly exposed to the health of the wider US economy, the risks associated with PeerStreet loans are somewhat high.
In return, you should expect annual yields of between 6% and 12% – which is paid in interest on the loans.
Moreover, we like the fact that you have the flexibility of choosing which loan structures you wish to back, which then allows you to perform additional due diligence on the respective developer.
In terms of the fundamentals, PeerStreet permits investments from just $1,000, and loan terms typically average between 6 months and 24 months. You will need to pay a set-up fee on each investment that you do make, which will sit between 0.25% and 1% of the investment amount.
What is Real Estate Crowdfunding?
In its most basic form, real estate crowdfunding is a process that allows you to get your foot on the property ladder without needing to purchase a house outright. Instead, you can get started with a small amount of money, with your ownership of the property proportionate to the amount that you invest. Your funds are then subsequently pooled together with other investors at the same crowdfunding platform.
This allows the platform to invest in real estate projects on your behalf. The real estate crowdfunding space has grown to exponential heights in recent years, not least because property is often seen as the safest and most secure asset class in the investment arena. However, each platform will have its own investment strategies, so it’s crucial that you understand exactly what it is you are injecting your money into.
While we will cover the different types of investments facilitated by real estate crowdfunding sites in more detail further in our guide, this could include anything from a traditional residential property, to a commercial block of offices, and in some cases, a brand new development project built from scratch.
Nevertheless, to ensure you have an understanding of how a typical crowdfunding transaction might take place in the real estate scene, take a look at the following example.
- A real estate crowdfunding platform wants to purchase a $400,000 property located in Florida on behalf of its members
- As such, it lists the project on its website with a full breakdown of why it believes it represents a good investment
- You like the look of the property and decide to invest $4,000
- 99 other members also decide to invest $4,000 into the project
- This means that in total, 100 members invested $4,000 each, taking their individual ownership to 1%
- Therefore, you now own 1% of the property – something you would not have been able to achieve without a crowdfunding platform
Although the above example is extremely basic, it should at the very least illustrate how real estate crowdfunding works.
Choosing a Real Estate Crowdfunding Site
So now that you have a basic understanding of how real estate crowdfunding typically works, the next thing on your radar is likely to be a platform. Not only will each crowdfunding site have its own pros and cons, but it will target a specific segment of the real estate space. As such, you need to make a number of considerations prior to joining a new site.
Check out the following key metrics that we have listed below. We’ve explained each metric in greater detail further down, so be sure to read through them before proceeding!
- Minimum Investment: Is the platform suited for small investments, or does it require you to be an accredited investor?
- Type of Investment: Are you going to be investing in traditional residential properties, or commercial buildings with long-term tenancy agreements?
- Lock-up Period: How long do you need to hold the investment for before you can withdraw the funds out?
- Appreciation vs Income: Will the underlying property generate gains in the form of appreciation, rental income, or both?
- Fees: How much does the crowdfunding platform charge to use its services? What fees do you need to make considerations for?
- Debt vs Equity: Is the crowdfunding site purchasing the asset as debt, equity, or a blend of the two. If it’s a mix, what’s the breakdown of debt/equity?
Minimum Investment and Eligibility
First and foremost, you need to assess the types of investors that the real estate crowdfunding site in question is able to take on. Before looking at the minimum investment amount, you need to check that the platform allows investors from the state that you live in. Most importantly, you need to assess whether the platform requires you to be an accredited investor, as this is sometimes a requirement.
For those unaware, an accredited investor refers to somebody that has a net worth of at least $1 million, or has been in receipt of an annual salary of $200,000 or more for a minimum of two years consecutively. If you do not meet the above requirements, and the platform is only able to accept accredited investors, then the site won’t be suitable for your circumstances.
Once you have ascertained that you are eligible, you then need to explore what the minimum investment amount is at the platform. While some real estate crowdfunding platforms require a minimum investment of $10,000, others allow you to get started with just $5.
Types of Investments at the Real Estate Crowdfunding Site
If your chosen real estate crowdfunding website meets your financial profile, you will then need to make some serious considerations regarding the type of investment that you will be making. Each investment type will typically come with its own risks and rewards, so you need to choose an asset vehicle that best meets your long-term investment goals.
Here’s a breakdown of some of the different investment types that a real estate crowdfunding platform might make on your behalf. Take note, platforms will often offer multiple investment types, so you won’t necessarily be pigeon-holed into just one.
- Residential Properties – If the platform chooses to invest in stand-alone residential properties, then they will simply purchase a single property on behalf of its members. Depending on the size of the platform, the crowdfunding site might purchase multiple properties on a particular fundraising campaign, or just one.
- Multi-Family Residential Properties – In a similar nature to stand-alone residential properties, the crowdfunding platform might also invest in multi-family residences. This is where the platform will purchase an entire complex of houses or apartments, and then rent the properties out individually.
- Commercial Buildings – Outside of the residential space, some real estate crowdfunding sites will invest in commercial projects. This could be anything from a block of offices, a shopping mall, university accommodation units, or a hospital. These are then typically rented out to commercial tenants on a long-term lease that will last for a number of years.
- Development Project – Some crowdfunding platforms will look to invest in projects from the ground-up. In other words, they will purchase an allotment of land, and build a new project from scratch. This could be a new apartment complex or a commercial building area. Either way, although development projects typically yield the highest gains for investors, they also come with the highest risks, as developers are much more susceptible to a sudden downfall in the economy.
- Real Estate Loans – A number of leading real estate crowdfunding sites will also engage in commercial loans. In most cases, this will be to finance real estate developers that need to raise capital for a new or existing development project. The crowdfunding platform will then earn interest on the loan funds, which subsequently nets its members income-based gains.
It is also important to note that real estate crowdfunding platforms will differ in how they get their members to choose a particular investment.
For example, some platforms will allow you to invest in a stand-alone project, such as a single residential property or a student accommodation complex. In this sense, you know exactly where your money has been injected.
On the other hand, some crowdfunding platforms will not give you the opportunity to choose specific projects.
On the contrary, you will simply choose the type of investment portfolio that you require – such as a portfolio that focuses on appreciation or rental income, and the platform will then make multiple investments on your behalf.
This isn’t an issue per-say, as the platform is likely to have a highly stringent due diligence process in place before it chooses a new investment. Moreover, this will typically consist of a team of highly experienced individuals from within the real estate space, so there is no requirement for you to have any knowledge of what a good or bad investment looks like.
One of the most important considerations that you need to make prior to investing your money into a real estate crowdfunding project is the length of time that you will be required to lock your money away.
In fact, this is the case with any real estate investment, as the underlying asset is highly illiquid. This means that you will likely not have the option of simply cashing your investment out like you would do in the stocks and shares space.
On the contrary, your money – alongside your fellow crowdfunder’s money, is going to be tied up in the property. As such, this means that the crowdfunding platform will rarely be able to facilitate a withdrawal request until the underlying property has been sold on.
This is why you should only consider a real estate investment if you are looking to make gains long-term. In most cases, this should be for a period of at least five years.
On the flip side, whether or not you will be able to realize your gains in the short-run will depend on the crowdfunding platform in question, as well as the type of investment that the platform has made. For example, some crowdfunding sites allow you to make a redemption request after a set period of time – even if the underlying property hasn’t been sold.
However, not only will you likely need to pay an early redemption fee, but this will be on the proviso that the site has the required cash flow to meet your withdrawal request. If they don’t, then your money is likely to be locked-up.
You also stand a much better chance of accessing your funds in a short timeframe if you are investing in a developer loan, as these are normally fixed-term periods that rarely exceed 1-2 years. Ultimately, you need to evaluate what the lock-up period is prior to parting with your money.
Appreciation vs Income
When choosing an investment at a crowdfunding platform, you will likely be offered a number of different options – each of which centers on a combination of appreciation and income. While it is true that the vast majority of properties will benefit from gains both in the form of appreciation and ongoing income, the exact split will vary depending on the type of investment.
For example, the developer might purchase a multi-family complex with the view of making gains in the form of monthly rental payments. On the flip side, the complex might be situated in an area that is somewhat stagnant in the growth department. As such, you might make 6% per year in rental income, and just 1.5% in appreciation.
At the other end of the spectrum, the real estate crowdfunding site might invest in a new development project that seeks to build a high-rise apartment building. If the platform plans to sell the building as soon as it has been completed, then you will make all of your gains in appreciation, and nothing in income.
To make things easier for you, most platforms will offer a range of investment portfolios that target a specific growth model. For example, while some portfolios will focus on long-term appreciation, others might focus on making gains in the form of rental payments.
Fees: How Much Will you be Charged?
Much like its pool of investors, real estate crowdfunding sites are in the business of making money. As such, you will need to make some considerations regarding fees. This is to cover the costs associated with finding and managing investment opportunities on behalf of its members.
Crucially, there is a lot of work that goes into identifying potential investments, which in itself requires a team of highly experienced real estate stakeholders to perform the required due diligence on the property(s) in question. You then need to factor in the costs associated with collecting payments from tenants, buying and selling new properties, legal specificities, providing customer support, and more.
Your charges are likely to be implemented on an annual basis, which will see you pay a small percentage on the current investment portfolio you have at the platform. For example, if you currently have $10,000 worth of investments at the crowdfunding site, and the annual charge amounts to 1%, then you will pay $100 per year.
In other cases, some real estate crowdfunding platforms claim to not charge any fees at all. However, this is usually only the case if the platform specializes in higher-risk development loans, so do bear this in mind.
Debt vs Equity: What are you Investing in?
The final key metric that you need to look out for when choosing a new real estate crowdfunding site is whether your investment is represented as debt or equity. Either way, it is crucial that you have a firm understanding of the difference between debt and equity in the context of real estate crowdfunding.
If your chosen project represents an equity investment, you will own a percentage of the underlying asset – proportionate to the amount that you invest.
- For example, if you own 1% of the property, then any gains that the property makes will see you earn 1%.
- This means that 1% of all rental payments will come your way, and when the property is eventually sold – 1% of the proceeds will also come your way.
- On the one hand, a lot of crowdfunders prefer equity, as it ensures that their investment is held directly in the asset itself.
- Moreover, investment gains are typically higher, and fees are usually lower.
However, equity investments also come with some potential disadvantages.
- For example, your funds are likely to be locked-up for a much longer period, as you won’t have the potential to realize your money until the property is actually sold.
- Don’t forget, you are pooling your money with thousands of other investors, so unless there is a clear majority from your fellow counterparts, the property will remain unsold until the platform chooses to.
- Moreover, there is also the chance that the real estate purchase is being facilitated alongside third-party loans.
- If it is, then the loan providers will typically be first-in-line if the project goes wrong.
Much like in the case of equity investments, debt instruments also come with their pros and cons in the context of real estate crowdfunding.
First and foremost, when we refer to real estate debt instruments, this is when your money is typically used as a means to finance the actual owner of the project.
For example, this could be a huge multi-family residential unit that a developer wants to build and thus – requires funding from multiple sources.
In this sense, your funds will either be secured by the property itself, or in the form of a promissory bond. Either way, if things did go wrong during the development process, then you should be a first-in-line creditor.
Furthermore – and as we briefly discussed earlier, debt instruments will typically be based on a much shorter period, meaning that you won’t be required to lock your money away for a long period of time.
In fact, your investment might only require a lock-up period of between 6 months and 2 years. Finally, you are also likely to receive income on a regular basis as opposed to needing to wait for the property to be sold.
As you are effectively the lender in the project, the borrower is likely to pay you your money back on a monthly or quarterly basis until the debt is repaid in full. This then allows you to use your income payments to re-invest in other projects and thus – enjoy the perils of compound interest.
On the flip side, this particular real estate crowdfunding investment type also comes with its risks. Crucially, the returns that you are able to make on your investment are capped. While this might appeal to individuals that wish to know exactly how much they are going to make on their investment, this does limit your exposure to the wider real estate market.
By this, we mean that you won’t enjoy the benefits of appreciation – especially if the project is situated in a high-growth area. Instead, you will simply get a fixed amount of interest on your investment and thus – miss out on the gains that the developer will make once the project has been sold on.
Frequently Asked Questions
What is the minimum investment I can make at a real estate crowdfunding site?
This will depend on the specific crowdfunding platform in question. Nevertheless, some sites allow you to get started with an investment of just $5. At the other end of the spectrum, some sites require a minimum investment of $100,000.
What is the difference between debt and equity at a real estate crowdfunding site?
If your investment is backed by equity, then your funds will be injected directly into the underlying asset. For example, if you are investing in a single-family unit, then your ownership percentage will be proportionate to what you invest. On the flip side, investing in a debt instrument at a real estate site means that you are lending money to the owner of the underlying property.
How can I reduce the risks of investing in a real estate crowdfunding project?
While no investment will ever be 100% risk-free, you stand the best chance of reducing your exposure to defaults and market-downturns if your portfolio is as diversified as possible. For example, instead of investing $10,000 into a single project, it would be much better to make 100 investments at $100 each. This way, if a particular investment goes wrong, you won’t feel the effects anywhere near as much had you backed a single project.
How long do I need to lock my investment up for before I can withdraw it from a real estate crowdfunding site?
Once again, this will not only depend on the site in question, but the type of investment that you are making. For example, if you are investing in a debt-based real estate loan, then you will need to wait until the loan term matures before receiving your total investment back. Similarly, if opting for an equity-based single-family unit purchase, you likely won’t receive your money back until the home is sold. On the other hand, some platforms give you the option of redeeming your funds early at a fee, and some will have a secondary marketplace that allows you to sell your shares to another buyer.