The Best Real Estate Crowdfunding Sites & How to Get Started
The Best Real Estate Crowdfunding Sites
Which crowdfunding sites are worth investigating? Below are our top 5 choices for real estate crowdfunding platforms.
Fundrise
| Fees | 1% total (0.15% advisory fee, 0.85% management fee) |
|---|---|
| Minimum Investment | $1,000 |
| Annual Returns (average) | 9.47% (in 2019) |
| Total Distributions to Investors | $100 million + |
| Investment Options | 4 portfolio options with various eREITs and eFunds |
| Accredited Investor Status Required? | No |
Founded in 2012, Fundrise now manages over $1 billion in assets for over 150,000 individual investors. It offers non-tradable REITs which invest in private commercial and residential real estate investment projects.
Fundrise is a crowdfunding real estate site that’s open to all investors. With low minimum investments and a simple-to-use mobile app, Fundrise is a great option for beginners who want to dip their toes into real estate investing.
Pros
- Low minimum ($1,000) for beginner investors
- No accredited investor status required
- Easy to use mobile app
- IRA offering available
Cons
- Funds not easily accessible (without penalty)
- Higher taxes due to non-qualified dividends
- Additional fees may apply per project
EquityMultiple
| Fees | 1% annual fee (on average). Other fees apply per project. |
|---|---|
| Minimum Investment | As low as $5,000, typically $10,000 |
| Annual Returns (average) | 14.50% |
| Total Distributions to Investors | $60 million + |
| Investment Options | 3 portfolio options with various investments including debt, equity, funds, CRE securities, opportunity zones and 1031 exchanges. |
| Accredited Investor Status Required? | Yes |
EquityMultiple is a commercial real estate crowdfunding site that provides accredited investors access to private real estate deals. It offers multiple investment options, including debt, equity, opportunity zones, and even 1031 exchanges. These investments are part of 3 portfolios with different investment goals.
- Fund Investing - Best for diversification
- Direct Investing - Best for investing in specific properties
- Tax-Deferred Investing - Best for tax benefits
EquityMultiple only works with accredited investors ($1 million net worth/$200,000 annual income). Offering a wide range of investment options, the company helps users manage their risk tolerance, while giving them direct exposure to commercial real estate. High returns – with monthly and quarterly distributions – are also available.
Pros
- Wide array of investment options
- 14%+ returns over time
- Simple-to-use online platform
- Tax-efficient investments available
Cons
- Open to accredited investors only
- High minimum investment
- Non-liquid investments
Streitwise
| Fees | 3% up front fee, 2% annual fee |
|---|---|
| Minimum Investment | $1,000 |
| Annual Returns (average) | 9.57% |
| Total Distributions to Investors | $80 million + |
| Investment Options | REIT only |
| Accredited Investor Status Required? | No |
Streitwise is a privately-traded REIT sponsored by Tryperion Partners, which provides investors with access to equity in their real estate investments. It offers a quarterly dividend with an average of over 9% in annualized returns.
Streitwise isn’t a crowdfunding real estate site, but it does offer a REIT fund for investors to participate in. Streitwise does have a 5% first-year fee (plus 2% annual fee), but this is actually lower than the industry average for REIT investments (which is closer to 10%).
Pros
- High dividend payouts
- No accredited investor status required
- IRA offering available
Cons
- High fees compared to traditional crowdfunding sites
- Funds locked for a minimum of 1 year
- Non-qualified dividends
RealtyMogul
| Fees | Vary by investment |
|---|---|
| Minimum Investment | $5,000 |
| Annual Returns (average) | 4.5% - 8% (REIT) |
| Total Distributions to Investors | $13 million + (REIT), other distributions not disclosed |
| Investment Options | 2 REIT options, private real estate, 1031 exchange |
| Accredited Investor Status Required? | Only required for private real estate investing |
Founded in 2013, RealtyMogul has now served over 200,000 investors with over $600 million currently invested. The company platform offers over $2.80 billion in real estate investments, providing access to a wide array of private real estate and REIT options. It’s known for having an extremely stringent due-diligence process, investing in less than 1% of the projects presented to their team.
RealtyMogul REITs are open to non-accredited investors and provide two options:
- MOGULREIT I: Income - Holdings include senior debt, mezzanine debt, and equity structures
- MOGULREIT II: Growth- Holdings include preferred and common equity in apartment buildings.
RealtyMogul offers access to 1031 exchanges for investors who prefer to defer taxes on their real estate investments. The company also provides access to private real estate equity for accredited investors only.
Pros
- Huge customer base and investment holdings
- Multiple iInvestment options
- Automatic investments available on REITs
- Easy-to-use investing platform
Cons
- Additional fees can add up quickly (especially in REITs)
- $5,000 minimum investment
- Higher taxes due to non-qualified dividends
- Long lock period for private real estate deals
Ground Floor
| Fees | No investor fees |
|---|---|
| Minimum Investment | $10 |
| Annual Returns (average) | 10.50% |
| Total Distributions to Investors | $12 million + |
| Investment Options | Collateralized debt |
| Accredited Investor Status Required? | No |
GroundFloor is a crowdfunded real estate investment site that allows investors to lend money (e.g., a hard money loan) to borrowers who purchase and flip distressed properties. Investors earn interest on the loan, which is typically paid back within 12 months. These projects are all graded on a risk/reward scale, allowing investors to choose the level of risk they’re most comfortable investing in.
GroundFloor has generated average returns over 10% over the past 6 years and investors are able to choose the property they’ll loan money to. Loans are 12- to 18-month terms, giving investors a quicker return than typical equity real estate investments.
Pros
- Low minimum $10 for beginner investors
- No accredited investor status required
- Short term loans for fast returns
- No investor fees
Cons
- Higher default and foreclosure risk
- Loan updates only available monthly
- No equity investing options
The Basics: What Is Real Estate Crowdfunding?
Real estate crowdfunding is a way to invest in commercial real estate without needing to purchase or manage property. Crowdfunding sites connect real estate developers and professionals with investors who want to fund these projects for a percentage of the profits.
While some sites are reserved for accredited investors, many have no requirements and allow individuals to invest using their platform. The invested funds are used for the purpose of purchasing, improving, and developing commercial real estate projects.
Equity investments may include private individual real estate, multi-family homes, or large commercial projects. The funds can also be used to lend to real estate borrowers, or participate in 1031 exchange deals for tax deferral purposes.
How Does Real Estate Crowdfunding Work?
Real estate crowdfunding sources capital for real estate projects, allowing individuals to invest small amounts into a real estate project in return for a portion of the profit. Crowdfunding platforms act as the intermediary between the investors and the project owners, charging a fee for their services.
There are typically two types of investment options:
- Equity - Shares of ownership in the real estate project, offering investors a share of the profits
- Debt - Funds borrowed by the project owners (with interest paid to investors)
While traditionally reserved for accredited investors, many crowdfunding sites now offer investment options for non-accredited investors, too.
Real Estate Crowdfunding vs. REITs
A real estate investment trust (REIT) is a company which invests in income-producing real estate. REIT shares are tradable securities that give investors ownership in the company. To keep their status as a trust, REITs are required to distribute 90% of their profits back to shareholders in the form of dividends.
There are typically no minimum investment requirements or lock-up period for publicly-traded REITs.
Real estate crowdfunding is similar in that it allows individual investors to fund real estate projects, but the investments are pooled together by a sponsor and distributed to the participating projects. This gives investors direct ownership in private real estate projects.
Crowdfunding has traditionally only been available to accredited investors, but many new options have become open to all investors. These investments are considered “illiquid” with lockup periods as long as 7 years on some projects.
Pros of Real Estate Crowdfunding
- Potential for high annual returns (12% or more)
- Transparency as to project details and updates
- Asset diversification for your investment portfolio
- Monthly or quarterly distributions
Cons of Real Estate Crowdfunding
- May earn more by directly investing in real estate ownership
- Illiquid investment, sometimes locked for years
- High execution risk
- High minimum investment ($10,000+) on some projects
Is Real Estate Crowdfunding Worth The Risk?
Investing in real estate crowdfunding does carry significant risks, but it can also be extremely lucrative. The value depends on your investing strategy, overall portfolio mix, risk tolerance, and other factors.
If you’re an accredited investor with extra funds to invest in longer-term projects, crowdfunding might be a great option. It can provide annualized returns in excess of 12% and help you diversify your overall portfolio, as well as provide passive income.
For example, investing in an apartment complex real estate project may have a 5-year lockup period, but could provide you with higher returns, as well as monthly dividends from rent collection.
On the other hand, investing in crowdfunded real estate carries major risks, including economic downturn or market supply change (that could reduce your returns). Many crowdfunded real estate investments lock up your investment funds for years at a time.
For example, if you invest in an apartment complex project that’s looking to improve the facilities and increase rents – but the economy goes south – you may be stuck with low, underperforming rents while your funds are locked into the project for years.
How to Get Started With Crowdfunding Investments
If you’re looking to invest in real estate crowdfunding, here’s how to get started.
Find a Reputable Real Estate Crowdfunding Company
Always look for a company that’s been in the industry for at least 5 years and has access to qualify projects. Review its historical returns and how much it has paid out in dividends to date.
Find the Right Investment
Do you want passive income, or do you want to invest in a long-term project with a large payout at the end? Do you need your funds accessible? What amount can you invest? Make sure you understand your investment options before choosing any investment.
Most crowdfunding companies have multiple options to choose from, so find one that aligns with your goals before investing anything.
Understand the Fine Print
Crowdfunding can be a complex investment, so understanding the details of the investment are key. Learning about fees, distributions schedules, project timelines, and other factors can help you avoid any surprises down the road.
Collect (or Reinvest) Distributions
If you choose to invest in a project that pays out distributions, many companies let you choose to deposit those into your bank account or reinvest them into the project. If you’re looking for usable income, you can collect those distributions. But if you want to maximize your returns, opt to reinvest them back into the project.
Pay Your Taxes
One of the downsides to crowdfunded real estate investments is that distributions are typically non-qualified, meaning they’re taxed at your ordinary income rate. If you reinvest these distributions, you might receive a surprise tax bill at the end of the year.
We recommend meeting with a certified tax professional to understand how these investments can affect your personal taxes.
Ask An Expert About Real Estate Crowdfunding
Is My Money Protected In Real Estate Crowdfunding?
There’s always a risk of loss in any investment, and real estate crowdfunding is no exception. Since you’re investing directly into a real estate project, your success is highly dependent on the project sponsor (that manages the day-to-day details). If the project fails or the sponsor goes bankrupt, there’s a risk of losing both your principal and earning on the investment.
Most quality crowdfunding platforms (such as Fundrise) offer full bankruptcy protection to protect your assets, but not all of them do. This is a crucial detail to understand before investing in any crowdfunding site.
Should Crowdfunding Be My Main Investment for Retirement?
Short answer: No.
Crowdfunded real estate platforms offer individuals access to private real estate deals, exposing them to an asset class typically reserved for wealth investors. But no matter how high the promised returns, it isn’t wise to put all of your eggs in one investment basket.
Crowdfunded real estate should be part of a larger investment strategy, which may include other assets classes such as stocks, bonds and commodities. Diversification is key to the success of any retirement investing strategy.
That said, holding your crowdfunded investmentment in a self-directed IRA can help you avoid short-term tax rates and increase your exposure to an alternate asset class.
Who Can Benefit from Real Estate Crowdfunding?
Crowdfunding is best for investors who want to invest in real estate without the hassle of construction loans, property maintenance, and dealing with tenants. With minimum investments as low as $500, the barrier for entry has been significantly lowered for individual investors.
It’s also a great option for individuals looking for a passive income investment, as many offer quarterly or monthly distribution payouts.
