Real Estate Crowdfunding
It’s a proven financial fact: historically, real estate has out-performed the stock market.
Indeed, Andrew Carnegie famously said that 90% of all millionaires created their wealth by owning real estate.
Why is this investment type such a slam dunk?
Because for it to pay off, you’re not only reliant on the property’s appreciation, but you also have cash-flow options (rental income, for example) and tax-benefits (depreciation). Real estate is also one of the easiest (and cheapest) assets to leverage, meaning that you can often buy, rehab, rent, and refinance to recover most if not all of your initial investment.
But if you only have $5000 to invest, traditionally, you’re pretty much locked out of this otherwise amazing wealth-building tool that could have fast-tracked you to financial freedom.
Luckily, technology offers a solution for the “little” guys: real estate crowdfunding. By pooling together with other investors, you can invest in real estate for as little as $500.
What is Real Estate Crowdfunding?
Crowdfunding (or equity crowdsourcing) is a non-traditional way for businesses to raise money. By reaching a large audience of smaller investors, businesses can raise large sums of money.
Not only does crowdfunding offer easier access to capital for the company (versus convincing a bank or single investor to give them the full amount), it also lets everyday people invest small amounts of money while still becoming shareholders.
This has huge implications for the small-time investor. It allows them to invest in big-money projects like real estate, to diversify the risk of their portfolios beyond equities, and opens the potential of enormous returns if the company they choose is successful and/or eventually goes public.
That said, it’s a relatively new concept.
In 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. It allowed small and mid-sized businesses to crowdfund their capital needs.
Originally, because of the inherent risks of putting money into relatively unknown companies, the Securities and Exchange Commission (SEC) limited crowdfunding to only accredited investors. But in 2016, that restriction was removed and replaced instead with investment limits based on your annual income and net worth.
For the first time ever, non-accredited investors could back private companies or, in the case of real estate crowdfunding, purchase investment properties jointly with other investors.
How To Invest In Real Estate Crowdfunding
Crowdfunding makes real estate investing accessible to individuals with smaller savings.
With returns that can surpass 10 percent annually – along with the host of other wealth-building traits I mentioned earlier – having real estate in your portfolio is a definite game changer.
Pooling your money together allows you and other investors to come together to purchase expensive properties you would have otherwise been unable to buy on your own.
There are different options when it comes to profiting from real estate crowdfunding.
Some deals involve receiving dividends from rental income (for example, by investing in apartment buildings that are already generating revenue), while others involve “flipping” the property – adding value by fixing or renovating it and then reselling the building for a profit.
Investment Limits for Crowdfunding
As I mentioned earlier, while the SEC opened real estate crowdfunding to non-accredited investors in 2016, they did still impose investment limits. These limits are based on your annual income and net worth:
Less than $107,000
If either your annual income or your net worth is less than $107,000, then each year you can invest the greater of (a) $2,200 or (b) 5% of whichever is less: your annual income or net worth.
|Income||Net Worth||Calculation||12-month Limit|
|$35,000||$100,000||Whichever is greater: (a) $2,200 or (b) 5% of $35,000 ($1,750)||$2,200|
|$140,000||$70,000||Whichever is greater: (a) $2,200 or (b) 5% of $70,000 ($3,500)||$3,500|
More than $107,000
If both your annual income and your net worth are more than $107,000, then each year you can invest up to 10% of whichever is less: your annual income or your net worth. Your investment, however, cannot exceed $107,000.
|Income||Net Worth||Calculation||12-month Limit|
|$155,000||$110,000||10% of $110,000 ($11,000)||$11,000|
|$220,000||$800,000||10% of $220,000 ($22,000)||$22,000|
|$1.3 million||$2.5 million||10% of $1.3 million ($130,000), subject to cap||$107,000|
Note on crowdsourcing limits for married couples
If you’re married, the SEC allows you to make the above calculations based on your combined annual income and net worth, even if your assets aren’t held jointly. However, your combined crowdfunding investments are still restricted to the above limits, as though it was a single investor at that annual income or net worth.
Can You Make Money in Real Estate Crowdfunding?
The short answer to this question is “yes.”
In fact, in a 145-year study (“The Rate of Return on Everything, 1870-2015”), researchers analyzed the returns of the major investment types and found that real estate outperformed the stock market, and with less risk.
In recent years, according to Fundrise, the average annualized return for their crowdfunded investments were:
- 2019: 9.47%
- 2018: 9.11%
- 2017: 11.44%
- 2016: 8.76%
- 2015: 12.24%
- 2014: 12.25%
How Much Money Can You Make Crowdfunding Real Estate?
Like any investment, how much you can make by crowdfunding real estate depends on several factors. One of the biggest and most obvious is the amount of money you invest. The larger the investment, the larger the potential return.
From the returns above, you can see that crowdfunded real estate on average has performed quite well over the past few years. Depending on the amount of money you are able to initially or continually invest, the compounding interest and dividends you can make are unlimited.
Creating a starter portfolio of real estate is easier than ever with platforms that connect you and other investors with revenue-generating properties and projects.
Is Real Estate Crowdfunding a Good Investment?
So, should you add crowdfunded real estate to your investment portfolio?
Since the JOBS Act is relatively new, crowdfunding as an investment vehicle doesn’t have much statistical evidence to say concretely one way or the other.
But, while crowdfunding is new, real estate is not. And as we’ve pointed out, it’s a proven financial fact that real estate has a long history of profitability that has helped in part to build the wealth of the vast majority of this country’s millionaires.
If nothing else, investing in real estate adds an extra layer of protection to your portfolio against stock market declines. So, if you’re primarily invested in stocks and bonds, diversifying is a smart move.
Side note: a less important but still cool value-add? Since crowdfunded real estate involves private companies (versus publicly traded), investors don’t have to see their account values going up and down every month at the whim of the stock market. Enjoy the peace of mind! 😉
And now, in addition to REITs (real estate investment trusts), crowdfunding allows everyday people to invest in real estate, where it used to only be available to the 1%.
That said, you should treat real estate crowdfunding the same way you treat other investments: do due diligence on the properties and funds you choose, in sectors you know about, and on platforms that are legit.
Where to Invest in Crowdsourced Real Estate
For a new industry, as crowdsourced real estate is, there sure are a lot of sites ready to take your money. Each platform has its own merits and niches – and its own downfalls.
So, how do you choose a good site?
We did your homework for you by testing more than 50 different sites, and have narrowed down the list to the top 11 best crowdfunding real estate platforms.
Criteria we used for finding the best real estate crowdfunding portal:
- An easy to use platform
- Must have a solid list of active and closed listings
- Positive reviews from past and current clients
11 Best Real Estate Crowdfunding Platforms
Here are 11 of the absolute best real estate crowdfunding sites:
- 🏆 Fundrise: Best Overall
- Alpha Investing
- 1031 Crowdfunding
- Patch of Land
Fundrise is a tech-focused real estate crowdfunding platform. They provide access to real estate investing through eREITs and eFunds, which are essentially diversified portfolios of private real estate assets throughout the United States.
Even better? Some of the listings on the site are available to Fundrise with low minimums of just $500(!). This makes the platform perfect for those just getting into real estate investing and those with only small amounts of capital to invest.
Fundrise even has a quiz that will help you pick the right investments and plans for your financial needs and available capital. You should definitely check out this platform if you’re new to the real estate investing world.
- Investment advisor fee: 0.15%
- Asset management fee: 0.85%
- Additional acquisition fees: 0% – 2%
CrowdStreet focuses on giving investors direct access to institutional-quality commercial real estate (CRE) opportunities. The website mostly focuses on commercial projects like retail, office buildings, and multi-family condo buildings.
Even better, the platform gives you all the online tools you need for your real estate investments. Their well-designed platform makes it easy to view all active offerings, as well as projected returns and other related documents. When you’re ready to invest, just e-sign the required documents and send your investment.
CrowdStreet was historically an accredited investor-only platform, but that changed in August 2017 after the platform announced its first offering for non-accredited investors.
Today, the site has a mix of offerings with each having its own minimum investment. The lowest we’ve seen is an accessible $5,000 minimum investment, and the highest being a $50,000 minimum investment geared towards professional investors.
Founded in 2014, Roofstock hangs-its-hat on being the first and #1 online marketplace for those interested in investing in single-family rental homes.
Though Roofstock is a relatively young company, they have overseen over $1 billion of completed transactions.
Roofstock realizes the real-estate investing market can be very confusing, so they have sought to develop an entirely online platform that simplifies the process.
Through Roofstock, even first-time real-estate investors can feel comfortable.
Roofstock proves to be an attractive option for real estate investors across the country.
4. Alpha Investing
Alpha Investing takes a unique approach to real estate crowdfunding: they provide a concierge service, giving you direct access to a private manager and exclusive access to real estate crowdfunding awesome deals.
The concierge service is special because each investor has direct contact with a principal at the firm. These principals are available to speak directly about any issue, so you’ll never be left in the dark if you have questions or need clarification on an investment.
Do note that Alpha Investing is exclusive to accredited investors and requires a phone interview before you can invest. Not all will be approved either, so be sure you meet all requirements before signing up for an interview.
PeerStreet focuses on residential debt, so you’ll be primarily investing in single-family projects like homes and storefronts. However, they also get the occasional condo building or other multi-family real estate crowdfunding projects.
The crowdsourcing platform partners with major lenders and provide the platform to get the funding. Gets high marks in the industry for transparency and excellent management.
PeerStreet is open to all investors and has a $1,000 minimum investment. Typically, you’ll find loans with 6-36 month durations and 6-9% returns, according to their team. This makes the platform perfect for those just getting into the real estate crowdfunding space.
RealCrowd connects investors with projects backed by large real estate funds and syndicators. Many of the listings on the platform are commercial, for example, they currently have a number of hotels seeking investment on their platform.
Do note that the company has relatively high minimum investments. You’ll generally see minimums of $25,000 to $50,000, and the site is heavily geared towards accredited and institutional investors.
Further, unlike others on this list, RealCrowd focuses on long-term investments. Many of their offerings have hold times over five years, making this a great long-term opportunity for passive income with high returns.
Want to invest in multiple real estate offerings at once? If so, AlphaFlow is just what you need. On this real estate crowdfunding platform, just make one investment and AlphaFlow will invest your money for you into multiple offerings on its website.
Think of AlphaFlow as your personal investor for real estate investments. The platform will invest your money across a minimum of 75 real estate offerings around the web, so you’ll make maximum returns and substantially reduce risk.
The platform has a solid track record too. As of this summer, AlphaFlow has a portfolio of nearly 700 investments across 31 U.S. states. It has a net return of 8.40%, which is pretty great considering you’re investing in multiple properties at once.
RealtyMogul is one of the first companies to enter the real estate crowdfunding market. The platform offers a little bit of everything: from mobile homes to multi-family condo buildings and retail spaces. And to make matters even better, they have a minimum investment of just $1,000 on most offerings.
The crowdfunding platform is open to all individual investors, so anyone can take advantage of their awesome deals so long as you meet the income requirements of $200,000 per year or more.
DiversyFund is one of the newest crowdfunding investment companies on the market but they offer some of the best rates and returns. When I invest, numbers are great but I also pay attention to customer service.
This is one of the reasons DiversyFund is high on the list. DiversyFund has one of the best customer service departments I have encountered in the crowdfunding arena. Being able to get my questions answered quickly is extremely important if I’m going to be investing my hard-earned money with them.
With their great customer service also comes impressively low account fees. This investment platform has broken the mold when it comes to fees. Why? Because they have none. Even the other top multimillion-dollar crowdfunding investment companies charge account fees.
In addition, you can start investing in real estate with only $500.
The other thing I love about DiversyFund is their investment strategy. You see, they only invest in one type of property – multifamily housing. Why is that important? It’s one of the least risky types of commercial real estate.
DiversyFund takes it one step further. They look for properties that need some work. Don’t worry. We’re not talking about foreclosures. What I mean is they might need a new roof, updated bathrooms or kitchens or a fresh coat of paint.
To meet their strict criteria, properties must be cash flow positive and in a high growth area. Their technology allows them to scan the country to find properties that fit. After a site visit, if the properties are approved, they do the upgrades,
Improved properties allow DiversyFund to increase rents for new tenants and for those with expiring leases. Increased rents increase property values. That means investors make more money when the properties are sold.
10. 1031 Crowdfunding
1031 Crowdfunding is a newer competitor in the real estate crowdfunding space. Nearly all of their offerings are commercial, with a focus on retail, hotels, and even self-storage. However, there is also an assortment of multi-family homes available for investment too.
The crowdfunding vets all investments on the platform, and its team has over 60 years of combined experience in the industry. So far, they’ve raised over $1.3 billion dollars and has over $2 billion in combined real estate transactions.
But what makes 1031 different than the rest of the portals? Simple: 1031 has a second product called 1031 Insurance. Use this platform to a way to guarantee that all of your exchange funds are invested in a replacement property rather than taxed for capital gains.
After all, why pay taxes when you can keep your hard-earned money working for you?
11. Patch of Land
Patch of Land aims to be the real estate crowdfunding platform for everyone. They offer low minimums for accredited investors that are just getting started with real estate investing. Most investments have loan durations of just 12 to 24 months.
Browsing through Patch of Land’s offerings list, you’ll see a focus on single-family homes in big cities and tourist-focused areas like Chicago, New York City, and even smaller cities in Hawaii.
All of the platform’s deals are thoroughly vetted by the company’s underwriters before being listed, so you can invest without worry. In fact, Patch of Land co-invests in all of its active offerings to provide that extra confidence boost.
Which Real Estate Crowdfunding Site Allows Non-Accredited Investors?
Some real estate crowdfunding sites require that you be an accredited investor. This means you must either:
- Have earned $200,000 in annual income ($300,000 for joint investors) for the last two years with the expectation that you’ll earn the same or more this year, OR
- Have a net worth over $1,000,000, individually or jointly, excluding your primary residence.
The requirement exists because the SEC wants to ensure people investing in unregistered securities can afford to lose it. Additionally, the accredited investor requirement assumes that the person can do due diligence on their own.
For many investors, that bar might be too high. If you are not an accredited investor but still want to invest in real estate through a crowdfunded platform, you can. Our list of top platforms gave priority to the sites that welcome all investors, but to recap:
- Fundrise: Any US resident over the age of 18 can invest with only $500!
- RealtyMogul: Both accredited and non-accredited investors are eligible to invest in the MogulREIT I and MogulREIT II
- CrowdStreet: August 2017, CrowdStreet opened its first-ever investment offering open to all U.S. based investors.
- DiversyFund: DiversyFund is qualified by the SEC to offer investment opportunities to everyone. Any US resident, unaccredited or accredited, over the age of 18 can currently invest with only $500!
Is Real Estate Crowdfunding For You?
There’s no doubt that real estate crowdfunding is shaking up modern investment portfolios. With re-urbanization on the rise, there’s no doubt that more and more of these websites will pop up over the next few years to fund new apartment buildings, retail, and more.
Luckily, in the online real estate market, you can now invest in real estate through crowdfunding with as little as $500. Whether you want to be a landlord or not, it’s worth considering crowdfunded real estate as a way to diversify your investing strategy.