January 19, 2019

Real Estate Crowdfunding

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You don't have to be a millionaire to invest in real estate. In fact, in some cases, you can invest with as little as $500!

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Today, many people diversify their investments to include real estate through the help of real estate crowdfunding platforms. What used to be an industry with only a few options has grown into an industry with more options than you'll know how to handle.

How do you know which real estate crowdfunding platform is right for you? We help you narrow it down below. Keep reading to see which option may help you become the real estate investor you've always wanted to be.

Reasons to Use a Real Estate Crowdfunding Platform

You can invest in "bigger" real estate deals. Because you pool your funds with other investors, you don't need hundreds of thousands of dollars to invest in real estate. You'll have the opportunity to invest in commercial and/or residential real estate that would normally be out of your realm of possibilities.

You can invest with as little as $500. Who would have ever thought that $500 would allow you to invest in real estate? While you won't invest in real estate directly, you'll be able to reap the benefits (and returns) that real estate offers.

You know your risk upfront. Many of the crowdfunding platforms provide access to the details of the investment upfront. This includes the type/level of risk you take with each investment. Depending on the chosen platform, you may have access to low risk (low return) investments as well as high risk (high return) platforms, or even a combination of the two.

You'll likely deal with experienced developers. Many real estate crowdfunding platforms put their developers through a rigorous evaluation before choosing them. While you always run the chance of a weak developer slipping through the cracks, you're generally in much better hands than if you tried to do the research yourself.

You can diversify your portfolio. Diversification is one of the top ways to help you avoid major losses when investing. Typically, real estate investments aren't a plausible option because of their cost. With real estate crowdfunding, you can make real estate investments a part of your portfolio, helping you offset the risks you take with your market-driven investments.

What to Look for in a Real Estate Crowdfunding Opportunity

A variety of investment options. Unless you know beyond a doubt that you want strictly equity or strictly debt investments, you should be given a choice. Each investment will have its own risk, fees, and potential profits. The ability to go through each investment and determine its time frame, risk, and potential earnings is essential so that you can choose the investment that is right for you.

A thorough evaluation process. Investing in real estate, no matter how small, is risky. You want to make sure you are giving your money to reputable developers. Find out how well the company vets each developer and what criteria they have for approval.

Reputable founders and managers that have real estate experience. Your investment in real estate crowdfunding doesn't come with any type of protection. If the platform goes out of business, you lose your investment. Making sure the platform's management has an extensive background in real estate can help limit this risk. You'll also want to make sure they have the capital to keep the investments ongoing.

A real estate investment strategy that aligns with your preferences. Each platform's management has their own ideas and strategies. Make sure your real estate investment goals align with their strategy before choosing them as your platform. For example, some platforms only offer REITs, while others offer direct investments in real estate equity or debt. Your time frame, liquidity needs, and risk capabilities will determine which platform is right for you.

A transparent process that keeps investors informed every step of the way. If you were to invest in real estate on your own, you'd likely perform hours of research before choosing an investment. It shouldn't be any different with real estate crowdfunding. You should have access to all of the details of the investment to make an informed decision.

Best for Non-Accredited Investors

Rich Uncles:
Many real estate crowdfunding platforms are only open to accredited investors, but not Rich Uncles. While you do need to prove you have a net worth of at least $70,000 and annual income of at least $70,000, that's a far cry from an accredited investor.

Rich Uncles offers non-traded REITs. This does mean that you can't sell your shares on the open market. If you are looking for a liquid investment, you won't find it here. You can buy into the National Housing REIT with as little as $500. Rich Uncles invests the money from the investors in commercial real estate. Rich Uncles then rents the properties out to reputable companies and collects rent.

You receive dividends from the rent as a shareholder. You can either collect the rent as a cash payout (sometimes monthly) or reinvest the dividends to further your investment. You should plan to stay in the investment for 4 - 7 years, on average. If you do need to "get out," Rich Uncles offers a monthly Share Repurchase Program.

What is an accredited investor?
An accredited investor must have a net worth of at least $1 million plus an annual income of at least $200,000.

If you are married and applying for an investment account together, your combined income must be at least $300,000 per year.

Best for Accredited Investors

Accredited investors definitely have a wider playground when choosing real estate crowdfunding platforms. EquityMultiple is one such platform. What sets them apart from the rest is the vast amount of due diligence they perform before accepting an investment. While you will still have a certain level of risk investing in real estate with EquityMultiple, you can sleep better at night knowing that the project went through a rigorous underwriting process, as EquityMultiple only chooses 10% of the investments that cross their path.

EquityMultiple is transparent with the expected returns and offers investments that last between 6 months and 7 years. They offer three types of investments: debt, preferred equity, and standard equity. The benefit of the debt investment is you have collateral should the borrower stop making payments. Preferred equity investors are next in line to receive payment, with standard equity investors receiving payment last.

You can peruse the investments offered by EquityMultiple free of charge to help you get an idea of what they offer.

Best for Small Investments

If you have just $500 to invest, but you want to take advantage of crowdfunding opportunities, Fundrise offers some good options. You invest in eREITs, or Real Estate Investment Trusts. eREITs are a well-thought-out, diversified portfolio of real estate investments. They may include new construction or existing buildings with existing tenants.

You can choose from a variety of portfolios such as growth or income portfolios. Growth portfolios focus on appreciating commercial real estate and income portfolios focus on debt investments that pay investors regular dividends, either on a monthly or quarterly basis.

A unique aspect of Fundrise that investors appreciate is their 90-day money back guarantee. If you aren't satisfied with the experience or realize real estate investments aren't right for you, Fundrise will buy back your original investment within the first 90 days.

Best for Long-Term Investments

Like several other real estate crowdfunding platforms, RealtyMogul offers access to debt and equity real estate investments. You can be either an accredited or non-accredited investor, as they have options for both types of investors.

With RealtyMogul, you can purchase shares of a RealtyMogul LLC (which holds the title to commercial properties), invest in debt equity (a mortgage to a borrower), or one of two REIT options (this is the only option for non-accredited investors). Other than the REIT options, your investments could be tied up for as long as 10 years with RealtyMogul.

Realty Mogul thoroughly vets any opportunity and does provide opportunities for income-producing investments. They avoid ground-up projects or raw land and they only work with real estate partners with a proven track record of success.

Best for Short-Term Investments

YieldStreet offers the unique opportunity of real estate investments with a 1- to 3-year duration. That's relatively short when you talk about real estate investments. Adding to that the fact that you need just $5,000 to start, YieldStreet has potential for investors looking for a somewhat short-term investment.

YieldStreet targets investments with an 8% - 20% potential return. They do offer investments other than just real estate, though. While commercial real estate makes up a large part of their portfolios, legal cases and marine investments are also available. Each investment offered by YieldStreet is backed by collateral, though.

YieldStreet offers a large amount of transparency on each investment. You'll know the details regarding why the borrower needs the funds, the terms of service, and information regarding the collateral to help you make a sound decision. They also report the intended return net of all fees charged.

Other Real Estate Crowdfunding Platforms to Consider

  • Peer Street: With a minimum of $1,000 you can invest in real estate debt investments. PeerStreet doesn't purchase the real estate themselves; instead, they operate as the middleman between the loan originator and the investors (you). You can invest the full loan amount or crowdfund the loan with other investors. You'll receive interest payments around the 1st and 15th of the month for the life of the loan.

  • RealCrowd: As an accredited investor, you can invest in real estate "sponsors" with RealCrowd. RealCrowd serves as the middleman between the sponsors (the professionals looking for funds for a project) and the investors (you). RealCrowd has a strict vetting process for both the sponsors and investors, but they lack the due diligence on the project itself. RealCrowd is a good option for investors that want to do the legwork themselves before choosing a protect that suits their needs.

Bottom Line

Real estate crowdfunding gives you ample opportunity to invest in real estate without coming up with large sums of money or any experience in real estate investing.

Make sure you do your own due diligence when choosing the right platform for you, as each option has its pros and cons that make them right for some investors, but not the best option for others. Knowing the fees, risks, and regulations upfront will help you make the decision best suited for you.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

More from CreditDonkey:

Fundrise Review

RealCrowd Review

Rich Uncles Review

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