The real estate industry has ruled the investment world for decades, and it still does, allowing countless individuals to accumulate generational wealth after investing in its numerous sectors.
For the better part of this time however, it was dominated by the society’s elite and moneyed barons. These could afford to put down a 20% or even 30%+ deposit on a residential or commercial property with a hugely satisfying rate of returns. The rest settles with the Real estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs) that demanded prohibitive minimum deposits.
But this would all change in 2013, after the passage and implementation of Jumpstart Our Businesses Act. It was aimed and has had the most impact on creating room for crowdfunded real estate projects. These allow the pooling of resources from citizens of all walks of life and financial abilities. Operated online, these create a platform that allows everyone to invest from as little as $5 to a fund that is then invested in several real estate ventures with incomes gained being redistributed to the investors periodically.
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How does a real estate crowdfunding site work?
Crowdfunding is a technique used by real estate professionals to raise funds for advancing their cause. The difference between modern crowdfunding and the conventional form of raising capital for real estate is that it is primarily online-based and contributions are primarily sourced from social media and digital advertisements.
Plus, unlike the conventional form of raising capital that involved pitching a business idea to a few individuals with the hope that they contribute huge capital towards the project, crowdfunding involves pitching the idea to numerous individuals with the hope that each contributes little amounts towards the achievement of your goals. The crowdfunding company then shares their incomes to their clients in proportion to the invested amounts.
Why should you consider investing in a real estate crowdfunded site?
- No need for accreditation: Traditionally, you had to be an accredited investor to own a piece of rental property or even buy Real Estate Investment Trusts (REITs) at the stock exchange. Accreditation here means having a net worth of not less than $1 million or having earned an annual income of more than $200,000 in the two successive years. Today virtually everyone with $500 to spare can invest in crowdfunded real estate.
- Supports low-income earners: The income bar set to vet individuals seeking to invest in real estate proved quite high for most low-income earners interested in this lucrative market. You can, therefore, look up to the crowdfunded real estate sites as a means of leveling the playing field and allowing everyone right of access to the industry.
- Higher interest rates compared to banks: The interest rates awarded by most of these crowdfunding sites ranges from 10% to as high as 15% annually. Compare this to less than 2% offered by most banks.
- Regular pays ensure proper cash flow: You have a choice on how you get paid your returns. Some crowdfunding sites offer quarterly dividends on your invested amounts per months while others offer annualized interest rates at the end of the year or upon maturity of your chosen investment period often referred to as distributions.
12 best real estate crowdfunding sites
Established in 2010, Fundrise was in existence long before the passing of the Jobs Act in 2012 and its implementation by SEC in 2016, making it a pioneer in the field of real estate crowdfunding. It was also the first crowdfunding site to successfully launch a real estate project from pooled resources.
But this is not the only reason the company tops our list of best crowdfunding realtors, we were also intrigued by its elaborate categorization of investors. They have broken them down into the basic plan that requires a minimum investment of $500 and three core plans that require a minimum investment of $1000.
Fees and interest
Fundrise features prominently here because of their ultra-low management fee, attractive interests, and flexible dividends. If you invested with Fundrise, you would expect the real estate company to deduct a fee of 0.85% on interests accrued, one of the lowest we have witnessed so far in the industry, while expecting between 8% and 12% in interest rates annually.
Unlike most of its peers, Fundrise then distributes these dividends to you every quarter, earning you an almost steady source of income. Not to mention the fact that they will also review your investment after every quarter or semi-annually depending on your subscription.
- Steady and regular incomes
- Constantly reviewed share investments help you understand your current stand
- Provides sufficient grace period for an enthusiast trader to test their systems
- Your investment is fairly illiquid after the lapse of the 90 days
- Exposed to inherent weaknesses of the real estate industry like bubble bursts
2. Reality Mogul
Realty Mogul has also proven its worth in the crowdfunded real estate sector with its highly diversified investment portfolios for both the accredited and non-accredited investors. To invest with the realtor, you will need to subscribe to one of their two investment portfolios available for their non-accredited members.
These include Mogul I and Mogul II plan with an average of 8% and 4.5% annualized interest rates respectively. The primary difference between Fundrise and Realtor Mogul is the fact that the latter is more concerned with growing your funds while the former is dedicated to providing you with a regular income stream from your investments.
What we loved most about Realty Mogul is their elaborate investment process. For instance, the company will only invest in real estate projects with a proven background of steady cash flow, implying no investing in bare land or constructions.
Additionally, they have a solid team of real estate professionals who must vet and approve every investment before committing client funds. And in the spirit of protecting and growing their member’s funds, they will only invest in properties with the least number of leases as a risk management practice.
- Impressive risk management policies
- Dedicated to growing and protecting your invested amounts
- Affordable minimum deposits starting from $1000
- Unclear and relatively expensive management fees that may reach 3% overall
- Overprotection of the real estate may limit profitability
3. Rich Uncles
Rich uncles offer two investment portfolios that are open to the general public in the name of Student Housing REIT and National REIT. Investing with Rich Uncles calls for a minimum investment of $5 and $500 respectively.
The annual return for the Student housing project averages 6%, while the national REIT averages 7% annually plus an investment value increase of 2%. Apart from the discriminatory use of investment amounts to set these two portfolios apart, Rich Uncles’ National REIT investment program registration is only limited to just 20 states.
Simplistic approach and transparent fees
Rich Uncles aren’t just after keeping their investment profile as simplistic as possible with only two portfolios, they also have one of the most flexible management fee structure. Unlike its peers who charge a fixed commission on profits, Rich Uncles doesn’t impose a fee on the first 6.5% percent profit, the rest (93.5%) attracts a 40% management fee.
You should also note that Rich Uncles doesn’t invest in residential properties. Plus one of their rules of engagement when vetting investments state, is that they will only invest in student housing with over 150-bed capacity and one that has over 90% occupancy.
- Commendably transparent about their nature of operations
- Specialization in commercial properties exposes members to the possibility of high profits
- provides a clear and quite elaborate investment process
- Limited investment options, one is only legalized
- Though transparent, the management fee is considerably expensive
CrwodStreet is probably the most expensive crowdfunding platform you will come across the internet. But it still makes it here because of their high-interest rates and the versatility of their investment portfolios. On their website, CrowdStreet claims to earn you between 9% and 24% as interest for their clients.
We believe CrowdStreet to be one of the few crowdfunding sites giving you a choice with regards to the type of investment you want to hedge your money against. Their three investment classes include direct investment to individual deals, contribution to a portfolio with between 30 and 50 properties a managed investment based on your goals and ideas.
High investments amount and fees
While most low-income earners yearn for an opportunity to decide on the investments their money is directed to, you will probably consider the huge investments demand by Crowdrise a major turnoff. For direct investment, you will need a minimum of $25,000.
The 50-property portfolio and their managed investment plans on the other hand call for $10,000 and $250,000 as minimum investments respectfully. You can, however, console with the fact that the deal sponsor (property owners) here pay the management fee and not investors.
- Transparent about the management of its finances
- Most attractive return on investments
- Highly diversified investment portfolios
- Biased in favor of the high net worth investors
- No verifiable history of ever paying the high dividends promised on their website
Groundfloor, an Atlanta based crowdfunding real estate startup, hopes to create a platform that lives true to the letter of crowdfunding real estate project. And it hopes to achieve this by creating room for low-income earners to invest in their platform while backing up these investments with actual real estate property.
In line with this, you can invest as little as $10 with the relator and expect an average 10% interest on your investment paid annually or after every six months. According to the company, all their investment are secured with a physical real estate.
- Hedging investment against a physical property makes it less risky
- Relatively high and returns on investment
- Lets you enjoy the feel of a true non accredited investor real estate crowdfund
- Tying investments to physical investments makes them highly illiquid
PeerStreet also features on our list of most reputable crowdfunded real estate companies. And while it will only cater to the accredited investors we still include it here because of their attractive interest rates, solid reputation, and transparency in fees and unique approach to investing.
If you hope to invest with the company, you will need a minimum deposit of $1000 and commit to an investment plan of not less than six months while expecting an average annual return on 12%. At a range of 0.25% and 1%, we believe PeerStreet management has some of the lowest management fees.
A unique approach to investing
Unlike its peers who are only looking for healthy and already profitable investment opportunities in the commercial and residential sector, PeerStreet is constantly hunting for institutions in distressed debts. The company that offers a mix of peer to peer lending and real estate investment also claims to harness s the power of big data and advanced algorithms and to vet the viability of an investment before taking it on as well as the reliability of its sponsors.
- Promises higher returns than most other investors
- Shelters investment timeframes and thus relatively liquid
- Uses both technology and experience to vet companies
- An aggressive investment strategy not suitable for low-income earners
- Doesn’t feature non-accredited investor lists
8. Patch of Land
Patch of Land is yet another popular peer-to-peer crowdfunding. On their website, the P2P platform claims to have its sight set on streamlining the process of connecting lenders and borrowers through the use of technology and leveraged data. You will, however, need to be an accredited or institutional investor to create an investment account with the company. The company nonetheless guarantees the security of your deposits and interest by promising to advance your resources to short-term borrowers that have to attach collateral for the amounts advanced.
Interest and fees
On their website, Patch of land promises to earn their investors as much as 12% per annum on their investments. The average interest rates earned on overall loans advanced to date on the platform, however, sits a few points above 11%. For the management fees, the lender charges between 1 and 2% of the interest earned for each loan successfully repaid.
- All loans on the platform are collateralized thus minimizing risk
- Posts highly attractive returns on investment of up to 12% per annum
- Highly transparent operations
- Only accepts deposits from accredited investors
- One may consider their average 2% management fee quite high
9. Real Crowd
Unlike most other real estate crowdfunding companies listed here, RealCrowd doesn’t originate their own loans. On the contrary, it serves as intermediary connecting real estate companies, referred to as ‘sponsors’ to accredited investors. On the company website, you will find different commercial real estate projects that require funding. These go on to detail such important factors as the minimum investment needed as well as the projected return on interest.
Real Crowd is not a loan originator but connects investors to real estate institutions for direct investments. The minimum initial requirement on the platform is, therefore, on a per-project basis. Different projects will also have varied interest and maturity rates. The company will, however, sort different investment deals posted on their platform into four categories based on the level of investment risk.
- Allows for uninhibited communication
- Elaborate classification of investments that helps investors base investments on their risk tolerance levels
- Interaction between investors and project sponsors
- Complicated investment process without a defined minimum deposit amount or interest rate
- It is more of a real estate investment broker than a crowdfunding platform
Fundable platform stands out in the crowdfunding industry as one of the few companies that present their investors with different types of securities for their investment. Unlike most brands that will only present you with equity investments, most of Fundable investments gives you an option of equity or convertible debt. The company specializes in startup capital and business financing.
You will need to be an accredited investor or an institutional investor to invest here. The minimum you can invest here is set at $1,000. Note that all of the investments here are high risk. The biggest downside to this is that most startups and business finance investments don’t have a guaranteed rate of return either in interest or dividends.
- Minimal investment minimums – starting from $1,000
- You have the option of settling for either equity or convertible debt
- The high-risk investments almost always translate to above-average returns
- There is no guarantee of return on investment
- There is no evidence of due diligence in vetting debtors or collateral on loaned amounts
FundThatFlip is one of the few crowdfunding enterprises on this list that specializes in residential property and debt investments. A significant portion of their investments is dedicated to providing fix-and-flip loans and multifamily debt. And it is only recently that they started venturing into commercial debt. We feature it here because of the level of transparency exhibited on their platform and because the company also maintains the lowest Loan-To-Value ratios. This has for the longest time averaged around 60% which effectively translates to having the lowest number of loans in default.
How does it work?
Fund That Flip is a loan originator that takes deposits from accredited and institutional investors and advances it to house flipping companies. It, however, carries out due diligence on these companies and their properties to ensure that the LTV or the After Repair Value doesn’t exceed the required minimums. Interest on investments for investors start from 9% per annum. But Fund That Flip will deduct between 1 and 2% as management fee on the interest earned. The company has its minimum investment set at $5,000.
- Posts relatively high-interest rates on secured investments
- Presents investor with a wide range of investment opportunities
- The low loan to value ratio eliminates chances of default
- The company posts a low uptake of their loan products
- Operates in non-judicial states with complicated foreclosure processes
12. Arbor Crowd:
ArborCrowd describes itself as the first crowdfunding platform developed by an established real estate institution. It is a commercial property investor specializing in funding multi-family units, apartments, and mixed-use buildings. They have a unique approach to investing that has the backing of an equally unique investment screening process. Only a few property investment projects that express interest in being leveraged by Arbor Crowd ever make it to the listing. Note also that ArborCrowd will only list these projects one at a time.
Like the rest of the crowd funded real estate platforms on this list, ArborCrowd will only accept deposits from accredited or institutional investors. The minimum investment required here is rather steep and currently set at $25,000. In return, investors get equity shares in the funded projects with promised interest rates that range from 12-20% per annum.
- Founded by individuals with rich real estate experience
- The strict investment screening processes weed out any unnecessarily risky investmentsPromises some of the most attractive interest rates of up to 20%
- Leverages technology and data to reduce overheads and possible fees
- Will only accept deposits from accredited investors
- Calls for a significantly high minimum initial deposit of $25,000
What to look for when deciding on the best Crowdfunding company:
- Regulation: Your ideal crowdfunding real estate company should be registered with the SEC and authorized to operate in your state of residence.
- The number of investment plans available: The more the investment options a crowdfunding real estate company has to offer the better. This gives you a chance to explore different options and diversify your investments.
- Founder’s professionalism and reliability: keep in mind that a business is only as good as its founder or management team. How experienced are your preferred crowdfunding real estate company founders in the industry and investment?
- Investment strategy: How aggressive is your preferred company’s investment strategy. Note that while conservative companies go for more secure commercial properties with proven earning history and almost guaranteed cash flow, others prefer the riskier but highly rewarding investments like distressed debts. Which one are you most comfortable with?
- Returns weighed against interest rates: How much does the company charge as the management fee and what is its impact on your net returns. Consider high interest and low management fee realtors.
Long gone are the days when real estate was a preserve of the elite and wealthiest in the society. The advent of crowdfunding real estate companies has leveled the playing field through the creation of an all-inclusive environment. You, therefore, don’t need to have a massive disposable income and deep industry knowledge to invest in real estate. Most of these companies are led by professional and highly experienced real estate industry players.
Most of these provide impressive returns on investment and even lower management fees than conventional investments like the exchange-traded REITs or savings account in a commercial bank. You just need to learn how to spot a good investment company whose interest and risk tolerance aligns with your investment goals.
Who can invest in a crowdfunded real estate company?
Virtually everybody can invest in crowdfunding investment fund as long as you meet the conditions set by your preferred crowdfunding company. Some will only allow accredited investors to register and deposit cash into their investment platforms.
What is crowdfunding?
It refers to the process of raising money for a project or a business venture by asking for support from a large number of individuals over the internet. These individuals often contribute small amounts but a large number of contributors often results in the creation of a large resource pool.
Who is an accredited investor?
Refers to an individual that is allowed by law to invest in securities that may not be registered with a financial institution such as real estate property. These often include high net worth individuals and institutional investors like banks. To qualify for the accredited investor level, you must have a minimum net worth of over $1 million or earned over $200,000 per year in the last two years for an individual and $300,000 for couples.
Who is a non-accredited investor?
A non-accredited investor, on the other hand, is an individual (or a couple) that have not met the accredited investor status implying that they are worth less than $1 million. Investors in this category are limited to investing with listed securities and penny stocks.
Are Crowdfunding real estate platforms different from REITs?
The primary difference between REITs and crowdfunding real estate platforms is the fact that crowdfunding involves capital injection to tangible real estate properties while REITs involve directing your investments to a real estate corporation.
What if I needed my cash back before the expiry of my investment period?
Different companies have laid down procedures on how to access your cash back should you recall it after investing in a particular project. Some like Fundrise gives you up to 90 days to decide whether a real estate project is good for you or not. While others prefer to buy back the shares in batches over several months.
How much should I invest in these crowdfunding real estate sites?
The answer to this is highly dependent on the amount of disposable income you have at hand. However, even with the almost guaranteed rate of returns, you are advised to not invest more than 10% - 15% of your entire capital in one investment vehicle.
How much can I make by investing in a crowdfunding real estate company?
The returns on investment promised by most crowdfunding extend way beyond the 10% with some promising up to 24% on select investment portfolios. How much you much make is therefore primarily dependent on your preferred real estate company, chosen investment portfolio, and your deposit amounts.