11 Best Real Estate Crowdfunding Platforms for Investing in 2022
May 11, 2022
If you're looking to invest in real estate but don't want the stress of owning properties outright, you might wonder which are the best real estate crowdfunding platforms?
Today there are many ways to invest in real estate crowdfunding sites, so we've broken down the top websites to consider, highlighting what they offer and how you can qualify to invest with them.
What Is Crowdfunding?
Real estate crowdfunding matches real estate developers with individual investors looking to invest in real estate, including both residential and commercial properties. The investment platform pools investors' funds together to fund the real estate project or debt investment.
Crowdfunding platforms offer a variety of ways to invest in real estate, including real estate investment trusts, digital real estate funds, and non-traded REITs. Of course, like any investment, there is a risk with real estate crowdfunding, but diversifying your investment portfolio with different types of assets may help reduce your risk of loss and increase your ROI.
Types of Real Estate Crowdfunding
There are many ways to invest in real estate crowdfunding. There are investments for the accredited investor and non-accredited investor. Some real estate investment options have a minimum investment requirement of as little as $10, and others require thousands of dollars.
Pay close attention to the investment choices you make to determine the investment timeline, the investment minimums required, the type of real estate they invest in, and how they are managed. Most platforms do their due diligence, but some offer the opportunity for you to do it too. Knowing what options you have, how they work, and what you can expect can help you decide how to best invest in real estate.
Here are the types of real estate investments you might come across.
Equity investments give you ownership of a fraction of the real estate, usually commercial real estate. The developers don't pay you interest like they would if you lent them money. Instead, you earn a percentage of the profits. You can earn profits through property appreciation (when they sell the property), rental income, or even equity build-up.
The risk for equity investments is higher than many other investment options because developers could quickly go belly up and end the project, leaving you with nothing. But, on the flip side, the investment could go really well, earning you rental income and equity.
You earn just like the developers do. Developers often prefer equity investments because they don't lose money if project delays occur. They only pay investors when there is rental income and/or they sell the investment property.
Equity crowdfunding can be a good source of passive income as most pay out dividends based on the rental income earned from the properties.
Closed-end funds, as the name suggests, have a specific number of shares to invest, and once those shares are bought, that's it. Next, the investment company creates a specific number of shares and offers them as an IPO. Finally, investors can purchase the shares on real estate crowdfunding platforms or through their brokerage.
Closed-end funds can trade throughout the trading day, and at the current market value, so the shares could change hands multiple times. The demand for the fund drives the market value. Many closed-end funds also pay dividends or capital gains when the investments within the fund are sold for a profit.
Private or Non-traded REIT
Private or non-traded REITs are for accredited investors only. They aren't listed on the public exchange, and very little information about them is available to the public. Only private investors have the information available to them.
Private REITs are also not registered with the Securities and Exchange Commission (SEC), so they are not regulated. However, the minimum investment for private REITs is usually high, between $10,000 - $100,000, and the costs can be high too. Not all funds have a redemption program either, so it could be an illiquid investment, but it's an investment some real estate investors prefer.
Debt crowdfunded real estate investments are funds that gather funds from investors to lend to real estate developers and real estate investors. Rather than earning ownership of a property, investors are the 'lender.' They earn dividends in the form of interest payments and are paid off when the loan is paid off in full.
This works best for real estate developers who can't get funding any other way. Since collateral is involved with the investment, many investors are willing to give the developers a chance. When you invest in debt crowdfunding, it can be good to diversify your investments across several loans of various grades to reduce your risk of a total loss.
The best real estate crowdfunding platforms don't just accept any application for debt crowdfunding. Like a bank or lender, they evaluate each application and situation, doing their due diligence to ensure it's a sound investment. Even with their due diligence, though, there is always the risk of loss, so do your own due diligence as well.
Crowdfunding vs REITs
Crowdfunded real estate investments and REITs have some similarities but many differences too.
As far as similarities, both crowdfunded real estate and real estate investment trusts invest in commercial real estate. Investors can earn dividends and capital gains when the investment matures. Both are excellent ways for real estate investors to invest in real estate without owning the physical properties themselves.
Now let's look at the differences between crowdfunding and a real estate investment trust.
When you buy REITs, you purchase shares in a company that invests in a variety of real estate investments. For example, REITs can invest in a variety of properties, including condos, hotels, apartment buildings, and commercial real estate, such as retail properties or storage facilities.
REITs are required to distribute at least 90% of their profits to shareholders (investors) in the form of dividends. Therefore, they can be a great way to diversify your portfolio by directly investing in real estate.
Crowdfunding is typically for accredited investors who have the capital to invest and risk. Crowdfunded real estate investments usually invest in one specific investment, whether equity or debt deals. You get to do the due diligence regarding the investment's risk and potential to decide if it's right for you.
Crowdfunded real estate often has fewer expenses than REITs because there isn't a fund manager managing multiple investments and doing the legwork to decide which properties and opportunities the fund will invest in.
Return on Investment for Real Estate Crowdfunding
As with any investment, there is a risk of loss with real estate investing. You should always be aware of this risk and only invest what you can comfortably afford to lose. That being said, though, there are many great aspects of the return on investment for real estate crowdfunding.
The actual return on investment for crowdfunded real estate varies based on the risk of the investment (how likely is the developer to default or give up on the project) and the timeline. Longer investments, for example, the lower the risk and the higher the ROI and vice versa.
There is never a guarantee of return, but knowing an investment's risk factors and diversifying your funds can help increase your return on investment on real estate projects.
If your investment strategy includes equity investments, you can earn rental income and appreciation throughout the life of the investment in real estate crowdfunding platforms. If you invest in debt, your cash flow consists of interest payments with the final return when the loan matures, and you receive your principal back.
Cash flow is never guaranteed, so keep that in mind as you research the investment opportunities and their risk. The 'riskier' an investment is graded, the less likely it is you'll see many dividends or returns.
Some investors choose to take the cash flow and reinvest it in their real estate investments to compound the earnings further. You are typically free to do what you want with the cash flow, though, if you need it as income.
Appreciation occurs when the individual properties increase in value. If you invest in a property's equity, you get to participate in the appreciation. Of course, there's never a guarantee that a property will appreciate, so using the information from the crowdfunded real estate sites plus your own due diligence will help you determine a property's likelihood of appreciating.
Equity build is like appreciation. The longer you stay invested in a property, the more equity you'll likely build. Equity builds up as the developer or real estate investor pays the mortgage down, giving them more equity in the property. The equity is usually shared with the investors.
You can earn interest payments on debt investments. In other words, when you invest in a real estate developer's loan funding, you get paid regular interest payments as long as the borrower pays the mortgage.
Like any investment, there's always the risk that the borrower will default, so keep that in mind as you research your real estate debt investment opportunities.
Accredited vs Non-accredited Investors
Something to keep in mind as you find the right real estate crowdfunding platforms for your investing needs is whether it accepts accredited or non accredited investors. If they accept non accredited investors, anyone can invest on the platform, including accredited investors. However, if they only accept accredited investors, non accredited investors are not eligible for those platforms or investments.
Real Estate Crowdfunding Pros
All investments have pros and cons, including investments on real estate crowdfunding sites. Here are the benefits you should consider in your decision-making.
A Diversified Portfolio
Adding real estate investments to your portfolio can diversify your investments which may help reduce your risk of a total loss. There is never any guarantee that you won't have a total loss, but spreading your money across different types of investments, including real estate investments, can help you have a higher ROI.
Real estate crowdfunding sites make it easier for more investors to invest in real estate. When you don't have to physically own the property, it becomes a lot easier to invest some of your money into real estate investing.
Earn Passive Income
Real estate investing can be a source of passive income because you don't have to do anything except choose your investment strategy and the investments that feel right to you. Once you invest, you can earn dividends either as rental income, interest, or capital gains.
Low Minimum Investment Requirements
To enter the real estate market, you typically need a lot of capital. This leaves real estate investing only to the wealthy. However, real estate investment platforms lower that barrier to entry, decreasing the minimum investment requirements, making it easier for more investors to jump on board.
Real Estate Crowdfunding Cons
As with any investment, you should always look at the downsides to ensure you know what's at stake and how to reduce your risk of loss best.
Here are the downsides of real estate crowdfunding.
If you invested directly in real estate, you'd likely have a higher ROI because you receive all of the profits, and you don't have to share them. With real estate crowdfunding sites, you invest with many other investors, sometimes hundreds, so you must share the returns with them plus, the crowdfunding sites need to make their share to stay in business.
If you prefer to control your investments, managing real estate investments from a crowdfunding site might be challenging. You don't say what commercial real estate deals the fund managers choose or how they handle them.
They Are Illiquid
Most commercial real estate investments are illiquid. This means you have to be willing and able to tie up the funds for the investment duration. Most real estate crowdfunding sites don't have redemption programs which means you can't withdraw your funds early.
Best Real Estate Crowdfunding Investment Platforms
Cityvest helps individual investors access institutional investments that are usually off-limits unless you have a lot of capital. It's only open to accredited investors, and the minimum investment is $25,000, but this pales in comparison to the six-figure investment typically needed for these investments.
Cityvest pools the funds of multiple investors to meet the minimum investment required for institutional, commercial real estate. Cityvest offers high returns, has a strict vetting process, and pays dividends quarterly.
Streitwise offers a private REIT that's open to both accredited and non accredited investors. It has an average ROI of 8%, focusing on equity investments in large corporations and companies.
The Streitwise fees are low, and they are transparent about the costs from the start. Because it's open to everyone, the minimum investment required is much lower at $10,000, and they pay dividends quarterly.
Streitwise only has one REIT, though, so the offerings for the fund are minimal, but it can be good for beginning investors looking for passive income.
3. Rocket Dollar
Rocket Dollar allows you to direct your retirement funds into real estate. Your self-directed IRA can invest in most of the platforms mentioned here but all in one account. So, you don't have to worry about managing multiple accounts.
The funds you invest in your Rocket Dollar account become a part of your LLC. You must understand how this works and how it affects your ability to accept funds since you can't comingle personal and business earnings.
When you invest with Diversyfund, you invest in a multi-family REIT. The minimum investment is only $500, so it's open to both accredited and non accredited investors. Diversyfund's investment, called Growth REIT, owns and operates the multifamily properties it invests in, which may mean higher profits for investors.
Diversyfund doesn't charge any management fees, which helps increase your profits, but your investments are tied up for five years which is the length of the investment. All dividends paid are reinvested into the fund until Diversyfund sells the property.
If you're looking for a crowdfunding site with a low minimum investment, Fundrise may be an option. They require only $10 to start investing. They offer eREITs and electronic real estate funds that invest in various domestic real estate investments.
The minimum investment requirements start at $10 for their Starter Portfolio, but go up to $10,000 for their advanced portfolios. Fundrise has a minimum investment timeline of 5 years since they recognize how illiquid commercial real estate investments can be.
Crowdstreet is another real estate crowdfunding site that caters to accredited investors with a minimum investment requirement of $25,000. You can invest in individual real estate projects as well as real estate investment portfolios.
Real estate investors can choose from DIY investments, choosing individual properties themselves, or an already diversified portfolio of real estate properties professionally managed.
EquityMultiple is another one of the real estate investment platforms that is for accredited investors only. The minimum investment starts at $10,000, and you can invest in institutional, commercial real estate in the form of senior debt or preferred equity.
EquityMultiple offers investments in a variety of property types, including residential (investment properties) and various business properties, including senior living centers, industrial, office, and retail centers. Like most crowdfunding sites, the investments on EquityMultiple are illiquid.
Groundfloor is a platform for non accredited investors looking for low minimum investment opportunities. You invest in short-term loans to real estate builders and developers. You are given time and the opportunity to do your own due diligence to choose which loans you want to invest in, and you can invest with as little as $10 in each loan you choose.
The loan terms are short, typically 6 to 12 months, so it's a more liquid investment opportunity, and it offers 7% - 12% returns.
Peerstreet is another real estate investing platform that offers investments in debt versus equity. The loans are private real estate investment loans. Peerstreet pools the money from each investor to lend to real estate developers and builders. Peerstreet collects the monthly payments for the debt and shares the earnings (interest) with investors like you.
Peerstreet is open to non accredited investors, and its minimum investment is $1,000, with an average return of 2% - 9%.
Yieldstreet is a platform only for accredited investors. While the minimum investment requirement is only $1,000 for some investments, others require $5,000 or more. With Yieldstreet, you can invest in real estate and other alternative investments, including art and legal investments.
The investment timelines are shorter with Yieldstreet, with some as short as six months. They do have one opportunity for non accredited investors called the Yieldstreet Prism fund versus the numerous investment opportunities for accredited investors.
Roofstock does things a little differently. Any investor (not just accredited investors) can invest in single-family investment properties and earn monthly passive income. You can invest in properties throughout the United States, and Roofstock will assign a property manager to the property to manage it for you.
While you own real estate directly with Roofstock, it's still a source of passive income since the real estate projects are homes already outfitted with tenants and looking for a new landlord to take over.
Concreit: Real Estate Investing Alternative to Crowdfunding
Concreit is a real estate app that offers an alternative to real estate crowdfunding. With Concreit, you invest in private non-traded REITs that invest in private loans for real estate projects, both residential (rental properties) and commercial real estate deals.
Any investor, including a non accredited investor, can get started with as little as $1. You'll invest in a diversified portfolio that may include preferred equity, common equity, and debt investments backed by real estate.
Concreit focuses primarily on private short-term loans and multi-family real estate properties. All investments go through intensive due diligence. The investments are meant to be long-term, but Concreit has a redemption program should you need to withdraw funds early.
Can You Make Money With Real Estate Crowdfunding?
Like any investment, there is always the possibility of making money, just as there is the possibility of losing money in real estate crowdfunding. So focus instead on the investment minimums, making sure you can reach them, the type of real estate, the investment targets, the required timeline, and how often the fund pays dividends to decide if it's right for you.
Do You Have to Be an Accredited Investor to Participate in Crowdfunding?
Not all crowdfunding sites require you to be an accredited investor to invest in it. However, many do, so always read the fine print and know what's expected of you. Along with looking at whether you must be an accredited investor or not, look at the minimum required investment to determine if it's right for you.
Which Crowdfunding Option Is the Best?
There isn't one crowdfunding option that is better than another for every investor. Too many variables are at play for each investor, including do you need to be an accredited investor? What is the minimum investment requirement? How long must you tie up your funds? What is the average rate of return? Ask these questions and compare your options to determine which of the real estate investment opportunities are right for you.
Crowdfunding: The Bottom Line
Crowdfunding is one way to invest in real estate without directly investing in it and owning properties you have to maintain. Your money is pooled with many other investors' funds which crowdfunding platforms then use to fund real estate loans for developers and builders or to invest in preferred equity for properties, earning the equity build and appreciation along the way. Learn more by signing up and visiting our blog.
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