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What Is Real Estate Crowdfunding

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 7 minute read

Even if you don’t have your own rental property, you may invest in real estate through real estate crowdfunding. Investing in real estate without purchasing specific homes is becoming increasingly popular thanks to real estate crowdfunding sites. In contrast, real estate crowdfunding has just lately become a viable option. Investors in private real estate projects may not be publicly solicited by companies. This left them with no other option except to use personal contacts to raise money.

A major shift occurred in 2012 when Congress approved the JOBS Act (Jumpstart Our Business Startups Act). Companies can now publicly advertise these investment opportunities after this law was implemented. Despite the fact that the legislation may not have intended for real estate crowdfunding platforms to begin functioning, the consequence permitted this to occur.

Different investment options may be found on a variety of websites. You should know the following information.

About Real Estate Crowdfunding

In real estate crowdfunding, a group of investors pools their money together to buy properties.
Due diligence on properties is typically performed by crowdfunding organizations who allow this sort of investment to ensure that the latter’s investment objectives are met. The properties are then managed in accordance with the investment’s objectives. Typically, this comprises renting out the property to tenants, making improvements to the property, or just hanging on to the property for future value increase.

A dividend is a payment made to shareholders by a corporation after its earnings have been accumulated. The revenues from the sale of the property may also be given to shareholders in the future.

7 Crowdfunding platforms for Real Estate

Investing in real estate using a crowdfunding platform is similar to using a typical brokerage business. Each has a distinct take on crowdsourcing for real estate. Some are only open to those who have a specific level of wealth or income, while others are open to all investors. As an example, they could concentrate on a certain segment of the real estate market or a particular geographical region.

Crowdstreet

Several options for authorized investors are provided by Crowdstreet for investing in commercial real estate. An investment fund’s marketplace offers many possibilities for investors who choose to invest in the fund. Alternatively, depending on the data supplied, you can select certain commercial properties that you feel would perform well. Investment in a bespoke portfolio of unique properties based on your investment goals and profile is also an alternative that may be considered.

The minimum investment is $25,000, however, you may start investing with as much as $100,000. Requirements:

  • Accredited investor status: Required
  • Minimum investment: $25,000 or more

DiversyFund

Investors can begin investing in a single portfolio of multifamily real estate properties with as little as $500 using DiversyFund’s crowdfunding platform. The Growth REIT is a real estate investment trust (REIT) that the corporation uses to make its investment.

As a non-traded public investment that has been approved by the US Securities and Exchange Commission, the Growth REIT can be purchased. Unlike a publicly listed corporation, it is not traded on a stock exchange, but it must nevertheless comply with all the same reporting obligations. Single-family houses are not part of this company’s portfolio.

DiversyFund is responsible for selecting the properties within the REIT to invest in, as well as ensuring that the assets are properly maintained. After completing necessary repairs, the corporation will eventually dispose of the properties once they are no longer suitable for its needs. Requirements:

  • Accredited investor status: Not required
  • Minimum investment: $500

Fundrise

Every day individuals may begin investing in real estate with as little as $10 with Fundrise. Commercial, residential, and other sorts of real estate are some of the assets that the firm concentrates on giving investments in.

In order to make investments, you must first set aside a certain amount of money. Investing in registered items or things that are traded on the market might begin at $10. A minimum of $5,000 is required to begin investing in private funds such as eREITs. Accredited offers are available on Fundraise, but they need a $100,000 minimum commitment to take advantage of them. Requirements:

  • No need to be an accredited investor.
  • Investing $10 is the bare minimum.

EquityMultiple

Investors in commercial real estate may take advantage of EquityMultiple’s expert management services. Only 5% of the investment options EquityMultiple considers are selected for investment. Three investing possibilities are available on the platform:

  • Short-term diversified notes
  • Individual properties
  • Funds

For the short-term diversified notes investment option, the minimum investment is $5,000. Direct investment in individual properties utilizing debt, preferred, or common stock can begin with $10,000 of investment capital. From a minimum of $20,000, you may begin investing in funds that use a variety of securities to diversify your portfolio, including debt, equities, opportunity funds, and commercial real estate. Requirements:

  • Accredited investor status: Required
  • Minimum investment: $5,000

GROUNDFLOOR

One of the lowest minimum investments among real estate crowdfunding platforms is $10 with GROUNDFLOOR.com. The GROUNDFLOOR platform provides short-term, high-yield investments in real estate debt. As a real estate investor, you have the freedom to invest in a variety of projects, allowing you to diversify your portfolio.

As a general rule, these loan investments are backed by single- or multi-family homes, townhouses, condominiums, planned unit projects, and even new construction. In the event of a loan failure, the properties can be foreclosed on, which gives some security. It’s fortunate that GROUNDFLOOR strives to fix the matter with debtors before going through the foreclosure process. Requirements:

  • Accredited investor status: Not required
  • Minimum investment: $10

RealtyMogul

There are two types of investments available on RealtyMogul for investors to choose from. MOGUL I and MOGUL II are the company’s two real estate investment funds (REITs). With a $5,000 minimum investment required for each, potential investors have a range of possibilities to choose from.

Multifamily, office, industrial, self-storage, retail, and medical office buildings are examples of private placement investments. Amounts of up to $25,000 or more are required to open these accounts. Aside from RealtyMogul REITs, accredited investors can invest in both types of securities. Non-Accredited investors, however, can only participate in the latter.
Requirements:

  • Accredited investor status: Not required for REITs / Required for private placement investments
  • Minimum investment: $5,000

PeerStreet

Accredited investors can invest in real estate debt backed by individual properties using PeerStreet’s platform. You can invest in a variety of loans with varied terms, loan tactics, and other aspects. It is possible to examine hundreds of different pieces of information on this investing platform.

A $1,000 minimum commitment is required to begin investing in real estate debt on the site. With a minimal starting investment of $1,000, you have the opportunity to spread your risk across several loans, reducing the impact of a single loan that doesn’t perform as expected.
Requirements:

  • Accredited investor status: Required
  • Minimum investment: $1,000

Pros and Cons

Pros

  • It’s less expensive than buying a house outright, since you don’t have to put down a down payment or take out a loan to do it. You may start investing in real estate with as little as $10 through real estate crowdfunding.
  • Avoid property management. Crowdfunding removes you from responsibility for managing real estate. You don’t have to deal with renters or late-night phone calls if the air conditioner breaks down when you invest in a property.
  • Crowdfunding can help you diversify your investment portfolio by allowing you to participate in several properties with lower minimums, rather than just one. Other methods for diversifying your real estate portfolio include real estate investment trusts (REITs) and managed portfolios.
  • Gain from dividends. REITs are set up in such a way that a significant amount of their net income must be distributed to investors in the form of dividends.

Cons

  • Many real estate crowdfunding platforms provide assets that aren’t publicly listed, making them an illiquid investment. Many of these assets may not be easily sold if you need to liquidate your account. Even if you are able to sell them, you may be required to pay fees in order to receive your money sooner.
  • Becoming an accredited investor is not always a requirement, but it is a possibility on some real estate crowdfunding platforms. These platforms will not let you invest if you don’t have the required level of income or net worth.
  • Risks associated with the housing market. As with every other asset type, real estate has its share of hazards. When the real estate market crashed in the early 2000s, it demonstrated how quickly values may plummet. Due to the COVID-19 epidemic, even the most dependable renters had difficulty paying their rent because of job loss.
  • Minimum investment may be high. Some crowdsourcing services demand a minimum investment of as little as $10. Other investing choices, on the other hand, demand at least $100,000 to get started.

Bottom Line

You don’t have to own a property to become a real estate investor. Instead, you might participate in real estate ventures that are crowdfunded. In many cases, it’s cheaper to invest in a group of homes than it is to invest in individual houses. Real estate crowdfunding, on the other hand, might not be the ideal choice for everyone. Take a look at our information on how to invest in real estate if you’re looking for alternatives.

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