Mike Stohler

    Are you interested in real estate investing but don’t want to deal with the hassles of being a landlord? Or, you want to get into bigger properties but don’t have enough money to fund real estate investments on your own? Real estate crowdfunding might be worth considering.

    In 2012, the JOBS Act opened up new opportunities for average investors to participate in real estate deals that were previously limited to accredited investors due to the Securities and Exchange Commission (SEC) regulations. This change has made it possible for individuals to invest in a variety of real estate projects, from residential properties to commercial developments, without the need for large amounts of capital or hands-on management.

    As someone who has used real estate crowdfunding to invest in note funds and other projects, I’ve seen firsthand how this approach can help achieve your investment goals. In this article, I’ll cover the top crowdfunding sites for investors and the details you need to know in order to invest in alternative assets confidently through these platforms.

    Key takeaways

    • You can passively invest in real estate projects through crowdfunding platforms.

    • The choice of platform depends on your investor status, the investment dollars you have, and the types of projects you are interested in.

    • Check out the list of platforms for both accredited and non-accredited investors.

    Understanding real estate crowdfunding

    Real estate crowdfunding involves using online platforms to invest smaller amounts of money in projects like apartment buildings, office spaces, or retail developments.

    This is much like joining a pool where everyone chips in to buy something big and then shares in the profits. Many of the projects are commercial real estate investments, but there are opportunities to invest in single-family rental properties as well.

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    Who can use real estate crowdfunding platforms?

    Anyone can invest in real estate crowdfunding platforms, but each platform has rules on what type of investors they can accept. The SEC regulates the operation of private real estate investments, basing the decision on investor type on the involved paperwork, compliance, and rules.

    There are two types of investors as defined by the SEC:

    Accredited investors: Can invest in certain types of higher-risk investments. The SEC’s definition for these investors is that they have enough money, experience, or knowledge to understand and handle the potential risks.

    Non-accredited investors: Individuals who do not meet the income or net worth requirements set for accredited investors. These investors are usually subject to more regulations when it comes to investing in high-risk opportunities to help protect them from potential financial losses.

    How does real estate crowdfunding funding work?

    This approach for real estate investment is very passive for you. Here’s how it works in five simple steps:

    1. Platform Selection: You choose an online platform that lists various real estate projects you can invest in.

    2. Project Selection: You browse through the projects and select one that you want to invest in based on details like location, potential returns, and the minimum investment required.

    3. Investing: Once you pick a project, you invest your chosen amount of money. You’re now part of a group of people who have all invested in the project.

    4. Management: The platform or project owner takes care of the property, like building it, renting it out, or selling it.

    5. Returns: If the project makes money, you receive a share of the profits relative to how much you invested. This could be from rental income or from selling the property at a higher price.

    What types of real estate investments?

    Real estate crowdfunding investments come in two main types: equity investments and debt investments. Some investment opportunities might be a blend of each. Here’s a simple breakdown:

    Equity investments

    When you make an equity investment, you’re buying a share of the property itself. This means you own a part of the property and can earn money from the rental income it generates, as well as potentially profit from the property’s value increasing over time.

    Equity investments usually offer higher potential returns, but they also come with higher risk and longer investment periods since you typically make money when the property is sold or refinanced.

    Debt investments

    With a debt investment, you’re essentially lending money to the project owner or developer. In return, you receive regular interest payments based on the loan’s terms. You usually receive repayment of the principal amount of your loan at the end of the investment period.

    Debt investments are considered lower risk compared to equity investments because lenders receive payment before equity investors when distributing returns. The drawback is that potential returns for debt investments are usually lower than for equity.

    Real estate crowdfunding platforms for non-accredited investors

    There are plenty of platforms for non-accredited investors to invest in real estate, including:

    Arrived Homes

    Arrived Homes Website

    Arrived enables non-accredited investors to invest in shares of rental homes and vacation rentals. It aims to make real estate investing accessible with a minimum investment as low as $100. The platform is open to U.S. citizens or residents over the age of 18, and you do not need to be an accredited investor to participate.

    Investors can expect returns from dividends on rental income and appreciation of property value over time.

    Concreit

    Concreit Home page

    Concreit is a real estate crowdfunding site that invests in a diversified portfolio of real estate debt and income equity. You can also invest directly in single-family rentals. The goal is to build income through investments in fixed-income first-lien mortgages and properties with the potential for income and appreciation.

    The platform is known for its low minimum investment of just $1, making it accessible to a wide range of investors.

    DiversyFund

    DiversyFund website

    DiversyFund offers an accessible way to invest in multifamily commercial properties, simplifying the process for investors. It focuses on properties with potential for growth. Starting investments are as low as $500.

    Fundrise

    Fundrise website

    Fundrise’s platform allows individuals to invest in real estate through REITs and other real estate-related investments. Besides real estate, you can invest in private credit and venture capital projects. Getting started is easy, and you can invest with as little as $10.

    RealtyMogul

    RealtyMogul website

    RealtyMogul’s platform specializes in commercial real estate, enabling non-accredited investors to engage with a range of property investments and REITs. It breaks down barriers to commercial real estate investment, offering curated opportunities for both income and growth.

    The minimum investment amount varies depending on the specific project but typically starts at a relatively low threshold that is accessible to a wide range of investors.

    Streitwise

    Streitwise website

    This platform for crowdfunded real estate investments offers passive investment through a REIT and is open to all investors. Streitwise invests in commercial real estate projects like office buildings and hotels. Investment minimums are $3515, which is 500 shares.

    YieldStreet

    Yieldstreet website

    YieldStreet is a platform you can use for alternative investments in real estate, private equity, and private credit. This crowdfunding site offers a variety of investment types, including short-term notes, structured notes, diversified funds, art, and even legal finance. Investors gain exposure to a variety of options.

    Depending on the deal structure, investment minimums typically range from $10,000-$25,000,

    Real estate crowdfunding platforms for accredited investors

    Let’s get into the best real estate crowdfunding platforms you can use to invest passively.

    CrowdStreet

    Crowdstreet website

    CrowdStreet connects accredited investors with commercial real estate opportunities so you can diversify your portfolio without direct property management. Investors can choose from individual deals or diversified funds, each detailed with potential returns and timelines. Investment minimums typically start at $25,000.

    EquityMultiple

    EquityMultiple website

    EquityMultiple blends debt and equity real estate investments for those avoiding direct ownership. Options include direct equity, syndicated debt, and preferred equity, with minimums usually between $5,000 to $10,000.

    1031 Crowdfunding

    1031 Crowdfunding website

    1031 Crowdfunding focuses on 1031 exchanges, allowing investors to defer taxes on real estate gains by reinvesting in qualifying properties. It’s aimed at investors wanting tax advantages without direct management of properties.

    This platform offers access to a range of real estate investments suitable for 1031 exchanges, including DSTs (Delaware Statutory Trusts).

    The minimum investment and specific requirements vary by project, with detailed information available on their platform for registered users.

    Upright

    Upright website

    Upright is a platform you can leverage as an accredited investor looking for alternative investments. You can invest in diverse real estate projects, including individual properties or pooled funds.

    It offers a variety of investment terms, and minimum investments start at $1,000 for pooled funds, with individual notes typically starting at $5,000.

    Pros of real estate crowdfunding

    If you are considering this investment route, here are the key pros of real estate crowdfunding:

    • Accessibility: Significantly lower minimum investments (often as low as $500-$1000) compared to traditional real estate investing, making it accessible to a much wider pool of investors. You can also easily invest in real estate projects located anywhere, not just in your local market.

    • Diversification: Allows you to spread capital across multiple properties and geographies to diversify your real estate portfolio. You can invest in different types of projects (residential, commercial, fix-and-flip, etc.) to further diversify beyond the stock market.

    • Passive income: Provides a source of passive income in the form of regular dividend distributions.

    • Online simplicity: It’s very simple to find and invest in offerings through online sites. And the best real estate crowdfunding platforms make it easy to track and manage your investments through investor dashboards.

    Cons of real estate crowdfunding

    But there are cons and risks of real estate crowdfunding, including:

    • Platform risk: You are dependent on the crowdfunding platform to screen deals, facilitate transactions, and handle ongoing administration. There is a risk of the platform mismanaging funds or going out of business.

    • Sponsor risk: The success of an investment is highly dependent on the experience and integrity of the real estate firm (sponsor) behind each deal. Incompetent or unscrupulous sponsors could mismanage projects.

    • Loss of principal: Like any real estate investment, your capital is at risk, and you could lose money if a project performs poorly. Crowdfunded real estate is not guaranteed or insured.

    • Lack of liquidity: Investments are typically illiquid with multi-year holding periods (often 5+ years). There is no active secondary market to easily sell your position if you need to cash out early.

    • High fees: Crowdfunding platforms and sponsors charge various fees that can eat into total returns. Typical fees include 1-2% in upfront costs plus 1-2% in annual management fees.

    Alternatives to crowdfunding sites

    Besides crowdfunding platforms, there are other investment opportunities available to both non-accredited and accredited investors, such as:

    REITs

    REITs are companies that own and operate income-producing real estate. Investing in publicly traded REITs provides exposure to a diversified portfolio of properties. This investment type offers the liquidity of stocks since they can be bought and sold on major exchanges. Check out the video on my YouTube channel regarding REITs and other passive real estate investments.

    Real estate ETFs & mutual funds

    Real estate exchange-traded funds (ETFs) and mutual funds offer a simple way to gain broad exposure to several REITs and real estate operating companies. These funds provide instant diversification across many properties and geographies, which can help mitigate risk.

    Real estate syndications

    Real estate syndications are similar to crowdfunding in that they enable investors to pool money to fund specific real estate projects. But syndications generally involve higher minimum investments and are limited to accredited investors. Syndications often have stronger investor protections and better alignment of interests between investors and sponsors compared to crowdfunding deals.

    Direct ownership

    You can buy rental properties directly. This gives you full control over your investments and allows you to participate in any upside appreciation. This approach is best suited for investors with real estate expertise or those who can partner with experienced professionals. Keep in mind property owners have to invest more time, effort, and capital compared to passive investing through REITs or private funds.

    Real estate debt

    Investing in real estate debt, such as mortgages or real estate debt securities, allows you to earn steady interest income. You can achieve this through real estate debt funds, mortgage REITs, or private mortgage investing.

    Areas to evaluate for real estate crowdfunding

    • Platform reputation and track record: Look for platforms with solid reputations, transparent operations, and strong track records of delivering results.

    • Investment strategy and risk profile: Understand each offering’s specific strategy, property type, location, and risk profile to ensure alignment with your goals and risk tolerance.

    • Target returns and fee structure: Review target return projections and factor in all fees when evaluating potential net returns.

    • Minimum investment and holding period: Consider if the minimum investment aligns with your plans and if the expected holding period fits your liquidity needs.

    Wrap up

    Real estate crowdfunding makes it possible for small investors to invest in real estate without the need for huge sums of money or hands-on management.

    Be sure to research platforms, understand the risks, and select investments that match your goals. With this approach, you can diversify your portfolio and earn passive income through these online platforms.

    As with any investment, you should conduct due diligence and only invest what you can afford to lose. Real estate crowdfunding can be a valuable addition to your investment strategy.

    ⚡Discover an accessible way to invest in real estate syndications, even as a non-accredited investor with SparkRental:

    Looking For An Easier Way To Invest In Real Estate?

    Real estate crowdfunding: FAQ

    Is crowdfunding real estate a good idea?

    It can be, for diversifying investments and accessing real estate markets with lower capital, but it carries risks like illiquidity and market volatility.

    Are real estate apps worth it?

    Yes, for helping individual investors access projects with lower capital and ease, but risks and app reliability vary.

    Can you make money on Fundrise?

    Yes, you can through dividends and property value appreciation, but returns and risks vary.