The Best Real Estate Crowdfunding Sites
A technological tool at your fingertips is opening new doors for real estate investors. Real estate crowdfunding sites are changing the game. We’ll tell you about the top 5 best real estate crowdfunding sites that stand out from the crowd.
What is Real Estate Crowdfunding?
Real estate crowdfunding sites are peer-to-peer (P2P) real estate investment platforms, bringing real estate developers and real estate investors together in the same place. Real estate developers offer their deals on the sites, and real estate investors decide which to invest in.
In this way, real estate crowdfunding sites eliminate the middleman from the developing and investing equation. And since the middleman is typically the bank, that also reduces both the red tape and the fees normally involved in real estate financing. The benefit to investors is a higher return on their investment, while developers have access to financing more quickly and with fewer restrictions.
Real estate crowdfunding investments can take the form of either equity investments or debt financing. Investments can be as small as fix-and-flip projects on single family residences, to investments in apartments, office buildings, and retail shopping centers.
Each real estate project is analyzed and vetted by the real estate crowdfunding organization, then investors can choose which projects they’ll participate in, and even how much money they’ll commit to each. It’s possible to create a portfolio of individually selected real estate investments.
Real estate crowdfunding represents a form of alternative real estate investing. They’re sometimes confused with real estate investment trusts, or REITs. But REITs function more as mutual funds for real estate investments, investing in a portfolio of projects. By contrast, real estate crowdfunding enables the investor to select and fund specific projects.
We reviewed nearly a dozen real estate crowdfunding sites. Since real estate crowdfunding is fairly new, we’ve approached our review from the standpoint of a small investor looking to diversify into commercial real estate investments for the first time. We looked at the following to narrow down our top 5 picks:
- Ease of platform use
- Investment options presented
- Required initial minimum investment
- Simplicity of investment selection
- Availability of managed investment options
- Reviews by third parties
Our Findings At-a-glance
- Best for new and small investors: Fundrise
- Best for more advanced investors: Realty Mogul
- Best for investors looking for lower risk commercial real estate deals: PeerStreet
- Best for managed investment options: Fundrise
- Best site for low fees: Fundrise and Realty Mogul
- Best for single property investment: Roofstock
- Best site for high quality commercial investments: EquityMultiple
Fundrise took the top spot in our analysis, and it really wasn’t even close. The platform offers too many advantages over its competitors, including:
- A minimum initial investment of just $500
- Availability of both taxable accounts and self-directed IRAs
- No requirement to be an accredited investor
- Select from eREITs for equity investments, or eFunds for debt investments
- Goals-based investment combinations
- A low annual fee
- Some liquidity
Fundrise is the perfect real estate crowdfunding site for new investors to cut their teeth on. Once you’re comfortable with the process, you can move some of your real estate allocation to another platform to select individual deals that meet your preferences. Learn more about Fundrise and our other top picks in our summaries below.
The Best Real Estate Crowdfunding Sites
CrowdStreet is a real estate investing platform that gives you access to commercial real estate investments. Through its simple-to-use system, you can review and compare investment opportunities to ensure that you choose the deals that suit your specific criteria.
CrowdStreet’s Private Managed Account services make it easy to build a customized investment strategy based on your financial goals. You can then use the portfolio center feature to track every aspect of your investments.
Once you’re ready to get started, create an account and browse the marketplace to find the right investment(s). While doing so, you can use the following filters to save time:
- Deal terms
For commercial real estate investing, it doesn’t get much easier and straightforward than CrowdStreet.
<<Start Investing Now With CrowdStreet>>
Fundrise is a bit different than the other sites in that it’s a REIT platform. More specifically, they offer electronic real estate investment trusts, commonly known as eREITs. The difference between REITs and eREITs is that eREITs are only available through Fundrise and fees are low at just 1% per year. You don’t have to be an accredited investor to invest on Fundrise. However, one downside is that since eREITs aren’t publicly traded, they aren’t particularly liquid.
Fundrise also offers electronic funds, or eFunds. These are mostly like mutual funds for real estate but they’re set up as partnerships. It saves the investor on double taxation. Fundrise offers eFunds commission-free. But one important difference from eREITs–which are set up primarily to generate income–is that eFunds mostly focus on growth. That said, Fundrise offers three different goals-based investing styles:
- Supplemental income–invested primarily in debt deals
- Balanced investing–invested in both debt and equity through eFunds and eREITs
- Long-term growth–invested primarily in equity
Fundrise requires just $500 as a minimum initial investment. Accounts available include taxable accounts and self-directed IRAs. Generally speaking, investments are expected to last five years, before return of investing capital.
Another Fundrise advantage is that the platform does offer limited liquidity. After a 60-day waiting period, you may obtain liquidity monthly. There are limits, but it’s more generous than competing sites.
3. Realty Mogul
In the number two spot, we like Realty Mogul. It isn’t as new investor-friendly as Fundrise, but it has a lot to offer for investors who are looking to spread their real estate wings. It’s also one of the largest and best-known sites in the real estate crowdfunding space.
Realty Mogul offers the full range of real estate opportunities, including both commercial and residential properties, as well as single-family investment homes. Your investment can be either debt or equity related. Debt investments pay monthly distributions, while equity investments are paid on a quarterly basis. Realty Mogul also offers regular taxable accounts, and you can invest in the platform through self-directed IRAs held by third-party trustees.
We like the low minimum initial investment of $1,000, as well as the very low annual fees (less than 1%). Typical investment terms run from six months to 10 years, though debt investments rarely exceed 12 months. If you get comfortable with Fundrise, Realty Mogul could be the next step in the process.
As is typical with real estate crowdfunding platforms, you must be an accredited investor. However, there is an exception. Realty Mogul offers two real estate investment trusts you can invest in that do not require you to be accredited.
PeerStreet focuses investments on real estate loans, which makes it a true crowdfunding platform. Loans are typically short-term, high-quality, private real estate loans, with terms from six to 24 months. Loans are typically made on residential, single-family properties. Investors select the specific loans they want to invest in. This is very similar to peer-to-peer lending platforms, like Lending Club and Prosper. It even provides an automated investing feature that can add specific loan types to your portfolio.
The minimum initial investment is very low at $1,000, however you must be an accredited investor to sign up. The platform advertises that typical investments will earn between 6% and 12% per year.
One advantage is that they provide both traditional and Roth IRA accounts. Another is that their loan guidelines are fairly strict, usually limiting loan values to no more than 75% of the underlying property value. The short-term nature of the loans also helps to lower risk. The disadvantage is that PeerStreet offers only debt-based investments, and not equity investments.
Roofstock is perhaps the most unique real estate investment platform of all. That’s because:
- It’s not a real estate crowdfunding platform, but a real estate marketplace.
- It enables investors to buy 100% interest in single-family rental properties.
Why would anyone want to buy a single-family rental property from a real estate website? Well, online real estate purchases are becoming more common all the time. But buying investment real estate isn’t. That’s what Roofstock is working to change.
The platform enables you to invest in properties in 40 different markets in 19 states. That provides investors with a valuable opportunity to spread their real estate investments across many different markets. This can be particularly important if you live in a market area where investment real estate isn’t performing particularly well. You can use Roofstock to invest in stronger markets.
Roofstock doesn’t actually manage your real estate investment for you, as is typical of real estate crowdfunding platforms. But they do provide all the resources and tools you need to both purchase properties and manage them going forward. For example, Roofstock presents all relevant investment information, including financials, for each property. They also offer financing and property management services through participating service providers.
The property management option is particularly important. If you’re investing in remote properties, you won’t be available to manage them directly. Working with a good property management company will allow you to manage your properties from the comfort of your home.
There is no minimum investment requirement, but since you’re purchasing individual properties, the cash outlay can be substantial. That’s true whether you’re making a down payment and using financing, or if you pay cash in full.
There are no fees to join the service, and no ongoing maintenance or advisory fees. You’ll pay 0.50% of the closing price to purchase a property, and 2.50% to sell it.
Roofstock is fully automated the process of buying single-family rental properties, and doing it at relatively low cost. And it gives you the ability to benefit from both positive rental cash flows and capital appreciation upon the sale of your property.
EquityMultiple is a real estate crowdfunding platform that invests in commercial real estate. Investments can be in either debt, equity, or preferred equity. They operate in all 50 states. And have created investment deals totaling more than $700 million for participants.
The minimum investment required is $5,000, but most deals require at least $10,000. You must be an accredited investor to participate. IRA accounts are available but they require a $20,000 minimum.
All real estate deals are vetted by the platform. and range in terms from 12 months to 10 years.
EquityMultiple charges a 0.5% annual service charge, plus 10% of all profits generated by each investment at the end of the deal.
What makes EquityMultiple a solid crowdfunding site is that it’s backed by Mission Capital Advisors, one of the largest national real estate capital markets firms in the country. Founded in 2002, Mission Capital Advisors provides real estate investment solutions across the U.S., as well as Europe and the United Kingdom.
EquityMultiple investments range between $500,000 and $2 million each, and you can buy investments in smaller increments.
Anticipated returns are as follows:
- Senior debt: 7% to 12% annually
- Preferred equity: 7% to 12% annually for current preferred return, and 10% to 14% total preferred return
- Common equity: internal rate of return (IRRs) of 14% or higher
Preferred equity deals also typically offer a fixed rate of return throughout the loan term, but may also provide an additional return when the investment is paid off, over and above the original principal investment.
Straight equity deals do not offer a fixed return. Both the return and the frequency of payment will be based on the performance of the investment.
As is often the case with real estate crowdfunding deals, an LLC will be created for each deal. You will invest in and own a portion of the LLC, but not the real estate itself.
A major advantage with EquityMultiple is that the company is extremely selective. They typically only accept about 10% of the deals presented, preferring to select only the strongest.
The major negative with EquityMultiple is the fee structure. Though the 0.5% annual service fee is one of the lowest, the 10% charge on all profits reduces the overall return on the deal.
Important Factors to Consider
Real estate crowdfunding is considered to be high-risk investing and you will generally need to be an accredited investor. This requires meeting the following qualifications:
- An annual income of $200,000 individually (or $300,000 jointly) for the past two years, with a reasonable expectation of earning at least that much in the future
- A net worth of over $1 million, excluding your primary residence.
Also, real estate crowdfunding investments are not liquid. The deals you invest in are based on individual properties that do not trade on recognized exchanges. You cannot buy and sell properties in the same way as stocks and bonds. Instead, you’re committed to an investment until the loan term expires or the property is sold.
Remember, return of your investment principle is not guaranteed. You can lose some or all of your investment on any given deal. Debt investments tend to be safer, but still, do not guarantee a return of principal.
Real estate crowdfunding sites provide investors with an opportunity to invest in one of the most profitable–but least understood–asset classes: commercial real estate. Before these sites became available, these deals were only an option for very large and sophisticated investors.
Even if you’re not an accredited investor, there’s still a way to invest using funds where they are available. A well-diversified investment portfolio should include a real estate allocation with a portion invested on the commercial side. Real estate crowdfunding sites give you an opportunity to do just that in a variety of ways designed to fit your comfort level.