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.
Commercial real estate investments are essential for a well-rounded real estate portfolio. Investors aim to have diversified portfolios to reduce the risks of putting all their eggs in one basket. Crowdfunding is opening doors and offering new real estate investors and even small real estate investors the opportunity to dive into commercial real estate. It gives investors the ability to carefully choose which deals he or she participates in. In each case, the crowdfunding site analyzes and evaluates the available opportunities, offering investors a chance to select from fully “vetted” deals.
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: CrowdStreet (no fees charged)
- Best for single property investment: RealtyShares
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
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.
2. 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.
RealtyShares focuses on small to midsize real estate investments. This includes investing in multifamily residential, office, industrial, self-storage, retail, medical office and hospitality facilities. It can also include single-family properties used for investment purposes. As an investor, you can either invest in a single real estate transaction, or you can invest in groups of properties with similar characteristics.
RealtyShares offers three types of investor participation, including debt, equity, and preferred equity. Preferred equity involves a favored position in the equity capital structure, but with limited upside potential.
For equity investments, you’ll receive distributions on a monthly basis. When an equity investment property is sold, you also get a share of any net appreciation. Debt investments are paid quarterly. Individuals can hold investments within the platform anywhere from a few months to several years.
This platform requires a minimum upfront investment of $5,000. Or you can make individual investments for as little as $1,000. You must also be an accredited investor in order to participate. Fees include 1% on equity investments, and an interest rate spread of up to 2% on debt investments, but there are no upfront fees or annual fees to join.
CrowdStreet offers investments in commercial real estate. It tends to favor institutional level commercial real estate, rather than investments in small residential property rehabs and fix-and-flip deals. The platform provides substantial information and documentation for each project, enabling investors to evaluate the viability of deals on their own. Investments can be in either debt, equity, preferred equity, or even direct ownership. Investment terms range between three years and 10 years.
The direct ownership option is unique. As an investor, you can work directly with the project sponsor, even giving you an opportunity to invest in deals in your local area.
CrowdStreet investors must be accredited. The minimum initial investment is $10,000. There are no fees to use the platform. CrowdStreet offers both taxable accounts and self-directed IRA accounts.
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 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.
Updated May 23, 2018 and originally published May 8, 2018.