How did you feel when you first got the chance to sit at the “adult table” for Thanksgiving? Some may have felt a twinge of sadness. Some may have enjoyed a speck of relief. Now, what if that table was one that allowed you to invest in valuable real estate properties and projects? Real estate crowdfunding platforms are bringing real estate investing to other investors.
Real estate opportunities have always been a game that only the elite play. In the past, private real estate deals and real estate funds were open to accredited investors. However, thanks to companies like Fundrise and CrowdStreet, real estate funds are available to the most casual real estate investors. Now, real estate professionals and novices alike can add to their real estate portfolio with diverse real estate investment opportunities.
Many only think of purchasing real estate as a once every decade situation that brings on stress (both financially and emotionally). Whether it be a house, condominium, or apartment, these properties can all be difficult for people to find, assess, negotiate for, and acquire. (We posted a report on preparing to purchase a property a couple months ago. See “Saving For a House” under the Personal Finance section.) Other investors may try renting, wholesaling, house flipping, and leasing. However, there is a whole lot more to the real estate market than just your average home purchase.
Real Estate Crowdfunding – Top Platforms Available
Real Estate Crowdfunding Platforms Open Doors to Commercial Real Estate
As you can see the commercial real estate market has had its fluctuations. However, it can be a great long-term opportunity for those who value growth and dividend investing. Many savvy investors make real estate allocations via many publicly traded REITs to diversify their investment portfolio. This would be a more traditional real estate investment. REITs are the main competitor to the crowdfunding platforms that we discuss in this article. Additionally, they correlate with the stock market and can be at the mercy of overall market conditions. See how we think increasing interest rates may affect real estate investments.
Up & Coming Real Estate Crowdfunding Platforms
In the past few years, real estate crowdfunding platforms have made their way into the limelight. Fundrise, CrowdStreet, DiversyFund, and Cadre are just a few of the examples online real estate crowdfunding sites. These platforms allow an “average Joe” to invest in commercial and residential properties of all sizes. These types of properties include large housing developments, apartment complexes, hotels, retail properties, storage spaces, and many others. We’ll explain more about how these properties are chosen.
Just like the stock market, returns vary and investing in real estate can be very risky. However, many of these crowdfunding platforms tout 11-15% average returns each year. Unlike the stock market, many of these offerings require your money to be tied up for years at a time. This allows some of their “growth-focus” opportunities to be built, and realize their estimated value. This also implies that the investments hold more risk, as a market downturn could severely hurt this type of market.
Quick Summary of RE Crowdfunding
So, how does it all work?
Real estate investment platforms connect investors to opportunities that are offered by a deal sponsor. The sponsor is the person responsible for acquiring, managing, and selling the investment. The crowdfunding platform explains the deals to potential investors, follows regulatory protocols, and collects money for the sponsor. The investor contributes to a project’s funding and in turn receives a portion of the profits.
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The type of investments offered is one of the paramount differences between many crowdfunding platforms. For example, some platforms like Fundrise and DiversyFund offer a fund that offers investment opportunities to dozens of properties. This offers an easy path towards diversification in the real estate market. While others such as CrowdStreet and Cadre allow access to single property deals. This leaves the whole strategy of diversification to you.
Choose the Best Real Estate Crowdfunding Platform
There are many different factors to look at when choosing the investment platform that makes sense for your portfolio.
Some of the variables we recommend looking at are:
- Investment minimums (ranging from $500 to $10,000)
- Advisory Fees
- Historical annual returns
- Investment opportunities
- Vetting processes
- Better Business Bureau reports
Of all the above components, the vetting process can be the most important. It is paramount to have your own conviction in the offerings that are made through the crowdfunding platforms. However, if a platform goes through a rigorous due diligence process, it can bring some peace of mind when trying to make an educated decision.
While we do support the idea of using crowdfunding platforms to invest in real estate, there are some downsides that could come about in the future. As more crowdfunding platforms enter the market, it will be difficult to maintain the high level of vetting that occurs in the market. In other words, as more sponsors have access to these groups, it is only fair to speculate that more deals will come about that may not have the same caliber.
To summarize, The Investor Weekly finds that these crowdfunded real estate platforms will continue to allow Main Street investors to find access to deals that were normally only available at the “big boy table”. Now, investors with little to no money, can be a backer in large CRE deals. Instead of worrying about pesky tenants, crowdfunding websites can offer the ability to achieve capital-gains, capital appreciation Welcome to the table, now do your due diligence. Happy investing.
Lastly, there is also another wave of crowdfunding platforms being built for startups. We will look into these options and have a report on these in the months ahead. Stay tuned!
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