Real Estate Crowdfunding – What You Need to Know

real estate crowdfunding platforms

Real estate crowdfunding is the combination of a crowdfunding – a newer investment market – with an investment as old as time, real estate.
A good example of crowdfunding is a site like Kickstarter. Several people across networks and social media channels invest into an idea with hopes of bringing it to market.
Real estate crowdfunding is basically the same thing but for property. Rather than investing into an idea or a company, several people are pulling their resources together to invest in a property.
Crowdfunding for real estate isn’t exactly a new concept, it’s just that up until now you needed to be considered an accredited investor in order to do this. More often than not, accredited investor status was usually reserved for the wealthy because they were the ones who met the requirements. Thanks to technology, real estate crowdfunding for non-accredited investors is now a reality.
Another example of real estate crowdfunding is when families or neighbors pool together to buy a property. Again, this isn’t a new concept. The only difference is that real estate crowdfunding has made it more accessible thanks to technology.

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How does Real Estate Crowdfunding work? 

If you wanted to invest in real estate in the past, you would have to sift through real estate transactions in the hopes of finding a good one to invest in. Now, all investors have to do is find a real estate crowdfunding company, look through pre-qualified investments and decide how much money they’d like to put into the pool.
Furthermore, in the past you would need a nice chunk of change to invest in real estate. With real estate crowdfunding, you can start with as little as $1,000.


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With real estate crowdfunding, there are two types of investments you can typically make:

  1. The first is equity investments where investors buy shares of a property and then share the cash flow made from rent or from the sale of a property. These are usually commercial properties like office buildings or multi-family homes, though some real estate crowdfunding companies do invest in residential properties.
  2. The second type of investment crowdfunding real estate loans, also sometimes referred to as the crowdfunding mortgage. You can invest in a person’s mortgage and then reap the benefits of monthly interest that is paid on the loan. If you decide to go the route of the crowdfunding mortgage, you can diversify by investing in multiple mortgages.

How do you get started with Real Estate Crowdfunding? 

As we previously mentioned, a crowdfunding real estate investment does not require a whole lot of money. Most real estate investment platforms do not require a lot of money to get started and range from $1,000 to $10,000 minimum investments depending on the platform.

The first step is to find the crowdfunding platform or service that works best for you. From there, you need to choose which type of crowdfunding real estate investment you’d like to buy. Once you’ve figured that out, you can look through pre-qualified listings curated by these platforms. The entire process – from the initial research to the funds transfer – can happen online making it easily accessible and fast.

​Can anyone qualify for Real Estate Crowdfunding?

As we previously mentioned, the barrier of entry to invest in real estate used to be pretty high. Accredited investors needed to have a certain net worth or income in order to invest in securities that were not registered with financial authorities. Things have changed, but there are some stipulations to keep in mind.

In 2012, President Obama signed the JOBS Act. This did two things for real estate crowdfunding investing. First, it relaxed the rules on general solicitation of accredited investors which then gave rise to the real estate crowdfunding industry. The second thing the JOBS Act did was open the door for non-accredited investors to participate in crowdfunding investments.

While real estate crowdfunding platforms can now accept non-accredited investors, not all of them do. For example, RealtyShares accepts non-accredited investors but PeerStreet does not. while Make sure to see what the requirements are for each platform you are researching.

​What is potential return on investment?

The return on real estate crowdfunding really depends on a variety of factors including area, type of investment (property versus loan) and what kind of property you’re investing in. Check the stats from crowdfunding platforms to find returns and choose an investment that works best for your desired financial goals.

real estate crowdfunding return on investment ROI

What are the pros of Real Estate Crowdfunding Investments?

There are several reasons why real estate crowdfunding is attracting a lot of investors. Some of the pros include:

  • Lower bar of entry. As we already mentioned, you no longer need to be an accredited investor and you can start with as a little as $5,000.
  • More transparency. With real estate crowdfunding investments, you’re typically given quarterly reports and tax statements assessing the performance of the property.
  • Ability to easily diversify. You can invest in several real estate mortgages or properties of your choosing.
  • Investments are pre-vetted deals Real estate crowdfunding platforms have done most of the legwork for you in terms of researching properties and borrowers.
  • Tax benefits. Owning real estate property comes with certain tax benefits you may not qualify for otherwise. For example, you can deduct depreciation and insurance costs.

​What are the cons of Real Estate Crowdfunding Investments?

As with anything real estate, if the market goes south you’ll lose money. This is just par for the course in real estate. You also can’t play an active role in how properties are managed and, as with all real estate, your investment isn’t liquid.

​Can someone use a Self Directed IRA account to invest in real estate crowdfunding?

Yes, you can invest in real estate crowdfunding using your Self Directed IRA. The IRS simply requires that the account be held by a qualified trustee or custodian.
When we asked PeerStreet about this strategy, they said they work with several custodians including Self Directed IRA Services, Kingdom Trust, Millennium Trust and Goldstar.

​Best Real Estate Crowdfunding Platforms/Sites

Here is a list of the best real estate crowdfunding platforms based on our criteria. This includes types of investments you can make, the success of the company and initial investment required.
RealtyShares: They have over 550 projects to choose from and have returned almost $60 million in principal to investors. ($5,000 minimum investment)
PeerStreet: PeerStreet.com focus on real estate crowdfunding loans. According to their website, the historical loan returns range from 6 percent to 12 percent. ($1,000 minimum investment.)
Crowdstreet: Crowdstreet focuses solely on commercial real estate crowdfunding and boasts an average return of 14 percent. The initial investment required is $10,000.
Fundrise: With fundrise you can invest into REITs. Members have invested over $3 billion through Fundrise. ($1,000m minimum investment)
Patchofland:This platform combines peer to peer lending with real estate. You invest in a loan being used for a project project, get up to 12% monthly distribution and then get your money back once the real estate project is complete. ($5,000 investment)
Ifunding: Ifunding allows you to invest in commercial real estate properties with as little as $5,000.
RealtyMogul: RealtyMogul allows investors to invest in commercial real estate. They’ve paid out over $55 million to investors and boast a $0 principal loss. ($5,000 minimum investment.)
RealCrowd: RealCrowd is a real estate crowdfunding platform that connects investors directly with the real estate professionals and companies. They do not act as the middle man like some other platforms do. ($5,000 minimum investment.)
Tops real estate crowdfunding platforms offer several different options for investors depending on what they are looking for. Your best bet is to first get clear on what type of real estate investment you’re interested in and then choose the appropriate platform.

​Final Thoughts about Real Estate Crowdfunding

Real estate crowdfunding is an exciting opportunity that combines crowd-sourced investing with one of the most solid investments throughout history. Thanks to the internet, crowdfunding sites have made it easier than ever for the Average Joe to invest in real estate even if they don’t have a lot of capital.

Now it's YOUR turn!

What is/are your favorite Real Estate Crowdfunding Platform/s?
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About the author

Levi

W2 employee in the hunt for #PassiveIncome ! I am covering my journey to create a Boost in my income through: A) Passive Income Online (#AffiliateMarketing, #EmailMarketing) B) Passive Income Offline (#RealEstateInvesting for positive cash flow).

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