Although it’s a relatively new concept, real estate crowdfunding has become quite popular. It allows a large number of investors to pool together their money and invest in real estate properties they may not be able to afford on their own.
Here’s an example of how it may work: Real estate developers want to buy a run-down apartment complex so they can renovate it and later sell it. They need to raise money from investors so they use a crowdfunding platform to do so. Anyone who invests in his deal will share in the profits.
If you’d like to participate in the growing crowdfunding industry, there are many crowdfunding sites at your disposal. You can use these platforms to invest a small amount, sometimes as little as a few hundred dollars and earn money as your investments increase in value or turn a profit. If you’d rather use a traditional bank loan, Nav’s Business Loan Builder can help you get ready.
Intrigued? Check out our picks for the best real estate crowdfunding platforms in 2022.
ArborCrowd is backed by the Arbor Family of Companies that includes Arbor Realty Trust, Arbor Commercial Mortgage and AMAC. It’s the first platform launched by a real estate institution and specializes in funding multi-family units, apartments, and mixed-use buildings. If you use ArborCrowd for real estate crowdfunding, you can expect a strict screening processes that weeds out risky investments and will have to deposit a minimum of $25,000.
RealCrowd differs from other real estate crowdfunding platforms because it doesn’t originate its own short-term loans. Instead, it acts as a middle man and connects real estate companies or “sponsors” to investors. To use RealCrowd, you must meet the criteria necessary to become one of its accredited investors by earning at least $200,000 per year or having over $1 million in assets.
Based in Atlanta, Groundfloor strives to provide investment opportunities for low-income earners. It focuses on lending for single-family or small multi-family home rehab and renovation loans. With as little as $10, you can enjoy short-term, high yield returns. Groundfloor secures all of their investments with physical real estate.
CrowdStreet is a Portland based real estate crowdfunding platform that invests in commercial real estate. Before any deal is made available to investors, it must pass a rigorous 26-point review process. This ensures that the platform only contains high quality investments. Each CrowdStreet deal has a required minimum investment that ranges from $10,000 to $50,000.
PeerStreet serves as a marketplace that gives accredited investors the chance to participate in crowdfunding for real estate loans. The platform partners with loan originators who evaluate loan applications before they add them to their marketplace. You can invest in PeerStreet with a minimum deposit of $1,000. All you have to do is input your investment settings and the platform will connect you to loan investment opportunities.
Known as a “socially responsible investment platform,” Small Change features residential and commercial real estate crowdfunding projects based on change metrics like mobility, sustainability, and economic vitality. Although minimum investment amounts depend on project types, there are no joining fees to use Small Change. You can invest in Regulation Crowdfunding projects on the platform without being an accredited investor.
GroundBreakers is an investment management software designed to automate real estate fundraising. It offers a clean design and a variety of useful features including fundraising automation, a 24/7 investor portal, a CRM for accounting, investor relations, and legal teams, and more.
Realty Mogul can give you the chance to browse cash-flowing equity investments and real estate loans and invest with only $1,000. If you do decide to invest, you’ll have to pay a fee, which will depend on the investment type and transaction details. The platform has a team of real estate professionals who vet and approve all investments before making them available.
Since 2012, Fundrise has offered eREITs (real estate investment trusts that focus on private commercial real estate) and eFunds (portfolios of single-family housing rentals or developments in areas with housing shortages. You can start investing on Fundrise with as little as $500 and make money through quarterly dividends or changes in property values.
Benefits of Real Estate Crowdfunding
There are a number of benefits you can enjoy if you participate in crowdfunding for real estate. First and foremost, you can invest in real estate properties that you wouldn’t be able to otherwise. For instance, you not have the financial resources to invest in a large apartment complex or the headquarters of a large corporation on your own. But, with real estate crowdfunding, you can earn some money though them and increase your net worth. It’s a great alternative to buying a rental property with no money down or flipping a house with no money.
Also, real estate crowdfunding can alleviate the headaches that often come with investing in real estate properties. For instance, if you rent out a house, tenant problems and maintenance issues are your responsibility. By using a real crowdfunding platform, all you do is invest your money and allow the sponsor to take care of these hassles.
In addition, real estate crowdfunding is a great form of passive income. After putting in some upfront effort, you can eventually sit back and make money through crowdfunding platforms without any more significant work.
Word of Caution: Risks Associated with Crowdfunding
When it comes to drawbacks of real estate crowdfunding, the most significant one is that you’ll be investing in real estate deals that are not liquid. This means, you won’t be able to quickly sell your investments if you need the cash.
In addition, it can take quite some time to earn income from your investments so this may not be a good option if you’re looking for a fast way to make some money.
Is Real Estate Crowdfunding a Good Investment?
Although everyone has a unique financial situation, real estate crowdfunding can be a good investment for some people. If you’d like to invest in small amounts of money and enjoy the potential for exciting returns, crowdfunding projects are definitely worth exploring.