Want to diversify into real estate, but don’t have $50,000 for a down payment on an investment property?
Consider real estate crowdfunding platforms, which let you invest with as little as a few dollars.
You also avoid the labor and expertise required to both find good deals on properties and manage them once bought. Real estate crowdfunding investments are truly passive, as opposed the headaches that landlords take on.
Before we dive deeper into the 17 most prominent real estate crowdfunding investments, here’s a “cheat sheet” table comparing eight of the best real estate crowdfunding platforms in 2023 — at least the ones that allow middle-class investors (not just wealthy accredited investors):
ConcreitFundriseGroundfloorArk7LoftyArrivedStreitwiseYieldstreet Min. Investment$1$10$10/loan ($1,000 minimum opening transfer)$20$50 $100$5,000 $10,000 Investment FormatPooled Fund of Loans, Fractional Ownership in RentalsPooled Funds & REITsSecured LoansFractional Ownership in RentalsFractional Ownership in RentalsFractional Ownership in RentalsREITPooled Fund Real Estate TypeHard Money Loans & Apartment BuildingsResidential & CommercialResidential (Short-Term Loans)Single-Family Rentals (Long-Term & Airbnb), MultifamilySingle-Family Rentals, Mixed-Use, CommercialSingle-Family Rentals (Long-Term & Airbnb), MultifamilyCommercial Office BuildingsReal Estate, Art, Debt, Vehicles, Legal Dividend Freq.WeeklyQuarterlyN/AMonthlyDailyQuarterlyQuarterlyQuarterly Dividend Yield Last Year5.5% (more with referrals)2.17%N/AAvg. ~5%Varies by property2.0-7.9% (long-term rentals), 3.6-5.2% (short-term rentals)7.8%8.0% Total Return Last Year5.5% (more with referrals)1.50%9.83%Avg. 11.35%Varies by property21.6% (incomplete for the year though)7.8%5.0% Hold Time w/o Penalty1 Year (but no principal penalty)5 Years2-18 Months3 MonthsNone5 Years5 Years3+ Months Built-In IRANoYesYesYesNoNoNoYes Year Launched20182012201320192018202120172014 Brian Invests PersonallyYesYesYesYesNot YetYesYesNot Yet Learn MoreConcreitFundriseGroundfloorArk7LoftyArrivedStreitwiseYieldstreet
What Are Real Estate Crowdfunding Investments?
Crowdfunded real estate platforms come in several broad categories. Before choosing platforms to invest with, make sure you understand the variations between and within real estate crowdfunding investments.
Crowdfunded REITs & Pooled Funds
A real estate investment trust or REIT is a fund that owns a pool of real estate-related investments. Other pooled funds work similarly, but don’t qualify as REITs under the Securities and Exchange Commission’s (SEC’s) rules. More on that distinction shortly.
Those pooled crowdfunding projects might include properties directly owned by the fund, known as an equity REIT. In contrast, a debt or mortgage REIT owns debts secured by real property.
Equity REITs tend to offer more long-term growth potential. After all, they own properties, and real estate usually appreciates in value over time.
Debt REITs tend to offer better cash flow, paid out to investors in the form of dividends. Both long-term growth and ongoing cash flow and dividends play a huge role in reaching financial independence and retiring early.
Some REITs combine both direct ownership and loan investment strategies for a bit of both, such as Fundrise.
You can buy and sell shares in publicly-traded REITs through your regular brokerage account. But private crowdfunded REITs work differently: you buy shares directly from the company. That makes share prices far less volatile, since they don’t trade in real time on stock exchanges. But it also makes them less liquid, and difficult to sell. If you want to sell within the first few years of buying shares, many real estate crowdfunding platforms buy them back at a discount from what you paid.
Note that not all pooled funds operate as REITs. Real estate investment trusts must pay out at least 90% of their profits each year in the form of dividends. While that sounds peachy on paper, it prevents them from growing their portfolio by reinvesting profits in new properties. That severely limits their growth potential.
Pooled funds that don’t get taxed as REITs fall under no such restrictions. That gives them more flexibility to reinvest profits and grow their funds’ portfolios, and therefore grow share values.
Fractional Ownership in Individual Properties
Instead of investing in a pooled fund that owns many properties, you can buy fractional ownership in a single property.
For example, Arrived, Ark7, and Lofty all offer this type of investing. For $20-100, you can buy shares in a single-family rental property. You collect rental income from that property in the form of distributions, and when the property sells, you get a piece of the profits proportional to your ownership share.
Some platforms even let you sell you shares at any time on a secondary market. More details below when we drill deeper into specific real estate crowdfunding platforms.
Individual Secured Loans
If you prioritize cash flow over long-term appreciation, look to earn interest from secured real estate loans over equity ownership.
Some crowdfunded real estate platforms instead operate as investment property lenders, offering loans to real estate investors. They raise the money for these loans from the public: you. You can review the available loans to fund, and pick and choose which ones you like. You decide how much you want to invest toward any given loan; sometimes as little as $10 (such as Groundfloor).
These loans tend to be short-term, fix-and-flip loans. Loans to buy fixer-uppers, renovate them, and then either sell as flips or refinance as rentals (the BRRRR strategy).
That makes them short-term investments — a rarity in the world of real estate investing.
Secured loans offer strong passive income, but no long-term appreciation potential. You own debt, not equity investments in any real estate assets.
Accredited vs. Retail Investors
Because of the way real estate crowdfunding is regulated by the SEC, many crowdfunding platforms don’t allow retail investors — mom-and-pop investors like you and me.
Instead, they can only accept money from accredited investors. These are wealthy investors who must meet one of two criteria to qualify:
- A net worth over $1 million (not including equity in their primary residence) or
- Annual income over $200,000 for each of the last two years, and the expectation that you will earn at least that much again this year ($300,000 for married couples filing jointly).
At the risk of getting preachy, the SEC basically says, “We don’t think anyone but the rich is sophisticated enough to invest in high-risk, high-return investments, so we’re not going to let them invest how they see fit.” Good thing we have paternal Uncle Sam telling us what we can and can’t do with our own money.
So, in any discussion of the best real estate crowdfunding investments, you have to divide them into two camps: those available to accredited investors only and those available to all the rest of us.