Investing in Real Estate
It’s time to diversify your portfolio. Many companies occupy the real estate crowdfunding space. The passage of the 2012 Jobs Act opened the door for companies to raise capital via online funding portals and crowdfunding. Title III of the JOBS Act became known as the “CROWDFUND Act” because it empowered companies to raise capital using alternative methods.
Crowdfunding is a perfect match for real estate investors. After all, who can afford a $5 million hotel without pooling together funds from several wealthy friends?
Although some platforms still only offer investments that require you to be an “accredited investor” many have options for all investors. You must meet at least one of the following criteria to be considered accredited.
1. Over $200,000 average annual earnings over the past 2 years ($300,000 for joint)
2. Over $1 Million in net worth excluding your primary home
3. Some businesses or institutions can invest as accredited under certain guidelines.
4. As of August 26, 2020, the SEC has opened up the accredited status to some financial professionals with defined experience and certifications.
An interesting distinction shows that trading platforms that are open to all investors operate primarily via an app and companies for accredited investors do not have an app.
Visit TechBullion for another real estate crowdfunding review.
3 Platform Overviews Open to All Investors
DiversyFund (99 reviews on Apple App Store)
1. Founded in 2012, HQ in San Diego, CA
2. Limited info on the website
3. Anyone can invest with low minimums
Fundrise (22k reviews on Apple App Store)
1. Founded in 2012, HQ in Washington, DC,
2. 5 account levels from Starter to Premium with Minimum investments from $10, $1,000, $5,000, $10,000, and $100,000
3. Annual fees: 1% (0.15% advisory + 0.85% managing)
4. A mix of REIT (ETFs) and actual real estate are included in their funds
5. Some of their funds do not hold real estate properties but only equities
Landa (2.3k reviews on Apple App Store)
1. The website is landa.app (not .com)
2. The actual Broker is Dalmore (dalmorefg.com) which backs many fractional share issuers of alternative investments
3. Landa is unique in that they are selling shares of an LLC that holds property with 10,000 shares.
4. Low Min of $5-10 per share
5. Open to all investors – all transactions are done on their app
4 Platform Overviews for Accredited Investors Only
AcreTrader (not in the Apple App Store)
1. Focused on farmland
2. HQ is in Fayetteville, AR
3. AcreTrader is not a registered broker-dealer
4. Only open to accredited investors
5. Min is usually $15k-$50K
CrowdStreet (not in the Apple App Store)
1. Founded in 2014 HQ is in Austin, TX with a Portland, OR office and many remote workers
2. Only Accredited Investors
3. A “Marketplace” for commercial real estate investors and sponsors
4. $25,000 minimum investment on most deals
5. 3-5 year holding period – illiquid
6. A lot of high-quality information on their website
EquityMultiple (not in the Apple App Store)
- Founded in 2015
2. Most deals require $10,000-$25,000 minimum and accredited investor
3. The $5,000 minimum is for their short-term diversified notes – as a savings alternative.
4. Direct investing options and diversified fund investing
5. Mixed fees, holding periods, and distributions depending on the actual deal
RealtyMogul (not in the Apple App Store)
1. HQ in Los Angeles, CA
2. Offers public, non-traded REITS $5k min, REITS can be held in retirement accounts
3. Qualified Accredited Investors may invest in properties with a min of $25k to $50k with longer holding periods of 3 to 7 years.
Platform Takeaways
Accredited Investors Only
The four companies that require you to be an accredited investor are also the most sophisticated and they appear to be professional. They have various fee structures and account options. Most of them allow you to invest within a self-directed IRA.
When you invest $10k to $50k with these companies you are investing in tangible real estate properties. Your returns will be linked to the success of the property. If the property maintains a high rent paying, stable tenant, then your distributions should be regular and decent. If your property faces issues you risk not seeing distributions (dividends).
The investments are considered illiquid. The holding period appears to be two to five years but varies greatly. Distributions are not guaranteed but most attempt to payout quarterly, monthly or yearly. These investments can offer a great return following the sale of the property after the holding period. However, it is tough to predict what kind of return a property will produce. Returns seem to range from 4% to 18+%.
EquityMultiple appears to be the most user-friendly and informative. Their website provides a lot of resources and they offer a wide variety of accounts and investments. EquityMultiple also offers diverse funds that are a mix of equities and property investments.
Platforms Open to All Investors
The three platforms that do not have the accredited investor requirement vary greatly. Landa has a “RobinHood” feel to it. They are trying to make real estate investing available to anyone and most of their business takes place on their app. Landa buys single-family homes and divides the cost into 10,000 shares. If you buy 5,000 shares you “own” half of the property. There is a low risk in trying Landa because you can start with as little as $10 in some cases. Landa aims to have liquid shares available for many properties.
With over 22,000 reviews in the Apple App store, it appears that Fundrise is by far the most popular real estate investing app currently available. Fundrise does offer a diverse selection of properties and a mixture of real estate equities as well. Fundrise does recommend that investors have a long-term strategy. They do have options to sell early – with added costs.
After reading several of the reviews on Apple for Fundrise it seems like investors should start with an amount of money that they don’t need for 5+ years.
Investing in real estate is not as “gamified” as Robin Hood has made stocks. When you send money to these companies they are buying real estate and managing real estate. This process can take some time. Please use caution when you invest and never send money that you can’t live without. Click here for more real estate crowdfunding reviews.
