Historically, investing in real estate has been reserved for large institutional investors. Being that it is quite expensive to invest in real estate, many of the “little guys” are left out of this maket. A few years ago real estate crowdfunding changed all of that.
In 2013 it became legal for real estate investing to occur through crowd funding. With more people able to participate in the investment, the cost is lowered for everyone. Where before an investment might take millions, each person can invest a few thousand. This money is pooled together by the crowd funding platforms into multi-million-dollar investment properties.
There is still risk that the property might flop, however it is substantially mitigated in comparison to being a sole investor. This is because the investment is smaller and investors can now spread money across multiple properties. If one fails, it’s not as big of a deal because there is a smaller amount invested and there are other properties to make up for the loss.
Today, real estate crowdfunding continues to be a growing industry, worth an estimated $3.5 billion. Every day there are more real estate crowdfunding platforms put online but there have been a few over the years that have risen to the top.
Fundrise was founded in 2012 and raises capital for individuals, institutions and family offices. Average investments on their site come in at $5,000 although the minimum investment required is $1,000. Rates of return fluctuate between 10% and 16% each year. A further breakdown of Fundrise can be found here.
Another popular platform is RealtyShares. RealtyShares asks for a $1,000 minimum investment at first and $5,000 for deals thereafter. A key difference between Fundrise and RealtyShares, RealtyShares key investment market is single family flip homes. This is a riskier market than the multi-billion dollar properties Fundrise handles. However, it is not necessarily fair to compare the two, as RealtyShares is a smaller player in the crowd funding market than Fundrise. Also, RealtyShares is only available to investors with a net worth of $1 million or income of $200,000 a year.
Another site available for crowd fund investing is Peer Street. This site has some of the lowest minimums, $1,000 in some cases. Compared to other sites, they do a great job of being transparent with their information. One potential downside to Peer Street is higher fees than other competitors. This is due to their dual fee structure, but their high level of performance might make up for that additional cost. They have a substantial investment volume, which is another plus for investors.
Crowd funding for real estate investment is still a young concept. With only a few years of experience behind them, a lot of the current leading platforms still have room to grow. One thing is for certain though, property investments are continuing to outperform stocks. If you are looking for a way into this market without a lot of capital, crowd funding may be the way to go.
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