What is Real Estate Crowdfunding?
Real estate crowdfunding is a type of investing which involves taking small investments from a very large group of people to fund large-scale real estate investments. Typically, the funds are pooled into a portfolio of property investments, to stabilize the investment. Each of the investors gains a stake in the portfolio based on their portion of the investment. Stakeholders receive either interest on their investment or their portion of the rental payments on the properties.
While real estate is a relatively stable investment (especially in the case of a portfolio of a variety of real estate), it is important to remember that every investment has some risks, even if many sites won’t put those risks in the foreground. There are a lot of different real estate crowdfunding websites, which offer services to different people and operate in different ways. We’re here to clarify those differences and help you find the best site for your needs.
What’s in this Article:
- Types of Investors
- What it Takes to Qualify as an Accredited Investor
- What to do if You are a Non-Accredited Investor
- Best Accredited Real Estate Crowdfunding Sites
- Best Non-Accredited Real Estate Crowdfunding Sites
Types of Investors
There are two (2) types of investors recognized by the Securities and Exchange Commission (SEC): accredited investors, and non-accredited investors. Some sites only accept accredited investors, while other sites accept both. Non-accredited investors have only been allowed to invest in any crowdfunding websites since May of 2016. Typically, if you are an accredited investor, then you will get a better return on your investment if you use a site which is only available to accredited investors.
What it Takes to Qualify as an Accredited Investor
Being an accredited investor opens you up to a wider variety of options. You can be an accredited investor if any one of these three things is true for you:
- You make more than $200,000 a year in reported income (or $300,000 between you and your spouse)
- You have a net worth (with or without a spouse) of over $1,000,000 not including the value of your primary residence.
- You are a general partner, executive officer, or director for issued non-regulated securities.
Some advisors suggest that most people who qualify as accredited investors should use their financial means to invest in more flexible or higher growth investments. While it is certainly worth considering other investments, real estate crowdfunding can still be useful investments for making small investments if you have relatively limited liquidity.
What to do if You are a Non-Accredited Investor
If none of the three qualities which could qualify you as an accredited investor apply to you, then you are a non-accredited investor. As a non-accredited investor, you have access to fewer real estate crowdfunding sites. While these options are typically not as beneficial as the sites that are only available to the accredited investor, many of these sites are still quite stable investments. In some ways, it makes more sense for a non-accredited investor to invest in crowdfunded real estate investments, as they have fewer outside options to invest in a real estate portfolio.
Best Accredited Real Estate Crowdfunding Sites
- Prodigy Network A real estate investment company which focuses its investments in New York City. It has a pretty substantial portfolio there so it should be stable. However, the minimum investments are higher than most crowdfunding sites, at $25,000.
- RealtyShares While the fees are slightly higher than average for this investor, it makes up for it by having one of the most stable portfolios and one of the lowest investment minimums ($1000-$5000).
- Peer Street Peer Street stands out for its transparency, it shares information about all of its past investments and only 1% has defaulted. It also offers very low investment minimums ($1000).
- Fund That Flip Is more on the high risk high reward end of crowdfunded real estate investment. It invests primarily in homes which are renovated and then flipped. Your chances of substantial growth are higher here, but so are your chances of losing money.
Best Non-Accredited Real Estate Crowdfunding Sites
- Fundrise One the few sites for non-accredited investors that offer bankruptcy protection. Fundrise also the site has one of lowest investment minimums ($500).
- Realty Mogul One of the older crowdsourced investors still in operation, Realty Mogul has a proven track record of being a solid investment option.
- Rich Uncles Rich Uncles really takes micro investing to its limits by offering no-fee investments with minimums as low as $5.
- American Homeowner Preservation A socially conscious investment, AHP provides low cost loans to help Americans keep their homes.