Real estate is one of the most popular investments to build long-term wealth, but not everyone wants the responsibilities of being a landlord.
The Jumpstart Our Business Startups (JOBS) Act, passed in 2012, opened up the possibility for real estate crowdfunding. Since that time, more than 100 different websites/companies have been formed for the purpose of allowing individuals to invest in real estate without the need to actually manage any property.
You can now reap the benefits of investing in real estate while doing it in a very passive way.
Aside from the responsibilities and headaches of owning property, one of the other major barriers that prevented many people from investing in real estate was capital. Crowdfunding has also made it possible for people to start investing in real estate on a small scale, breaking down this barrier.
Many of the most popular real estate crowdfunding platforms are available only to accredited investors, which means they are not relevant to the majority of the population.
To qualify as an accredited investor, you must meet one of the following criteria:
- Earned income of $200,000 for an individual (or $300,000 combined income if married) for the previous two calendar years, with a reasonable expectation for the same level of income in the current year.
- Net worth exceeding $1,000,000 (individually or combined with a spouse), excluding your primary residence.
If you don’t meet the qualifications to be considered an accredited investor, don’t worry. There are several real estate crowdfunding platforms for non-accredited investors, so you still have plenty of good options.
This article will highlight some of the best options. Although they all have options for non-accredited investors, the details vary greatly. The minimum investment is one important thing to watch. Also, each platform has its own approach or specialty. Some allow you to invest in residential rental properties and others focus on commercial properties.
→ Related reading: 21 of the Best Passive Income Ideas
Pros and Cons
Like any other type of investment, real estate crowdfunding has its pros and cons. Let’s take a look.
1. Low Minimum Investments
One of the most attractive things about real estate crowdfunding is that you can get started with just a small amount of money. The minimum investment will vary from one platform to the next, but some are as low as $5. Even the ones that are high ($10,000 for example) are significantly lower than the amount you would need to invest in real estate the traditional way, by purchasing property.
The low minimums make it possible for anyone to invest in real estate by removing one of the biggest barriers.
Because of the low minimums, you can spread your investments around to get great diversification. You can invest in several different properties through the same platform, or invest in multiple different platforms. Diversification, of course, helps to reduce your risk if one of the investments turns out to be a dud.
3. Options for Investors
You can choose to invest in different types of properties (residential, commercial) and different locations. You can also choose to invest in individual properties or eREITs or larger portfolios of properties.
4. Passive Investments
Possibly the most attractive aspect of real estate crowdfunding is the fact that it is completely passive. You won’t have the responsibilities typically associated with owning property, but you’re still able to get the benefits.
5. Vetted Investments
The platforms will perform their own due diligence and vet deals so only the best ones are available to investors. Of course, there is still risk involved and you should not invest blindly, but the platforms have a vested interest as well. Each platform wants to provide the best return for investors in order to keep investors coming back for more, so they will try to see that only good deals are being promoted to investors.
6. Invest in Any Location
You can choose to invest in properties throughout the United States. There is no need to limit your investments to your local area, which is usually the case if you are looking to buy property. You can spread your investments out to a lot of different locations and regions, for added diversity. You can also invest in particular regions, or avoid particular regions, based on what you think will turn out to be the best investment.
1. Lack of History
Real estate crowdfunding has only been around since 2012, and many of the platforms have only existed for a few years. While the overall returns have been good so far, there is just not much history. None of these platforms have had to survive turbulent times just yet.
2. Blind Investing
Although the deals are vetted by platforms, that doesn’t mean that they are safe. The ease and convenience of real estate crowdfunding can give you a false sense of security in blindly investing. The downside of opening up more options for real estate investing to people who have no experience investing in real estate means that they may not even know what to look for when they are evaluating the options.
3. Platform Risk
Many crowdfunding platforms have already gone under. RealtyShares is one of the more high-profile examples. The good news is that as an investor you are investing in the property, not the platform. In the case of RealtyShares, investors haven’t lost their investments. But there is some inconvenience that can come with the process if a platform goes under.
Before investing through any platform, you should check to see what would happen to your investment if the company goes out of business.
→ Related reading: 11 Ways to Invest in Real Estate
The Best Real Estate Crowdfunding Platforms for Non-Accredited Investors
Now, let’s take a look at some platforms that are options for non-accredited investors.
Fundrise was founded in 2012 and is often considered to be the best option for non-accredited investors. In terms of ease and convenience, Fundrise is a very enticing option. New investors will love the low minimum investment of $500.
When you invest with Fundrise, you’ll be investing in a portfolio of carefully chosen properties. For the minimum investment you’ll get the “starter portfolio”, which gives you an investment in a diversified portfolio of properties.
With an investment of at least $1,000, you can choose your preference of three different “core plans”: supplemental income, long-term growth, or balanced.
With historical returns between 8-12%, Fundrise can also offer performance in addition to ease and convenience.
When you invest with Fundrise, you will be investing in a collection of their eREITs and eFunds (eFunds are like eREITs, except the own residential properties). The portfolio that Fundrise selects for you will be based on the plan that you chose.
Highlights or Fundrise:
- Minimum investment of $500
- Easily invest in a diversified portfolio of eREITs and eFunds
- 1% fee per year
For disclosure, I am an investor with Fundrise.
Realty Mogul offers a few different options, including investments in individual properties and REITs. The individual properties are available only to accredited investors, so we’ll focus on the REITs, which are available to anyone.
The REITs available through Realty Mogul are public and non-traded. This means that they must meet SEC guidelines, but they are not traded on an exchange. The adherence to SEC requirements should make the investment less risky than a private REIT, but since they are not traded on an exchange, they lack the same level of liquidity of a publicly traded REIT.
Realty Mogul REITs invest in diverse commercial properties. They currently offer MogulREIT 1 and MogulREIT 2.
MogulREIT 1 invests in commercial property and provides monthly income to investors, with a minimum investment of $1,000. The goal is to provide passive income, and it has typically had about an 8% annual return.
MogulREIT 2 is focused on capital appreciation by investing in multi-family apartment buildings, with a minimum investment of $5,000. The goal here is capital appreciation. It has had about a 4.5% annual return, but could be significantly higher when the assets or the REIT are ultimately sold.
Highlights of Realty Mogul:
- Minimum investment of $1,000
- Easily invest in a diversified portfolio with your choice of two eREITs.
- 0.3 – 0.5% fees per year
Groundfloor is a lot different than Fundrise or Realty Mogul. If you have experience with peer-to-peer lending, Groundfloor will feel familiar to you.
At Groundfloor you can invest in individual projects, which are mostly single-family or multi-family home renovations. Whereas most other real estate crowdfunding platforms have a long-term approach, the projects at Groundfloor have only 6-12 month terms.
Another factor that sets Groundfloor apart is the extremely low minimum investment of just $10.
Groundfloor claims a historical return of over 10% annually, on average. You can select investments by grade, ranging from 5% – 25%.
Because of the extremely low minimum investment, you can invest in several different projects to get some diversification without needing to invest a ton of money.
The downside of small investments, investing in individual projects, and short terms is that you may need to spend more time looking at the available projects, as compared to investing in a REIT or eREIT with Fundrise or Realty Mogul.
Highlights of Groundfloor:
- Minimum investment of $10
- Invest in individual properties (single-family and multi-family homes)
- Short-term loans (6-12 months)
- $0 fees for investors
Like Groundfloor, Rich Uncles offers a very low minimum investment… just $5. But unlike Groundfloor, with Rich Uncles you will be investing in a REIT instead of individual projects.
Rich Unlces currently offers two different REITs, both designed to produce passive cash flow for investors. One REIT focuses on single-tenant office, industrial, and retail properties (estimated dividend of 7%). This REIT is only available to investors in certain states (CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, MO, NH, NV, NY, SC, SD, TX, UT, VA, VT, WI, WY).
The second REIT focuses on student housing and multi-family properties that serve universities throughout the U.S (estimated dividend of 6%). This REIT is available to residents in all 50 states.
Because you are investing in REITs, getting started with Rich Uncles is quick and easy. Just pick the REIT that you want, and you can start right away. As an investor, you’ll get monthly dividends.
Although you don’t need to be an accredited investor to invest with Rich Uncles, they do have some requirements. They require you to have a household income of $75,000 or higher or a net worth of $250,000 or more.
Highlights of Rich Uncles:
- Minimum investment of $5
- Invest in your choice of two REITs
- $0 fees for investors
American Homeowner Preservation (AHP) is a lot different than any of the other options listed above. AHP’s goal is to prevent foreclosures, and they do that by purchasing distressed mortgages (from lenders) at deep discounts, and then working with the homeowner to try to keep them in the home.
Another key difference is that your earnings as an investor are capped at 10% annually. Investors are paid first, and AHP has a good track record of hitting the target return for investors. Dividends are paid monthly.
The minimum investment is $100. Up until 2016, AHP was only available to accredited investors, but now it is available to anyone.
Highlights or AHP:
- Minimum investment of $100
- Invest in distressed mortgages
- Target returns of 10% annually (capped)
- $0 fees for investors
For disclosure, I am an investor with AHP.
REIT and eREIT
A Real Estate Investment Trust (REIT) may not exactly fall within the category of crowdfunding, but it serves a similar purpose. REITs allow people to invest in real estate without the need to maintain property, and with smaller amounts of money as compared to buying a property. When you buy a REIT you are investing in a portfolio of properties, and many REITs specialize in a particular type of real estate.
REITs have always been available to non-accredited investors and it’s one of the easiest ways to get started with investing in real estate. There are plenty of different places where you can invest in REITs. Several of the platforms mentioned above offer REITs or eREITs. You can also invest in REITs very easily through Vanguard.
Highlights of REITs:
- An easy way to get started with real estate investing
- Can be public (traded on an exchange) or private
- Public REITs offer more liquidity than other types of real estate investments
- Fees will vary
|Real Estate Crowdfunding for Non-Accredited Investors||Investment Type||Minimum Investment||Start Investing|
|Individual Projects||$10||Learn More|
Which Option is the Best?
Now that we’ve looked at several different options, it’s time to evaluate the possibilities and determine which is the best fit for you. There is a lot to like about any of these options, but they all come with some risk as well. Deciding which one is best is really a matter of personal opinion, as well as determining which is the best fit for your own situation and your goals and objectives.
Best for New Investors: Fundrise
Fundrise is my choice as the best option for new investors for a few reasons:
- Reasonable minimum investment of $500
- Invest in a portfolio of carefully chosen properties, without the need to pick properties for yourself
- Excellent user interface and reporting through the Fundrise website
- Solid historical returns
Last year I invested in Fundrise’s starter portfolio and quickly added more to get into one of their core plans (long-term growth). So far, I’ve had a good experience with Fundrise, but it’s too early to make any judgment on the returns.
Their core plans are a nice way of giving investors control over their objectives, while still keeping it easy and hands-off.
Best for Small Investments: Rich Uncles
You can get started with Rich Uncles for as little as $5. The minimum investment at Groundfloor is only $10, which is a very minor difference. What I like about Rich Uncles is the fact that you’re able to invest in their portfolio of properties and take advantage of their expertise. I think the approach of focusing on student housing is really interesting.
Best for Investing in Individual Properties: Groundfloor
Most of the options that we covered in this article allow you to invest in a portfolio of properties, but not individual properties. Accredited investors have far more options for investing in individual properties, but for non-accredited investors, you are pretty much limited to Groundfloor.
Groundfloor is an interesting platform, especially given the low minimum investment of just $10. I personally have no experience with Groundfloor, but I may invest in a few projects and see how it goes.
Real estate crowdfunding is an industry that is growing quickly and has a lot to offer to investors, both accredited and non-accredited. If you have an interest in investing in real estate, these options give you a great way to get started. Whatever platform you choose, be sure to perform your own due diligence before investing.