If you’re looking for an alternative investment option that can help to diversify your portfolio, these real estate crowdfunding platforms for non-accredited investors are great options.
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.
Pros and Cons of Real Estate Crowdfunding
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. Of course, real estate is one of the most popular alternative investments, and crowdfunding makes it possible for any investor.
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 (it’s one of the best passive income ideas). You won’t have the responsibilities typically associated with owning property, but you’re still able to get the benefits of an income-generating asset.
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.
7. Earn Dividends or Reinvest
While each platform is different, some of them (like Fundrise) will give you the option of receiving dividends in cash or reinvesting the dividends. This gives you some flexibility because you can reinvest the dividends when growth is your priority and then receive dividends in cash in retirement or if you are living off dividends.
8. Low Correlation to the Stock Market
As an alternative investment, the performance of real estate isn’t directly tied to the stock market. Of course, real estate can be impacted by significant changes in the stock market and vice versa, but it’s also possible to have a successful real estate investment while the stock market is stagnating or headed in the wrong direction.
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.
Important note: Please do your own research on any platform before investing and be sure that you understand and are comfortable with the associated risks.
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