Real estate crowdfunding is an extremely popular topic for investors who are not accredited. Here is my comprehensive guide to what you need know to start.
Real estate is a good investment, but it can be expensive. Many people are scared off by the initial capital required.
Real estate crowdfunding is a great way to get started.
I will cover all aspects of real estate crowdsourcing, including the pros and cons, advantages and disadvantages and platforms available for non-accredited real estate investors.
Let’s get started. You can also use the table to jump to your preferred interest.
Table of Contents
What is real estate crowdfunding?
The advantages and disadvantages of real estate crowdfunding
Benefits
Disadvantages
Investors who are accredited vs. non-accredited
Accredited Investor
Non-Accredited investor
Real Estate Crowdfunding Platforms for Non-Accredited Investors
Fundrise
Ground Floor
Crowdstreet
RealtyMogul
Cardone Capital
DiversyFund
Final Thoughts
What is real estate crowdfunding?
It is important to define real estate crowdfunding, even if you are familiar with the term.
First, crowdfunding is when you ask a large number of people to contribute a certain amount of money towards a project.
If you add real estate to that, it means that a developer or business is trying to raise money for a particular project.
It could be a project for a house, an apartment complex, a commercial building etc.
The online real estate crowdfunding marketplaces allow investors to pool money together and invest in properties they could not afford individually.
Before a few new laws were passed, the only way to invest in real estate was through REITs, buying rental properties directly or using private equity funds.
With crowdfunding, investors are able to diversify their portfolios quickly into different types of real estate assets in various locations and property assets.
Real Estate Crowdfunding
The advantages and disadvantages of real estate crowdfunding
Real estate crowdfunding has its own advantages and disadvantages. Your current financial situation, and your investment goals will determine whether you get involved.
You should be aware of some of the pros and cons before you make a decision.
Benefits
Here are some of the benefits that real estate crowdfunding can bring you. Here are a few of the most important ones.
With very little effort, real estate investments can generate a monthly passive income. It may start out small, but the potential is huge.
The results of these investments are not affected by the movements in stock and bond prices. REITs, and other stocks in real estate, follow the market trends. Investing in real estate does not always follow the stock exchange. It can happen, but it does not always.
Lower investment minimums. You can often invest as little as a couple hundred dollars in order to test the water. You can start investing in real estate with little money, depending on the platform you select.
You have more control over your investment decisions. Choose what you want to invest in, based on your goals, your research, an interest in regions, types or properties, etc. You only want to invest in apartment complexes and commercial properties on the West Coast? You can.
Stocks can offer higher returns than investment. It depends on several factors. However, it is not uncommon to get returns of 11-25% or more. Most real estate platforms are more conservative in their claims. You can expect to earn between 9-15%, which is not bad considering you have to put in a lot of work.
Tax breaks. Consult your accountant before investing in real estate crowdfunding, but you may be able to get certain tax breaks.
Disadvantages
There are many advantages to investing, but nothing is perfect. Here are some of the disadvantages that spring to mind when thinking about real estate crowdfunding.
Limitations in deal control: There are advantages and disadvantages to the control. You have to put a lot in the platform that you select for real estate crowdfunding. You can trust them to approve the deals and give investors a choice. Research the platform before you invest. Find out how it operates and what news there is about the company.
Stocks are more liquid: If you’re short on cash or worried about a bear-market, you can usually sell your stocks quickly. Real estate crowdfunding allows you to lock in your money for a specific period. Most platforms will allow you to return your money, but there is a charge. If you don’t think you will need the money within the next 3 to 5 years, then you shouldn’t consider real estate crowdfunding.
Note: In 2019, I will set aside 5% of my total savings for crowdfunding real estate. This is separate from the accounts that I use to save and invest.
Crowdfunding Platform Risk: RealtyShares is one of the most popular accredited real-estate platforms. Recently, they announced that new investments and loan applications would be stopped. Investors should be very scared. Your investments are protected, because you invested in the deals and not the platform. According to what I have read, the platform has maintained its operations so that those who are still invested will not lose their entire investment. Just be aware that there could be more risks and challenges with your money if you invest in a platform. Make sure to research what will happen to your money if the platform runs into problems or has to shut down unexpectedly.
Taxes: Although there are benefits, you need to be aware that you will have more tax forms to fill out if you choose real estate crowdfunding. You may not initially owe the IRS more, but you will also pay your accountant more. You can learn more about real estate crowdfunding here. I am not a tax expert.
Non-Accredited Investors vs. Accredited Investors
The Complete Guide for Real Estate Crowdfunding Non-Accredited investors
Accredited or non-accredited investors is a label that new investors should be aware of.
Online real estate platforms used to be primarily for accredited investors, but now there are more options for non-accredited buyers.
Accredited Investor
You are an accredited investor if you hold a special position under the financial regulations laws. You must meet the following requirements to be accredited:
You’ve earned $200,000 per year ($300,000 if you have a joint investor) in the past two years and expect to earn that amount or more in the future
Have a combined or individual net worth of over $1,000,000 (excluding the primary residence).
The SEC has created this rule to ensure that you can lose your investment if it is unregistered.
It’s basically a way to protect yourself from going bankrupt or ending up with massive debt.
Many investing platforms require proof of assets and income to create an account, even though the government does not.
It’s a bit strange that others have probably found loopholes to get around this.
Non-Accredited investor
If you’re like me, then you probably fall into the category of non-accredited investors. We all probably would love to be included in the category above, but time will tell.
This is the exact opposite of what was written above. Anyone with less than $1,000,000 in assets and earning under $200,000 is considered a non-accredited investor.
In their early days, many real estate crowdfunding platforms were only for accredited investors. The majority of us, particularly those who are interested in investing, were left with fewer options.
The government has opened up more options to non-accredited investor and the real estate crowdfunding platforms have expanded their reach beyond the top earners.
Real Estate Crowdfunding Platforms for Non-Accredited Investors
Above, we covered a lot of information but it was necessary to get you started. You still have some good options as a non accredited investor when it comes real estate crowdfunding.
Although I haven’t invested in any of these yet, I have created accounts for two (I will let you know the details in the description).
I plan to test one of these accounts in 2019, so I will be sure to write more about it in the future.
It is also worth mentioning that I have a few friends who invested in some of these platforms and have seen decent returns, with an average return of just over 10%.
Fundrise
Fundrise
Fundrise is probably the name most familiar to non-accredited investor on this list. This is one platform that I created an account on but haven’t invested yet.
The platform and its originators are among the oldest in this field.
You can choose to invest in real estate projects that meet your needs and goals. Each project is carefully selected and actively developed to increase your net worth.
Start with $500, and you will be charged a 0.85% asset management fee annually. You can find out more about the minor fees on their website.
You can choose between supplemental income, long-term growth, and balanced investing. Then, you will be able to select the managed properties that best match your chosen portfolio.
Individual deal crowdfunding is no longer available. I would like to see this return so that we can have more control over what properties to buy.
Sign up here to get started.
Ground Floor
Ground Floor
Groundfloor has gained more attention over the last couple of years and, not long ago had been opened up to investors from all states.
The loans are also short-term, only 6-12 months. On their website, they also claim that only 5% of the loans they screen are approved.
Groundfloor offers a variety of residential single-family properties, ranging in grade, that you can choose from.
Spend $10 on your first Groundfloor Investment when you sign up through my link.
Crowdstreet
Crowdstreet
Crowdstreet is a company I’ve heard of, but not as well-known as others. They focus primarily on commercial properties.
The majority of their investors are accredited, but there is an option for nonaccredited investors. The minimum investment for Fundrise and Groundfloor is $10,000.
RealtyMogul
RealtyMogul
RealtyMogul is another real estate crowdfunding platform which has gained in popularity. Non-accredited investor are welcome to invest in a mixture of loans, equity and other private placements.
The investments they have made are not in single-family houses, but rather multi-family, offices, industrial, retail, self-storage and other commercial properties.
It is a good option, even though the minimum investment of $1,000 can be steep.
The Complete Guide for Real Estate Crowdfunding Non-Accredited investors
Cardone Capital
Grant Cardone is a name you might recognize. He has gathered a large online following over the past few years.
He is a large real estate investor with a SEC-approved fund for investors. He used to only allow accredited investors in, but now non-accredited ones can also invest.
The minimum investment is $5,000. Grant’s real estate portfolio has been massive for the past year. (800 million dollars in assets before he started his crowdfunding campaign).
If you are financially comfortable and have the resources to do so, this might be worth checking out. If you don’t have the means to do so, then stick with some of these options first and lower minimums.
The Complete Guide for Real Estate Crowdfunding Non-Accredited investors
DiversyFund
DiversyFund offers the only online platform with no fees that allows investors to invest in commercial real estate funds. The minimum investment is $500.
The company focuses and chooses to achieve long-term capital growth from renovating and repositioning the multifamily properties they own.
DiversyFund, a real estate crowdfunding platform is relatively new in the market. However, their team has many years of experience.
Here you can find out more about the fund and start in just a few moments.
Final Thoughts
Real estate crowdfunding is gaining in popularity for accredited and non-accredited investors. Many of these platforms have only been around for a few short years and regulations are likely to change.
If you want to invest in real estate to diversify and grow your portfolio and have money you are willing to risk, then real estate crowdfunding is for you.
Do your due diligence and research before using any of these platforms.
You can read reviews and news articles to learn more about the products, their features, how they operate, or what others have said about them.
Start small to see if it works for you.
