In an era of low interest rates and underwhelming bond returns, many investors are looking elsewhere to diversify their portfolios beyond the roller coaster of stocks.
Real estate offers plenty to like as an alternative to bonds. It can make a great source of passive income and requires no sale of underlying assets to produce that income. Rents rise alongside inflation, providing a built-in hedge against it. Real estate markets move largely independently of stock markets, helping to reduce risk in your portfolio. And of course, your investment remains secured against a real asset: property.
Today, investors can choose among seemingly endless options to invest in real estate indirectly without having to wrangle financing, manage unruly tenants, or take title to the property themselves. Historically, most investors only had access to publicly traded real estate investment trusts (REITs) or mortgage REITs if they wanted to diversify their portfolio with real estate. But starting around 2010, real estate crowdfunding companies created a new way to invest in real estate.
How Does Real Estate Crowdfunding Work?
At its core, real estate crowdfunding offers two distinct types of investments: owned property equity and debt secured against real estate. In the former, the crowdfunding company buys properties and raises funding from investors like you. The latter involves the crowdfunding company making loans to other investors, again funded by you.
Neither is inherently better or worse, safer or riskier. Debt crowdfunding tends to pay out higher incomes in the form of distributions, while equity crowdfunding tends toward longer-term investments.
That raises a related point about how crowdfunding companies pay out returns. As with stocks, crowdfunding returns could come from recurring distributions or dividends (usually monthly or quarterly) or the proceeds from selling your shares.
Alternatively, if you fund specific loans, you might get paid out when those loans mature. Some crowdfunding websites let you pick individual property loans to put money toward as a short-term renovation loan. When the borrower finishes flipping the house, they pay back the loan, and you get your money back plus interest.
Availability for Nonaccredited Investors
Not all crowdfunding websites accept money from nonaccredited investors. If you don’t know what an accredited investor is, you probably aren’t one. Accredited investors must meet specific wealth minimums.
To qualify as an accredited investor, you must have a net worth of at least $1 million, not including equity in your home. You can alternatively qualify if you have at least $200,000 of income as a single filer or $300,000 of income as a married couple filing jointly for the last two years plus a reasonable expectation of matching that income this year.
Why the distinction? The Securities and Exchange Commission (SEC) places rigorous consumer protections on publicly available investments, which prove more trouble than they’re worth for many private equity investments. To stay lean and profitable, many firms that offer them don’t make them available to the public at large.
Instead, they offer them exclusively to wealthy accredited investors, who can opt to forego the standard consumer protections and participate in less regulated private investments. As a middle-class investor, you don’t get that choice. The SEC takes the stance that the middle classes need protection against potential mistakes and doesn’t allow them to waive those protections.
Best Crowdfunding Investments Available to Nonaccredited Investors
The SEC does offer a middle-ground option for crowdfunding companies — one with less regulation than it puts on publicly traded REITs but more than it allows private investments only open to accredited investors. That means some crowdfunding websites do jump through the extra hoops to enable participation by everyday investors, not just the wealthy.
If you don’t qualify as an accredited investor, you can still participate with many of the best real estate crowdfunding websites operating today. And many of them have a low minimum investment.
Fundrise
Founded in 2010, Fundrise is the oldest and most established modern real estate crowdfunding platform, having funded around $4.9 billion in investments to date.
- Minimum Investment: $500
- Investment Type: Equity and debt
- Payout Type: Quarterly dividends and share appreciation
Fundrise offers several options for investing. Its starter plan allows you to invest with as little as $500 and spreads your investment among a wide range of real estate properties and loans. If you invest at least $1,000, you can choose from its advanced plans, including a supplemental income plan, balanced portfolio plan, and long-term growth plan.
The supplemental income plan pays out the highest dividend income but lower total returns. It pays 3.1% to 3.4% in annual dividend income and earns an average historical growth return of 5.6% to 6.9% for a total annual return of 8.7% to 10.3%. The fund comprises 65% real estate-secured debt and 35% real estate equity spread over 28 active projects.
The balanced portfolio plan pays 2.5% to 2.8% in dividends and earns an average of 6.2% to 7.5% in appreciation growth for a total return of 8.8% to 10.3%. It currently includes 40 active projects made up of 54% debt and 46% property equity.
The long-term growth plan features more real estate equity, at 53%. As a result, it pays less in dividends (1.5% to 1.7%) and historically returns more in share appreciation (7.6% to 8.5%).
As for how investors cash out that appreciation, they have two options. First, they can wait for Fundrise to sell individual properties and pay out distributions on the proceeds. Second, Fundrise allows shareholders to sell their shares each quarter, although it imposes a fee for investors who have held their shares for less than five years. After an initial 90-day money-back guarantee, investors who sell in under three years pay a penalty of 3%. Investors who sell after three to four years of ownership pay a 2% penalty, and those who have owned shares for four to five years pay a 1% penalty.
Ultimately, Fundrise offers a long-term investment. Investors can see strong returns, but they shouldn’t expect fast liquidity.
One final perk worth noting about Fundrise is its transparent fee structure. It charges a 1% management fee and nothing else. That makes it a breath of fresh air in an industry that so often feels opaque and vague.
RealtyMogul
Another “ancient” company by crowdfunding standards, RealtyMogul launched in 2013.
- Minimum Investment: $5,000
- Investment Type: Equity and debt, or equity alone
- Payout Type: Monthly or quarterly dividends and share appreciation
The minimum investment is quite high compared to other companies that allow nonaccredited investors. But it offers two investment options for these investors.
The first is its MogulREIT I, which focuses more on income with a 7.7% average annual distribution. It pays that income monthly in the form of dividends and has a total asset value of $272 million spread over 15 different investments (a blend of equity and debt). Shares also rise in value over time.
RealtyMogul also offers a more growth-oriented option in its MogulREIT II. It pays quarterly rather than monthly dividends at an annual rate of 4.5%. Over time, the share prices rise, and RealtyMogul pays out large distributions when it sells properties. While a smaller portfolio with seven investments totaling $128 million, it comprises all equity and no debt.
Like Fundrise’s investments, the shares of RealtyMogul’s REITs are long-term investments with little liquidity. Investors cannot sell at all in the first 12 months of ownership, and in the following year, they can sell with a 2% penalty. In the third year, RealtyMogul levies a 1% penalty, and after three years, you can sell for market pricing.
RealtyMogul charges a 1.25% annual management fee plus up to 2% on the sale of properties in its portfolio. It also charges a slightly murky fee of up to 3% for “Organization, Offering and Other Operating Expenses including, but not limited to, actually incurred third-party legal, accounting, and marketing expenses.”
Accredited investors have additional options with RealtyMogul, including private placements invested in individual properties for potentially higher returns.
GroundFloor
Another company dating to 2013, there’s a lot to like about GroundFloor, starting with its minimum investment of only $10.
- Minimum Investment: $10
- Investment Type: Debt
- Payout Type: Monthly or end-of-loan interest and repayment
Unlike many crowdfunding companies, GroundFloor lets you pick and choose individual property loans. It serves as a lender, working with real estate investors who need short-term purchase-rehab loans to fix and flip properties. GroundFloor assigns a risk grade to each loan and prices it accordingly.
The higher the risk, the higher the interest, with loans paying between 6% and 15%. You pick the loans you’re comfortable with and then invest as much or as little as you like in each.
GroundFloor only issues short-term loans, most for a year or less. While some borrowers opt to make monthly payments (which in turn go to you), most opt to pay their loan in full when they sell or refinance the property after completing renovations. So, if you invest $1,000 toward a 9% loan, then you get $1,090 back when the borrower pays back the loan (typically in six to 12 months).
That means that while GroundFloor is not liquid, it’s a much shorter-term commitment than many crowdfunding REITs.
I’ve invested money with GroundFloor. The overwhelming majority of loans repay in full and on time, and of those that don’t, GroundFloor recovers investors’ money on the majority of those too.
The loans are secured against real estate, after all, and GroundFloor is careful with its loan-to-value ratios.
Diversyfund
A relative newcomer launched in 2016, Diversyfund does one thing and does it well: growth.
- Minimum Investment: $500
- Investment Type: Equity
- Payout Type: Upon the sale of the properties (five-plus-year time horizon)
The crowdfunding company directly invests in properties in its private REIT, with no debt investments. Rather than paying out dividends, it invests all proceeds back into growing its portfolio, which consists mostly of apartment buildings. Contrast that model against publicly traded REITs, which must by law pay out at least 90% of their profits to investors in the form of dividends. That makes it extremely challenging for them to grow.
With such a growth-oriented strategy, Diversyfund makes the ultimate illiquid long-term investment. Expect to leave your money invested for a bare minimum of five years. For that faith, investors get rewarded with exceptional returns. Diversyfund has posted an 18% return since its inception, and current return forecasts range between 15% and 21% annually.
Investors can participate with as little as $500, making it among the more affordable platforms for nonaccredited investors. Just make sure you don’t invest any money you might need in the foreseeable future — investors only get their money back when Diversyfund sells properties in its portfolio.
See our review of Diversyfund for more information.
Streitwise
With its consistently strong dividend, Streitwise has quickly made a name for itself, despite only having opened its doors in 2017.
Minimum Investment: $1,000
Investment Type: Equity
Payout Type: Quarterly dividend plus appreciation of shares
Real estate investment firm Streitwise has paid an impressive 10% annual dividend every quarter since its fund’s inception in 2017. As if that weren’t a tempting enough return, investors can also earn money through share appreciation.
The company’s single fund is called 1st Streit Office, and as the name suggests, it comprises commercial real estate. Specifically, Streitwise looks for office and mixed-use buildings in “non-gateway markets.” That means secondary cities that do not serve as major points of entry into the United States. These markets tend to offer lower-cost, higher-return real estate, forming some of the best cities in the U.S. for real estate investing.
The fund invests directly in real estate, with no debt investments. As such, it makes for another long-term investment. Investors cannot cash out in the first year, and in the second through fifth years of share ownership, investors pay a gradually decreasing penalty ranging from 10% in the second year to 2.5% in the fifth. After five years, investors can sell their shares for their market value.
Again, don’t invest any money you might need within the next five years!
Unfortunately, Streitwise does impose some daunting fees. When you first purchase, Streitwise charges 3% upfront, plus a 2% ongoing management fee.
Rich Uncles
Aside from having the most original name in the industry, Rich Uncles distinguishes itself with its low minimum investment for its StudentREIT.
Minimum Investment: $5
Investment Type: Equity
Payout Type: Quarterly dividend plus appreciation of shares
As you might have guessed, the fund invests in student housing — specifically, student housing with at least 90% occupancy rates and at least 150 beds.
Rich Uncles also offers a second commercial real estate fund called the National REIT. It requires a higher minimum investment of $500 and invests in industrial, retail, and commercial buildings.
Like many of the other private REITs on this list, Rich Uncles charges a graduating fee if you sell early. But unlike its competitors, Rich Uncles only charges for share sales in the first three years of ownership. Investors who sell within the first year of ownership pay 3%, those who sell in the second year pay 2%, and those sell in the third year pay a 1% fee.
Rich Uncles also features a unique management fee structure. It pays out the first 6.5% of returns each year to investors, then from there, it takes 40% of any profits exceeding that first 6.5% return on investment. Besides being refreshingly transparent, it keeps the company’s interests aligned with those of investors.
Best Crowdfunding Investments Available to Accredited Investors
Less than 10% of U.S. households qualify as accredited investors. Yet the majority of real estate crowdfunding companies still exclusively allow accredited investors to participate because the regulatory burden is so much higher to open crowdfunding investments to everyone.
The minority of investors who qualify can consider the following crowdfunding investments in addition to the options above — and potentially see even higher returns based on the greater flexibility.
EquityMultiple
Online real estate investing firm EquityMultiple comes with a significant advantage. It’s backed by Mission Capital, an established real estate equity and debt investment firm. Founded in 2002, Mission Capital brings many decades of combined experience to the table.
- Minimum Investment: $10,000
- Investment Type: Equity or debt
- Payout Type: Varies, with options for both ongoing income and profit payout upon sale
It offers three types of investments to accredited investors, each with a minimum investment of $10,000.
- Equity. You invest money directly into ownership of a commercial property. Structured as a syndication, you passively invest money in a large real estate deal and get fractional ownership of that property. As an owner, you have unlimited upside potential, but you earn money based on the company’s profits. That means you get paid last, after lenders and preferred equity investors. The typical ownership period is between two and five years.
- Preferred Equity. Preferred equity owners get paid before equity shareholders. But what they gain in extra security, they lose in profit potential. They earn a fixed monthly or quarterly distribution, plus a capped portion of upside profits upon sale. The typical ownership period is slightly shorter, at one to three years.
- Syndicated Debt. In this instance, you lend money to a specific property project. You have no ownership or upside potential, but you do earn regular interest payments — assuming the borrower makes their payments as promised. EquityMultiple’s loans are short-term, from six to 24 months, and aim for APR of 7% to 12%.
Equity investors pay an annual asset management fee of 0.5% to 1%, plus EquityMultiple collects the first 10% of profits upon selling properties. Preferred equity and syndicated debt deals are structured differently, depending on the investment, so research each investment option carefully.
Sharestates
Real estate crowdfunding company Sharestates serves primarily as a lender to real estate developers. It vets the deals carefully, funds them with its own capital, then recoups that capital by raising money from investors like you.
- Minimum Investment: $5,000
- Investment Type: Debt
- Payout Type: Monthly income
You get to pick the loans you want to fund, and the returns on the loans vary by risk. It works similarly to GroundFloor, although the projects tend to be larger, with many large commercial buildings in the mix.
Sharestates has funded $2.37 billion to date, with an average return of 10.19% for its investors. It claims a 0% investor loss rate — meaning no investors have lost money on their principal investment.
With a minimum investment of $5,000 for U.S. residents and $10,000 for overseas investors, the buy-in isn’t trivial but remains in line with many crowdfunding companies that service accredited investors.
Beyond offering an inherently short-term investment (typically six- to 24-month loans), Sharestates allows investors to sell out their loan shares early — with a penalty, of course. Investors can recover 94% of their investment in the first 90 days, 95% in the next 90 days, and 96% in the following 90 days.
Still, that makes Sharestates a more flexible crowdfunding investment than most.
RealCrowd
Founded in 2013, RealCrowd brings a unique business model to the real estate crowdfunding space.
Minimum Investment: $5,000
Investment Type: Equity
Payout Type: Varies
In a departure from the common crowdfunding business model, RealCrowd does not charge investors any fees. Period.
Instead, it serves as a marketplace platform, connecting commercial real estate syndicators (also known as sponsors) with accredited investors. The syndicator who puts the deal together pays RealCrowd a fee to be listed on its platform.
Unfortunately, that means RealCrowd ultimately serves the syndicator, who pays its fees. While it does some basic vetting of syndicators, it doesn’t participate in the deals, which means you take on complete responsibility for screening individual deals.
You invest in fractional ownership of the property, and as an equity holder, you benefit from appreciation and may receive regular distributions. Most syndication deals involve a commitment of at least three to five years.
While the platform lets you browse a wide range of real estate syndications, it comes with little in the way of protections. It works best for experienced commercial real estate investors who know how to review syndication deals.
AcreTrader
In a unique twist, AcreTrader allows you to invest in working farms.
- Minimum Investment: Varies, typically $5,000 to $15,000
- Investment Type: Equity
- Payout Type: Both ongoing dividends and profits upon sale
AcreTrader buys farmland parcels under distinct legal entities. It manages the farms, overseeing all operations. You purchase shares of the legal entities that own individual farms, usually earning annual dividends. You can sell your shares through the online marketplace, although they’re designed as long-term real estate investments and do come with a “terminal date,” at which point the farm is scheduled to be sold and the investors paid out (usually three to five years from the date of purchase).
As you browse individual farm projects, AcreTrader provides information about both the annual yield and appreciation estimates. It also lists all relevant details about the farm, from its purchase price to primary crops to location and financials. Each property receives a rating based on its risk level.
Shares work slightly differently with AcreTrader. It splits up shares based on acreage, with each share representing one-tenth of an acre. Thus, the minimum investment varies from property to property.
AlphaFlow
Real estate investment manager AlphaFlow offers another more unique crowdfunded lending model. Rather than you picking and choosing properties to lend against, it chooses investments for you based on your goals, age, risk tolerance, and other personal characteristics.
Think of it as a robo-advisor for real estate debts, albeit one with the vested interest of funding its loans.
Minimum Investment: $10,000
Investment Type: Debt
Payout Type: Monthly interest
AlphaFlow lends money against residential and multifamily homes, funding hard-money loans originated by local lenders across the U.S. These are short-term (six- to 12-month) purchase-rehab loans, primarily for house flippers. You invest money into those loans.
AlphaFlow’s transparency is a distinct bonus. At any given moment, you can view a pie chart of the loans that are current and those that are 60, 90, or 120 days delinquent. Currently, it has originated 978 loans across 42 states, of which 803 have been repaid and closed, leaving 175 loans open at present. The yield on those loans has averaged 8.19%, and 0.18% of its loans have suffered principal losses.
LendingHome
This company serves as a hard-money lender for residential real estate investors, usually house flippers. LendingHome funds loans with its own cash, then raises funding from private investors — you.
Minimum Investment: $50,000
Investment Type: Debt
Payout Type: Monthly interest
The most significant downside to LendingHome lies in its minimum investment: a whopping $50,000. Even among accredited investors, that’s a lot to park in one place.
Still, investors can spread their money out among a wide range of loans. You get to choose individual loans to fund, much like GroundFloor. And like GroundFloor, LendingHome grades (and prices) each loan on risk. Higher-risk loans pay out significantly higher interest, as you’d expect.
On the plus side, hard-money loans are short-term, usually nine to 12 months and occasionally up to 24 months. LendingHome has also recently started issuing long-term rental property mortgages as well, which pay out steadier interest payments.
CrowdStreet
Launched in 2014, CrowdStreet counts itself among the older crowdfunding companies on the Web.
Minimum Investment: $10,000
Investment Type: Equity
Payout Type: Profit from appreciation
It offers three options for investing. The first involves contributing money toward a fund that owns 30 to 50 properties. Of the three investing options, it features the lowest minimum investment at a still-steep $10,000. CrowdStreet’s fund, like so many crowdfunding investments, involves a long-term commitment with a target investment period of five to 10 years. It sets an ambitious target return of 16% on its current fund offering.
Alternatively, investors can participate in individual real estate syndications through the CrowdStreet Marketplace. It works similarly to RealCrowd, where syndicators list their deal on the platform, and investors can join as partners on the project. Minimum investments vary by the syndication but typically fall in the $25,000 to $50,000 range.
The third option offered by CrowdStreet is a managed investment advisory service. It requires a minimum investment of $250,000, and it picks real estate investments for you, similar to AlphaFlow.
Fees vary by investment type.
Final Word
As an alternative source of retirement income, real estate offers plenty to like, beginning with its returns, which handily beat bonds.
Though real estate offers lower liquidity and in many cases higher risk than bonds, it provides far more stability than stocks. That low volatility directly results from its low liquidity and the historically high barriers to entry.
I invest in real estate as an immediate source of passive income and in stocks for long-term growth. Because real estate can provide steady income and real estate markets move independently from stock markets, it helps provide a hedge against sequence of returns risk. And because you don’t need to sell off the underlying assets to generate income, you don’t need to worry about safe withdrawal rates with your real estate investments. You can simply let the income continue streaming in.
For all that, real estate is not without its own risks. If you’re new to real estate investing, start small with crowdfunding companies. I’ve invested as little as $100 toward a loan on GroundFloor, which pays 9% interest.
Crowdfunding offers a simple way to diversify your portfolio to include real estate, but as always, do your due diligence. Most important of all, never invest anything you can’t afford to lose in one single investment.
