A lot of newer investors or investors used to investing in the stock market find real estate investing intimidating. If you’re interested in starting to invest in real estate, you should know it does not need to be intimidating.
Although most people think that they have to spends hours upon hours researching a real estate investment the fact of the matter is that you don’t. That’s because if you don’t want to spend a lot of time researching real estate, there are simpler ways to add it to your portfolio such as real estate crowdfunding.
Crowdfunding real estate lets you diversify your holdings by adding low-cost commercial, residential, and other real estate investments to your portfolio,.
We’re going to cover two of these platforms in this article. If you want to find out about more opportunities in crowdfunded real estate, we suggest checking out this modestmoney article about the best real estate crowdfunding platforms.
What is crowdfunded real estate?
Traditional real estate is usually held by high net worth individuals or companies who can afford to take a large loan to purchase a property. Crowdfunding real estate still usually leverages some component of a bank loan, but instead of a rich individual or company taking the loan, crowdfunding platforms pool the money of multiple investors to purchase a property. As a result, the barrier to entry is significantly lower than trying to purchase a commercial property yourself.
That being said crowdfunded platforms are not without risk, as with any investment there is always a risk of loss. The benefit of using crowdfunded platform is the ability to diversify your portfolio at relatively low costs.
Crowdfunding vs REITs
If you’re used to investing in the stock market you probably already know what a REIT is. In case you’re unfamiliar, the simplified explanation is that it’s a like crowdfunding in the fact that is pools fund together to purchase properties or offer loans. However, unlike crowdfunding you as an investor don’t get to choose what you’re investing in.
Additionally, REITs pay out a portion of the earnings generated by the REIT to investors while crowdfunded properties will have individual specifications about earnings and distribution. To paraphrase, REITs are low impact investments with generally consistent returns that aren’t astronomical. On the other hand, crowdfunded properties have the ability to generate considerable returns, although be it with more risk.
Fundrise
Fundrise is probably the best option on the market to start investing into real estate if you’re new to it. To begin investing, Fundrise’s Starter Portfolio only requires $10. In addition, you do not need to be an accredited investor to participate, meaning anyone can do it as long as you are a U.S. citizen or resident living in the United States. Best of all Fundrise lets you choose between investing in income generating properties or growth properties. Meaning you can look at getting a consistent return or aim at large exit. They do offer hybrid portfolios, however, it will be up to you to decide which one fits you best.
Fundrise was founded in 2010 and to date they average an over 16% return on investment per year. Although this return is not indicative of every portfolio.
Additionally, Fundrise is straightforward about their fees, charging only 1% per year. This is far lower than many other crowdfunding platforms and managed investment fees generally.
They are able to offer such low fees thanks to their total assets under management, which also acts as an indicator to how trustworthy they are as a company.
At a $10 entry fee it’s hard to think of a reason not to use them.
RealtyMogul
Since its inception in 2012, more than 219,000 investors have joined RealtyMogul to gain access to its private market offerings and real estate investment trusts (REITs). Due to the fact that RealtyMogul personally evaluates each potential property and examines each deal using proprietary models and techniques, the company is renowned for its exceptional due diligence.
Their main drawback is that each investment comes with its own fees, making management and portfolio building entirely up to you as an individual investor. Additionally, their minimum account requirement is $1,000 making them 100 times more expensive to start with than Fundrise.
However, what you sacrifice in upfront capital and fees get you a world-class due diligence team and access to cash flowing assets. That’s because RealtyMogul only looks at properties that have a lease in place or have a track record of being leased by exceptional counterparties.
Final thoughts
Both RealtyMogul and Fundrise are fantastic crowdfunding platforms. The main difference between them is that Fundrise is about diversity of assets and allowing you to get into a variety of different real estate investments while RealtyMogul is built for generating passive income. Both are worth looking into, especially if you have the capital available to open a RealtyMogul account.
If you’re interested in starting to invest in real estate, then you should check out this article about real estate investing for beginners: what you need to know. Alternatively, if you’re an accredited investor and want to look into one of the best options for you, you should read this First National Realty Partners review.
