There tons of crowdfunded real estate options out there, which is not the least bit surprising since real estate is the magic dust of building welath. So after tons of research, I want to share my top eREIT pick, tell you why real estate crowdfunding might be the best investment for you, and give you a few things to look out for.
But first, full disclosure. I think real estate investing is amazing and everyone should partake in it in some way. It has made piles of millionaires (including yours truly through rentals.)
I also realize that owning and managing properties is not for everyone, so the next best alternative is real estate crowdfunding. AKA an eREIT. (Not REIT.)
So my mission is to figure out the best one. Sure, there are other comparisons out there, but they look at fluff metrics to fill up a nice table, leaving beginner investors going “so is that a good thing or a bad thing?”
By the way, you can skip all the learnings and go straight to bottom to the comparison and review.
If you do want to go all-in with real estate investing, read:
Best courses to take before diving into real estate investing (which includes a special bonus) and
Best property management software reviews
Before we dive in, let’s quickly review:
Is crowdfunded real estate a good investment?
Short answer, yes. But first let’s answer the question “Why real estate in general?”
Real estate is largely uncorrelated to the rest of your assets. This makes it very useful when you have a lot of money and a recession comes. If stock markets start falling apart you will still have your rent income.
Even better, you can invest as aggressively as you like without worrying about going bankrupt.
Better still, with the power of mortgages, real estate lets you leverage your savings to the moon. (Okay, it’s a little less so for commercial investments including real estate crowdfunding, but we’re still just talking real estate.)
So what the heck is an eREIT?
REITs = Real Estate Investment Trust
It’s a specialized company that uses your invested money to invest in income-producing real estate. They have to meet some additional criteria to qualify as a REIT and they can be bought through the stock exchange, privately, or through brokers.
Thing is, they largely move around with the stock market. When there is a recession, they drop, cut dividends (somewhat) and do normal stock things. Basically they offer you no help when you are trying to live on something mid-recession.
eREIT = the DIY approach to big name real estate investing
Actually, eREIT is a term trademarked by Rise Companies Corp. (AKA Fundrise) but is commonly used in real estate crowdfunding talk. It basically means you buy a “share” directly from the crowdfunded real estate company with no broker.
This means lower fees and more control.
One more definition you need to know:
What is an accredited investor?
Some crowdfunded real estate investments are only for “accredited” investors. Essentially, that means that you are wealthy enough to take on some extra risk that the government is not comfortable letting normal people invest in.
Just like giving someone a big loan, things can go south. You need to have enough wealth and enough knowledge to be okay with this investment.
So how do you become an accredited investor? It’s simple. As of 2020, all you have to do is hit one of these 3 criteria to join the club.
- Earn over $200,000 per year, OR
- Have a family income over $300,000 per year, OR
- Have over $1,000,000 in investable income (not including your primary residence.)
So essentially, if the company requires you to be an accredited investor, they’ll ask if you hit one of the above, and then some proof, and then you join the investment.
If not, they’ll turn you away by law.
So, Coles notes: an accredited investor = wealthy people.
Non-accredited investors = everyone.
Also read: How to become a millionaire in 5 years
And one last BIG question:
Is there risk to crowdfunded real estate?
So I won’t pitch the idea that real estate crowdfunding is less risky than owning a property yourself. Actually, the concept that funds or crowdfunded real estate is less risky is a dubious conclusion for those thinking it through.
It just pushes the risk around.
Sure, you might have less risk by owning a stake in many buildings instead of just one, and you might be able to pass the buck by having a team “vet” an investment instead of having to do it yourself. But you’re still working with a company that may or may not decide that it’s better to declare bankruptcy than follow through with the project you invested in.
There is risk with all investments and extra risk with all real estate investments since the sums are so huge which makes bankruptcies easier.
Furthermore, crowdfunded real estate is a bit odd since it doesn’t have that much financial history or rigorous SEC reporting. Even the mega player, FundRise only has $500M under management which is peanuts in the finance world.
Is crowdfunded real estate a good investment? 100% yes. I love it.
Is there risk associated with it? Also yes.
This may be a lesson for another time, but a good investment portfolio should have equities for liquidity (in the form of index investing) and real estate for stability (in private ownership, but eREITs work too.)
Now to the good stuff:
Best Crowdfunded Real Estate – my selection criteria
Minimum investment amount…
People make a big deal about minimum investment amounts in real estate crowdfunding. I don’t really care about that.
To me an eREIT is an alternative to buying a house which requires at least $50,000 cash. So whether we’re talking a thousand or ten thousand, it doesn’t really matter.
If you’re stressing over the minimums, maybe start by investing in stocks until you have good money to get into real estate.
Fees do matter. A LOT.
So I judge companies on their fees. A LOT.
Call me picky, but I see real estate crowdfunding as an alternative to spending time investing in properties yourself. So the platform has to make it easy for you. (Apps are best, but nice websites at least.)
The investments have to be low-maintenance as well. Investing in funds as a whole, seems to fit this bill. You shouldn’t need to go and stress over choosing a specific property or figure out each and every decision.
The fact that it’s a fund mitigates some risk.
Basically, you’re not funding one single project, you’re giving money to a company that invests in a bunch of real estate deals.
I had a bad experience funding a specific property development through a certain real estate corporation. It was a “vetted” investment, but giving a bunch of your money to a small development company has some specific risks I didn’t see coming. But that’s a story for another time.
And is it “accredited investor only”
Reminder, an accredited investor = wealthy people. Non-accredited investors = everyone.
Best Crowdfunded Real Estate Reviews
All of these places seem legit and represent good investments. I just think some are better than others. Very strongly!
|Top eREIT picks|
|CrowdStreet||0.5-2.5%||$25K||Yes||Fund, managed, individual|
Best crowdfunded real estate for accredited investors
(Meaning, you have over $1M to your name.)
Best eREIT: AcreTrader.
Buying farmland… something I would only do through some online portal as I have no idea how to run a farm.
(Although my kids are pretty into llamas and ducks all of a sudden, so I might have to eat my words later. But I digress…)
Farms are a very specific form of real estate, and it has the most “real estate-y” benefits:
- Farms qualify for huge mortgages
- It has rent-based returns for great cashflow (even better than rentals)
- Farms are very uncorrelated to recessions. Which basically makes this the ultimate in real estate investments.
I know. Farms are great. Unfortunately, most people don’t know anything about running or valuing farms.
Enter AcreTrader. They deal with the farm evaluation, operation, and rent collection. You just supply the money. ($10,000 minumum investment, to be exact,)
Why it’s the best eREIT?
Looking back at farmland investments over the past decade:
- They have returned an impressive 12%/year which is basically unbeatable. Especially when couple with
- A really amazing 0.75-1% management fee. (They also act as the selling agent and take a cut of the sale, but that’s standard real estate stuff.)
It’s everything you could want in a real estate deal.
It’s open to accredited investors only (ones with $1M+ of investable assets or $200K income.) But I’d 100% recommend this to anyone who fits that bill.
Another company in the same field as AcreTrader with similar returns. AcreTrader wins in my books though, because they have more money under management which makes it a bit safer. Plus they have a nicer website and I’m a fool for pageantry I guess.
The fun twist on FarmTogether though, is that they will let you literally own and operate the farm or enter a farm sharing program instead of just receiving rent and appreciation.
Seems like a fun concept, but I wouldn’t bother taking the added risk (unless your kids are into llamas or whatever) because their payouts are already great.
CrowdStreet and EquityMultiple and PeerStreet
These let you pool money together with other people to buy a large commercial or apartment building. (With a minumum investment of $1K-$25K and fees of 0.25%-2.5%.)
- With CrowdStreet and EquityMultiple – you buy it and they operate it,
- With PeerStreet, you loan it to people looking to buy.
Thing is, their returns are pretty lackluster now that I’ve seen the farmlands numbers, but their risk of default is higher because the loans are often so large.
Plus, to be honest, I wouldn’t recommend real estate crowdfunding if you still have to do all the research yourself.
So I’ll pass on these.
Best crowdfunded real estate for Non-Accredited Investors
Top eREIT: FundRise
Fundrise is the biggest name in the world of crowdfunded real estate. They had raised over $500M by 2019, so they don’t have the issues of some of the smaller guys.
A nice added bonus, there are options (with penalties) to exit an investment early if needed. The pool of investors on the platform is pretty huge so there will always be someone else ready to buy what you don’t want.
The other nice thing is your choice of investments. You can invest in the Heartland, or focus on income, or growth, etc. You get all this with just a 1% fee which is still way better than the other crowdfunded sites. (Plus, once you hit accredited status they drop you to a 0.85% fee.)
Also, their minimum investment is $1000 and they also have the apps and great websites that I love in an investment platform. Yay!
This site is nice, the funds are nice but they charge 3% of your money as an origination fee when you start investing and 2% every-year thereafter.
You can choose individual properties to invest in as the upside but the fees are too much of a turnoff.
Special eREIT review – DiversityFund.
Definitely the most interesting of the bunch and it seems like a good deal (and has a good app.)
- Their selling feature is the 0% fees. But that’s a bit of a trick since they charge property management fees and when they sell the properties they take a cut of the profit. That’s not a huge issue for me as it’s not abnormal. Many other services on my list have third party managers who do the same thing.
- Also, they aim for higher returns but your money is trapped with them for 3-5 years. You’re basically buying into a specific private liquid REIT of properties they manage and they don’t attempt to pay you back at all until they sell off the properties they’ve updated.
- So obvious downside is the lack of liquidity, but the plus side is they aim for returns in the range of 15%
I’ve been approached with private deals with similar terms and it’s as close as you can come to being a fancy real estate investing conglomerate without the insane risks. And by being a very direct owner you dodge fees and really drive up your earnings.
In fact, for $25K you can even buy part ownership in the company which they call “Series A venture capital provider” making you feel like a high roller. But that takes me to my issue with them.
This company is VERY young. As of 2020 they have only raised $30M which is nothing in the world of real estate investing. And as far as the venture capital – yes, it’s a real investing strategy, but it takes a lot of research.
Basically, they haven’t proven themselves yet.
Yeah, their minimum is only $500 but I still wouldn’t bother. (Plus they’re a customer-driven company and know what they couldn’t do? Answer my emails or calls! That’s bad.) Also there are some lawsuits and suspicious reviews on Google. So that all adds up to a big NOPE from me.
TL;DR – Real Estate Crowdfunding
- When choosing eREITs, you want: low fees; low mainteance; ideally a more established company. You also want to know if they need you to be an “accredited investor”, meaning have a certain wealth level.
- My top pick is AcreTrader because they have historically high returns and low fees. They also have interesting perks associated with farms only, but you need to be an accredited investor to participate.
- My other top pick is FundRise if you’re not an accredited investor. They’re well-established and they also have low fees.