There are tons of crowdfunded real estate options out there, which is not the least bit surprising since real estate is the magic dust of building wealth and it is the easiest way to get into real estate investing. So after tons of research, I want to share my top eREIT pick, tell you why real estate crowdfunding is a great investment, and give you the look-fors to make your own decisions.
But first, full disclosure. I think real estate investing is amazing, fights inflation 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. REIT investing is a different thing, that is less good). You don’t have to do any work and you can invest in things that are complicated like Farmland Investing with no effort.
For this review, I went into my full-beast research mode. Calling up the companies and being a big pest. Sure, there are other comparisons out there, but they look at fluff metrics that don’t mean anything, leaving beginner investors going “so is that a good thing or a bad thing?” No fluff here. If you want fluff, buy a cat.
Have no time?! Cut straight to the comparison and review.
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 the stock market starts falling apart you will still have your rental income.
- Even better, since you have diversification through rental income you can invest as aggressively as you like in the stock market without worrying about going bankrupt.
- Better still, with the power of mortgages, real estate lets you leverage your savings to the moon.
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 real estate. The special part is that they pass less tax than a normal company. They have to meet some additional criteria to qualify as a REIT though so it’s not all rainbows (aka they have to pay out all their money as dividends).
The thing is, they are usually traded on the stock market which makes their price and financial stability move around with the stock market.
When there is a recession, they drop in value, cut dividends (somewhat,) and do other crazy stock things. Basically, they offer you none of the real estate benefits from before!
That’s where real estate crowdfunding, often called eREITs comes in.
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, not some share on the stock market.
This means lower fees.
And more importantly to me, it’s not traded on the stock market. It even comes with lock-in periods! Sounds bad? It’s amazing! All the mid-recession mania vanishes! Just leaving you with cold hard cash flow.
One more definition you need to know:
What is an accredited investor?
Accredited investor = wealthy people.
Non-accredited investors = everyone else.
On a more legal level, some crowdfunded real estate investments are only for “accredited” investors. Essentially, that means that you are wealthy enough to take on some extra risk and the government will block you from joining in if you aren’t wealthy enough.
Some people see that as helpful, others view it as ensuring the best investments are just for the wealthy.
So how do you become an accredited investor? It’s simple. There’s no card. 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.)
Then if the company requires you to be an accredited investor, they’ll ask if you hit one of the above, you say yes, and then you join the investment.
If not, they turn you away by law.
Some people fixate on this but just invest in the stock market until you are a millionaire. If anything, buy a house or two. But you don’t need the amazing diversity and stability of eREITs until you have lots of money, so don’t sweat it.
Not accredited? Skip it.
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 not risky compared to owning property yourself. Actually, the concept that funds or crowdfunded real estate is less risky is a dubious conclusion for those thinking it through.
Risk-based pros of crowdfunded real estate :
- You can own a selection of houses to spread your risk to an indivudial house’s issue.
- Professionals vet the houses before you buy in
- You can guarantee a house you directly own won’t go bankrupt if you are smart about what you buy and keep some safety cash.
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 – 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, crowdfunded real estate is an alternative to buying a house which requires at least $50,000 cash. So whether we’re talking $100 or $10,000, it doesn’t really matter.
If you’re stressing over the minimums, start by investing in stocks until you have enough money to get into real estate.
Fees do matter. A LOT.
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-effort as well. Having someone else manage your house and recommend some, fits this bill. You shouldn’t need to go and stress if the properties are all vetted and laid in front of you.
The fact that it’s professionally managed mitigates some risk.
But the biggest risk mitigation is the company’s reputation. If it’s small, they might roll the dice. If it’s huge, they have something to lose if they make a bad recommendation.
Accredited investors only?
That’s fine. Houses are expensive. If you don’t want to buy a house directly, invest in stocks until you can do this.
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|
#1 CrowdStreet – Insane returns
There are 3 massive factors pushing CrowdStreet to the top of my list these days. It’s free to signup so you can figure it out for yourself!
1 – CrowdStreet is HUGE and that’s a good thing.
They have a massive company with a massive reputation to uphold. So they have a lot on the line to not mess up their 540 funded deals and 9 years of business relations.
Those are the biggest numbers in the industry and that’s the #1 thing that will make sure nothing bad should happen.
They’ve funded so many deals over almost a decade that they even have historically based rankings of the different builders on the platform! Transparent and useful!
2 – Returns – 17.3%/yr!!
The average annual return on CrowdStreet is 17.3%. That’s insane.
The top performer was actually +88.4%/yr with only 1 project ever being a total loss.
You could believably live on a $173,000 annual spend (which is burning money for fuel territory) on just $1,000,000 of savings. Insane! Take that 4% rule!
3 – Fees – The builder pays!
CrowdStreet charges the builder all of its money management fees. And the builders seem happy to accept it to access people’s money!
After talking to the guys at CrowdStreet apparently sometimes in the pre-investment summary you will see that the builder will charge the fee back to the investor but I’ve never seen it.
I will note, the builders have other fees they charge, but it still averages out to 17.3%/yr return.
So what’s the catch?
It’s only for accredited investors and the minimum investments are pretty high. Around $25K usually, but up to $150K on the really big deals!!! I say it still belongs on the top of my list though.
If you want to get on the learning curve for eREIT investing, I’d recommend joining CrowdStreet’s free newsletter by making an account.
#2 – AcreTrader – Farm-level inflation protection
Buying farmland… something I would only do through some online portal as I have no idea how to run a farm. That’s why I’d suggest you take a look at AcreTrader, a platform that enables fractional farmland investing.
(Although my kids are pretty into llamas and ducks all of a sudden, so I might have to eat my words soon..)
Farms are a very specific form of real estate, and it has the most “real estate-y” benefits:
- Farms still qualify for huge mortgages
- It has rent-based returns for great cashflow
- Farm returns are correlated to inflation.
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. (It’s generally a $10,000 minimum investment but the minimums vary by offering.)
Why it’s great?
Looking back at farmland investments over the past decade:
- They have returned an impressive 11%/year which is almost unbeatable. Especially when coupled with
- AcreTrader has a really amazing 0.75% management fee. (They also charge a 2% initial investment fee and act as the placement agent and may take a fee based on the total equity raised, but that’s standard investment stuff.)
- You get into the amazingly recession proof world of farmland without having to know a bovine from a grapevine.
It’s everything you could want in a real estate deal.
It’s open to accredited investors only (e.g., ones with $1M+ of investable assets or $200K income) and has lower returns vs CrowdStreet though it’s basically inflation and recession-proof. That’s awesome!
I do want to especially let people know that AcreTrader does give a kickback to me if people sign up with them. They didn't pay me to write this post, and I wrote it because I do truly believe in the digital platform they set up and the general idea of investing in farmland, although I don't have any opinion about any specific type of farm...that’s what they are for, farms all look the same to me. However, due to financial regulations, I need to put an extra disclaimer.
This is a sponsored promotion for the AcreTrader platform. FiveYearFIREescape may have investments in companies represented on the AcreTrader platform. This informational post is by no means a promotion, solicitation, or recommendation of any specific investment.
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. AcreTrader was more willing to answer my oodles of questions and they have a nicer website, which is important if that’s how you interact with them.
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 the payouts are already great without trying to operate the farm yourself.
EquityMultiple and PeerStreet
These let you pool money together with other people but they aren’t as awesome as AcreTrader or CrowdStreet.
- EquityMultiple – you buy via some wierd share system
- PeerStreet – you loan to people looking to buy real estate
So I’ll pass on these.
Fundrise is the trendiest name in the world of crowdfunded real estate.
Overall, it’s like CrowdStreet but with only funds available and a lower average return.
One upside is you don’t need to be accredited but they will charge extra management fees. Plus you can exit an investment early (with penalties) 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.
It’s a guaranteed 1% management see though. So that’s nice and simple 🙂
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.
- 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 non-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.
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.
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 series A venture capital investment – yes, it’s an investing strategy, but I don’t recommend it.
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 maintenance; 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 #1 pick is CrowdStreet because of their 17.3%/yr 9 year historical return and massive (safe) size.
- Or AcreTrader because farmland historically has amazing inflation resiliance. They also have interesting perks associated with farms only, but you need to be an accredited investor to participate.