Should You Consider Investing In Real Estate Crowdfunding Sites?

| July 9, 2020

real estateIf you are considering getting started in real estate investing, there are many places to start. It’s not as easy as throwing a dart and investing money. Doing your due diligence and figuring out which type of real estate investor works best with your personality is the first step. That being said, one of the best places for a new real estate investor to get started is with real estate crowdfunding sites.

These are a great place to invest smaller amounts of money right off the bat. They can also help you begin to learn more about real estate investing as a whole. And by doing this, you can help narrow down which type of investor you might like to become in the long run. And make some decent returns in the meantime. Plus, when you are investing in real estate crowdfunding sites, it can really be some decent passive income.

FIRST THINGS FIRST

When you first start out as a real estate investor, you are considered a non-accredited investor. What this means is that you have more restrictions as to where you can invest. Some real estate crowdfunding sites won’t even let you invest until you become an accredited investor. Which takes some time and some capital.

If you decide to stick with the real estate crowdfunding option in your real estate investment endeavors, then eventually you can potentially reach the accredited investor status.

In order to do that, you must first be making at least $200,000 annually. And you must also have to have made that for at least the last 2 years. As well as be on track to make that, or more, the year you become accredited. While that may sound like a hefty number to reach in the investing world when you are just starting out, it is certainly achievable in time.

But, that’s not all! You also have to have a net worth of at least $1,000,000,000.  Until you reach both of these, or surpass both of these points, you will be a non-accredited investor. Besides not having as many investing options, it also means that you will usually have slightly higher fees and lower ROI’s.

But that doesn’t mean that it’s not worth it. Investing in real estate crowdfunding sites can be extremely simple to get started and very hands off. So, it is one of the most appealing ways to begin, in my opinion.

REAL ESTATE CROWDFUNDING SITES

If you do decide to bite the bullet and jump into the real estate crowdfunding site world, there are many options to get started. Not every option is going to be a good fit for you. So, it’s best to check around and see which option fits your personality, minimum investment desires, and the potential outcome. There are 3 sites that I like the best for new investors.

FUNDRISE

One of my favorite real estate crowdfunding site for non-accredited investors is Fundrise. They have multiple offerings for the new investor, with low initial minimum investments and fairly high ROI’s.

Initially, you can choose to invest in one of the two plan offerings they have for non-accredited investors. One of them has a minimum initial investment of $500 and the other is $1000. If you are just getting started, I would choose the lower $500 plan just to get started and see how it works for you.

Fundrise doesn’t have a required minimum length of investment, per say. But they do prefer for you to keep your money invested for 5 years, whenever possible. The longer you keep your money in the REIT (Real Estate Investment Trust) the better your potential long term returns. However, if you want to pull your money out before that 5-year time horizon, they have fairly painless options to achieve that goal.

When it comes to the potential ROI (Return on Investment), it can vary widely. Since Fundrise offers so many different options for the non-accredited investor, there is the potential for a higher ROI. Their current options can potentially net you anywhere from 8% – 12%. This is a great ROI since on the lower end it is right in line with the average ROI for a stock market investor.

Almost every real estate crowdfunding site has investment or management fees also though. Luckily, Fundrise only charges a flat 1% annually, which is exceptionally low. So they are a great option to check out if you are a new investor.

GROUNDFLOOR

Groundfloor is a slightly different than Fundrise. This is because instead of only letting you choose specific REIT’s, you get to choose which particular loan you want to invest in. These loans could be for either a larger commercial property or for individual residential properties. Therefore, this type of real estate crowdfunding site is created for the investor who wants a more hands-on option.

While Groundfloor could potentially be a bit higher risk, because you are investing in specific loans, the initial minimum investment is really low. Even though you only have to invest a minimum of $10, you won’t make much money on that investment. If you really want to get your feet wet, you will need to invest a bit more than that. But, if you only have a few hundred dollars to start with, this might be your best option, to begin with.

And on top of the really low minimum investment requirement, they have one of the shortest term required. Most of their loans only have 6 – 12-month terms. So you can get a good idea after less than a year if this sort of investment is the right fit for you. Which is a much shorter time horizon than most real estate crowdfunding sites.

And to sweeten the pot, even more, their average ROI has been coming in at 10%. However, because you get to choose your individual investment offerings for specific loans, the rate can vary widely. And on top of that, they don’t charge any investment or management fees. Which is crazy!!!

I really love Groundfloor as a beginning investor for the low fees, high potential ROI’s, low minimum investments, and shorter time horizons.

RICH UNCLES

And last, but not least, is another great real estate crowdfunding site, Rich Uncles. They currently only offer two REIT options for non-accredited investors. And they have a slightly different structure than the other two previously mentioned sites when it comes to the ROI’s.

While they don’t have as many investment options as Groundfloor, they have them beat in the initial investment category. You only have to invest $5 to get started! But, this option is only available if you invest in their student housing REIT. And, if you only invest this amount of money you won’t really be making much on your investment. So you will definitely want to up your investment to at least $100 or more if you can swing it. Or, if you have at least $500 to invest, you may want to choose their national REIT to invest in instead.

No matter which option you choose, they don’t have a set time horizon for your money to be invested. You can buy and sell whenever it suits your needs. But, as previously mentioned, the longer you keep your money in a REIT, the better your chances of higher long term returns.

When it comes to their ROI’s, their structure is a bit different. Rich Uncles profits on the funds you are invested in. They pay investors the first 6.5% of that profit. But, if they don’t make at least that much in profit, then your dividends will be reduced to reflect what they actually profited.

On top of their ROI structure being a bit different, so are their investment fees. Theirs are the highest of the bunch coming in at 1% – 3% for the first 3 years. It reduces each year you keep your money in. And if you keep it in past the 3 year mark, then you won’t have any more investment fees.

So, while their initial investment is extremely low, they are a bit higher on the fees and lower on the ROI. But still a great option for a lot of new investors.

REAL ESTATE CROWDFUNDING SUMMARY

Overall, there are a lot of different options to get started investing in real estate. One of the best ways I have found is through real estate crowdfunding sites. No matter which one you choose, you should always ask yourself a few questions first, to help narrow down the best fit.

  •  How much money can you initially invest?
  • Do you have a high or low-risk tolerance?
  • How long can you keep this money tied up?
  • What are your long term goals with investing?
  • Do you want more passive or more hands-on funds?

Once you answer those questions, then you are ready to pull the trigger and invest. No matter which real estate crowdfunding site you ultimately choose, there is no time like the present to get started.

Note: This article originally appeared at Everything Finance. The author is Shanah Bell. 

 

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Category: Real Estate

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