The Basics Of Real Estate Crowdfunding

Key Takeaways

  • Real estate crowdfunding has opened the doors for those who otherwise wouldn’t have the funds to invest in major real estate projects on their own.
  • Equity investments and real estate loans are the two ways an investor can take advantage of real estate crowdfunding.
  • Fundrise, Equity Multiple, and RealtyMogul are just a few examples of real estate crowdfunding platforms investors can utilize.

Real estate crowdfunding is a great way for both accredited and non-accredited investors to either get started investing in real estate or build upon and diversify their existing investment portfolios. If you’ve avoided investing in real estate because you don’t have the funds to get started, taking advantage of crowdfunding will open the doors to investing in those high profile real estate deals you never thought possible. Use the following guide to learn more about this lucrative strategy.

What Is Real Estate Crowdfunding?

Real estate crowdfunding is a relatively new concept that allows individuals to raise money for business ventures by giving them easier access to investors.

You’ve probably heard the term crowdfunding in regards to business start ups or unique products that are sourcing the public to attain capital. Sites like Kickstarter and GoFundMe are two popular platforms that allow users to start generating capital for anything from funding a school sports team’s vacation to raising money for causes or an individual’s medical issues. Real estate crowdfunding uses this crowdsourcing idea to help both accredited and non-accredited investors either get started investing in real estate or build upon and diversify their existing real estate portfolios.

How Real Estate Crowdfunding Works

In its simplest sense, real estate crowdfunding refers to a group of individuals pooling together their money in order to make a real estate investment. If you use this explanation to define crowdfunding, you could argue that this process has been occurring for centuries. It is not out of the ordinary for family members, friends, or coworkers to embark on a joint real estate venture. The place where true crowdfunding differs is the fact that investors can either complete transactions online or expose themselves to endless deal opportunities using the abundance of existing platforms.

There are countless real estate crowdfunding platforms that exist — each focusing on their own unique niche — and new technology are appearing daily. The beauty of crowdfunding for real estate is the fact that those who choose to partake in this strategy can browse through pre-selected and/or pre-qualified deals at their leisure as opposed to finding and researching deals on their own.

There are two ways to take advantage of crowdfunding a real estate investment:

  • Equity Investments: Allow investors to own shares of, say, an apartment building, while collecting cash flow from rents and appreciation when the property is sold.
  • Loans: Allow investors to collect monthly cash flow in the form of interest from the loan that is secured by the property.

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what is real estate crowdfunding

Crowdfunding real estate loans

“Crowdfunding real estate loans” is somewhat of a redundant statement because “crowdfunding” itself is basically a type of real estate loan — or at least it acts like one. Those who want to invest in real estate but don’t necessarily have the funds to invest in a project on their own can use crowdfunding to invest in real estate at any cost. In fact, a number of crowdfunding platforms designed specifically for real estate investing offer users the option to get started with as $1,000.

Below are several real estate crowdfunding platforms that are open to both new and seasoned investors alike.

Best Real Estate Crowdfunding Platforms

  • Realty Shares: RealtyShares is an excellent real estate crowdfunding platform for accredited investors looking for secure returns. Users agree the platform is safe, easy to use, and consistently provides excellent deal flow and investment opportunities. RealtyShares encourages its sponsors and developers behind each project to invest themselves, which proves how confident they are in delivering significant ROIs. In fact, RealtyShares’ CEO Nav Athwal says returns typically range between 8 and 20 percent for investors. Users can choose to invest in several property types including residential, commercial, retail, and mixed use. Once an investor is 100 percent funded, he or she can expect to receive returns in two to three weeks. RealtyShares is well-funded and expects only to experience growth in years to come.
  • RealtyMogul: RealtyMogul, which is considered one of the earliest crowdfunding platforms in its space, was founded in 2013 and is a platform for both accredited and non-accredited investors. Similar to RealtyShares, RealtyMogul gives its users access to a wide variety of property types — except for residential — from multifamily to medical to hospitality. In fact, RealtyMogul is known for funding the Hard Rock Hotel in Palm Springs, which was the first ever crowdfunded hotel. If you’re looking to invest in commercial real estate, mobile home parks, or REITs and receive reliable terms, RealtyMogul is the crowdfunding platform for you. Investors can get started with as little as $1,000.
  • FundRise: Certain features that exist on the FundRise platform are only available to accredited investors; however, other portfolio building features are offered to non-accredited investors as well. Fundrise advertises itself as “the first true alternative to investing in stocks and bonds” as they provide access to private market real estate through their “eDirect technology.” Founders Ben and Dan Miller created FundRise with the idea in mind that anyone should have the same opportunity as corporate institutions to invest in various real estate projects. Not only has Fundrise achieved this goal, it also boasts having returns 33 percent higher than other portfolio lenders on average. What sets FundRise apart from other crowdfunding platforms is their four pillars: Access, Performance, Expert Management, and Diversification. FundRise also allows users to tailor their Fundrise portfolio to their personal investing goals. FundRise CEO Ben Miller couldn’t have said it better, “Fundrise was born from the belief that everyone deserves a simpler, smarter, more reliable way to invest their money. Using technology, we are rebuilding the entire investment system from the ground up so individuals can efficiently access the best investments. Together, we can create a better financial future for every investor.”
  • Equity Multiple: One big difference between Equity Multiple and other real estate crowdfunding platforms is the fact that they personally co-invest in every one of their deals, which proves how confident they are in the projects they select — adding some of their own skin to the game, if you will. While Equity Multiple offers investors a range of property types, their primary focus is commercial real estate. Equity Multiple prides itself on helping its users find the right balance of risk and return in order to help each individual achieve their unique goals, which is why the offer investors the option to invest in syndicated debt, preferred equity, and equity deals. Users of this platform might notice a lesser volume of deals compared to other crowdfunding sites; however, this is “due to their extremely stringent vetting process,” according to Equity Mutual.
  • Alphaflow: Alphaflow differentiates itself in its industry because it invests in real estate loans. This unique crowdfunding platform markets itself to investors as the best way to earn passive income. Instead of investing in a single project, Alphaflow takes its users’ investments and essentially buys fractional shares of different crowdfunding deals, which results in users investing in 70 to 100 loans at once.

Real estate crowdfunding has opened the doors to those who otherwise wouldn’t have the funds to invest in major real estate projects.

Do you have any experience taking advantage of this strategy? Share your stories in the comments below.

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