Have you thought about getting involved in traditional real estate investing but hesitated because you weren’t sure about the financial qualifications and risks involved?
Traditional real estate investing can be profitable but it can also be difficult, especially for new investors. First, there is usually a large down payment required to purchase investment properties. Second, there is work involved in finding the right tenants.
Even after potentially reliable tenants are approved and moved in, investors are faced with either finding the time to manage a brick and mortar property or doling out more cash to hire someone else to handle managing the property for them.
That being said, it’s well known that there is the potential to make a serious profit from real estate investing.
So, what are the options for those wanting to make the leap into real estate investing but are having doubts about whether or not traditional rental property ownership is for them?
Fortunately, there are other options.
Investing in Real Estate through Crowdfunding
It used to be that helping seasoned property investors back their investment property deals was only for the wealthy. Minimum investment thresholds were high and unattainable for the typical, Average Joe investor.
That has since all changed with the springboard into crowdfunded real estate investing. Whereas property management investors used to work to find just a few investors with a lot of money each to help them fund property purchases, many investors are now working with crowdfunding companies instead.
With crowdfunded real estate investment firms, a larger number of investors with potentially smaller amounts to invest can get involved in real estate investing.
Just as lending companies such as Lending Club allow more investors with smaller amounts of cash to work together to fund a loan, real estate crowdfunding employs the same concept so that people can purchase and manage property investments with a larger group of investors backing them.
Let’s look at two of the main real estate investing crowdfunding sites so I can explain in more detail.
Realty Shares is a crowdfunded real estate investment company that was founded in 2013 by a team of experienced investors. Their highly-qualified leadership board analyzes applications that are submitted to the company by investors in search of real estate investment funding.
If the board determines the real estate investment to be a viable one, they approve funding and offer shares to their members.
Realty Shares offers both commercial and residential real estate investment opportunities to investors. Here are some other details that potential investors with Realty Shares may want to know.
- Minimum investment: $5,000. Realty Shares requires a minimum of $5,000 to begin investing in their crowdfunding projects; a much lower investment threshold than most traditional real estate deals.
- Accredited Investors. Realty Shares requires accredited investors for their projects. To become an accredited investor, you must show either an annual income of $200k ($300k for married couples) for the past two years, as well as expected similar income in the future. Alternatively, an investor can become accredited if they have a net worth of at least $1 million dollars either individually or together with a spouse.
- Lower fees. Realty Shares charges a small, 1.0% annual asset management fee, and it’s free to join.
Because Realty Shares offers investment opportunities in both commercial real estate properties and residential real estate properties, the company provides a wide variety of crowdfunded investment choices for investors.
Fundrise is a crowdfunding company that was founded in 2012 with the goal of bringing quality commercial investment opportunities to all investors.
It helps investors to invest in what are called eREITs. You may have heard of an REIT (Real Estate Investment Trust). REITs are similar to stock shares, where you own a piece of a company. In the case of REITs, you own a piece of an investment property.
There are also REIT mutual funds available that allow you to purchase pieces of a basket of investment properties.
Traditional REITs can be either exchange-traded or non-traded. Exchange-traded REITs are available for trade publicly and can be purchased through any broker. They are listed on a public exchange such as the New York Stock Exchange (NYSE).
Non-traded REITs are not publicly traded and are not listed on a public exchange. Both types of REITs generally come with high fees, sometimes up to as much as 15%.
Fundrise’s eREITs (Electronic Real Estate Investment Trusts) allows investors to invest in commercial real estate investment funds without high fees and with a lower minimum investment amount. Here are some of the features of Fundrise’s eREITs.
- Minimum investment: $1,000. The low investment minimum means that nearly anyone can save enough money to invest with Fundrise if they take some time to put aside a bit of cash each week.
- Non-Accredited investors allowed. Many commercial real estate investments require investors to be accredited. Fundrise allows all investors to participate.
- Lower fees. Fundrise charges a 0.85% annual asset management fee, far lower than what many traditional brokers charge.
- IRA investments available. Fundrise does have real estate investment products available that qualify as IRA investments.
With the low minimum investment threshold and the affordable annual management fees, Fundrise is another viable alternative to traditional real estate or REIT investments.
The Bottom Line
Investing in real estate through crowdfunding is not without its risks. Just as with any other type of investment, crowdfunded real estate investing does come with a risk of loss of initial investment.
However, you might find the risk level more comfortable. This is because the minimum investment amounts are much lower than they are with traditional real estate investing,
If you are considering working to potentially grow your net worth through commercial or residential real estate investing, but want to avoid investing in real estate via the traditional route of direct property ownership, crowdfunded investing may be the right choice for you.
The information contained herein neither constitutes an offer for nor a solicitation of interest in any securities offering; however, if an indication of interest is provided, it may be withdrawn or revoked, without obligation or commitment of any kind prior to being accepted following the qualification or effectiveness of the applicable offering document, and any offer, solicitation or sale of any securities will be made only by means of an offering circular, private placement memorandum, or prospectus. No money or other consideration is hereby being solicited, and will not be accepted without such potential investor having been provided the applicable offering document. Joining the Fundrise Platform neither constitutes an indication of interest in any offering nor involves any obligation or commitment of any kind. The publicly filed offering circulars of the issuers sponsored by Rise Companies Corp., not all of which may be currently qualified by www.fundrise.com/oc