Democratizing Real Estate Investing: A Guide to Crowdfunding Real Estate Loans

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Real estate crowdfunding has transformed the real estate investing landscape. Once reserved for only the most affluent investors, many crowdfunding platforms have significantly lowered the barrier to entry for this type of alternative investment.

Low account minimums, simple fee structures and clean user interfaces make it easier than ever to include real estate in a well-diversified portfolio. It’s important to note that some real estate crowdfunding platforms, including some of our picks below, are open only to accredited investors.

Real estate investments trusts are companies that own real estate, such as hotels, malls, shopping centers or rental properties. Publicly traded REITs can be purchased through a brokerage just like individual stocks or mutual funds.

Real estate crowdfunding platforms, on the other hand, pool funds together to let average investors participate in the real estate market through private REITs — which aren’t available through traditional brokerages — as well as private market real estate investments, like individual properties. These could potentially provide higher returns than the REITs available through traditional brokerages, but they may also carry higher risk.

Ready to get started? Below are our top picks for the best real estate crowdfunding platforms based on several factors, including account minimums, customer support, redemption options, fees and more.

Real estate has long been considered one of the best investments for building long-term wealth. However, the high capital requirements have historically put investing in real estate out of reach for many individuals. This is now changing thanks to the rise of real estate crowdfunding platforms.

Crowdfunding real estate loans allows investors to pool their money together to fund real estate projects. By spreading the risk across multiple investors, crowdfunding opens up real estate investing to more people. Even small investors can get started with minimal capital.

In this article, we’ll explain what real estate crowdfunding is, the different types of real estate crowdfunding models, and guide you through the process of evaluating real estate crowdfunding platforms and loans.

What is Real Estate Crowdfunding?

Real estate crowdfunding brings together individual investors online to collectively fund real estate projects. This makes real estate investing more accessible by lowering the capital requirements.

Instead of investing hundreds of thousands to purchase an entire property yourself, you can invest as little as $500 to get exposure to real estate Your money is pooled together with other investors to provide the capital needed to fund mortgages, fix-and-flip projects, real estate developments, and other real estate ventures

In exchange for your capital, you receive an equity stake or debt payment from the real estate project you helped fund. This gives you the ability to earn passive income and profit from real estate appreciation without having to buy or manage properties yourself.

Types of Real Estate Crowdfunding Models

There are several ways you can invest in real estate crowdfunding loans. The main models are:

Equity Investments – Invest directly in a real estate asset by purchasing a fractional ownership stake You become a partial owner and earn returns from cash flow and appreciation
Debt Investments – Provide financing for a real estate project in exchange for regular interest payments. Typically shorter-term than equity investments.
Real Estate Investment Trusts (REITs) – Invest in an investment fund that owns multiple real estate assets. Open to both accredited and non-accredited investors.
Fund Investments – Pool your money into a fund that invests in multiple real estate projects. Only open to accredited investors.

Evaluating Real Estate Crowdfunding Platforms

With the growing popularity of real estate crowdfunding, many platforms have emerged. But not all platforms and investments are created equal. Here are some key factors to evaluate:

Fees – Pay attention to platform fees, fund fees, and any other fees that may eat into your returns.
Investment Minimums – Some platforms allow you to invest with minimal capital. Others require accredited investor status and high minimums.
Track Record – Look at the historical performance of past investments on the platform. Higher returns often come with more risk.
Investment Options – Some platforms focus on specific niches like fix-and-flips or farmland. Others take a broad approach with varying project types.
Automation – Many platforms simplify investing by automating underwriting, allocation, distributions, etc. This provides passive exposure.

Performing Due Diligence on Real Estate Crowdfunding Loans

Before investing, conduct thorough due diligence just as you would for any real estate purchase. Here are some things to research:

Location – Evaluate demand, market conditions, and growth potential in the surrounding area. Drive by the property if possible.
Financials – Review rent rolls, operating expenses, renovation budgets, and other financial details. Make sure assumptions are realistic.
Experience – Look at the experience of the sponsors and developers managing the project. Preferably they should have a proven track record.
Exit strategy – Understand how and when you can liquidate the investment. Project duration impacts risk and return.

The Benefits and Risks of Real Estate Crowdfunding

Benefits

Low Minimums – Invest in real estate for as little as $500 on some platforms. Open to non-accredited investors.
Diversification – Build a diversified real estate portfolio across different geographic markets and asset classes.
Passive Income – Earn regular dividends from REITs and interest from debt investments.
Wealth Building – Grow your money through real estate appreciation over the long-term.
Professional Management – Passive approach without having to deal with tenants or maintenance yourself.

Risks

Illiquidity – Investments are often illiquid with no secondary market to sell early. You must hold until the project ends.
Speculation – Returns rely on assumptions about future rents, occupancy rates, renovation costs, etc.
Default Risk – Borrowers may default on debt investments, leaving you with losses.
Fraud – Lack of regulation makes due diligence critical to avoid crowdfunding scams.
Fees – Various fees can eat into your returns significantly over time if not accounted for properly.

Real estate crowdfunding opens the door for more people to access real estate investing. By pooling money with other investors, you can participate for as little as $500 in some cases.

However, make sure to thoroughly evaluate platforms and opportunities. Perform due diligence just as you would for a traditional real estate purchase. Real estate crowdfunding provides more convenience but comes with significant risks as well.

With prudent selection, crowdfunded real estate loans can help diversify your portfolio and generate passive income. But quality matters more than quantity when it comes to alternative investments. The rise of real estate crowdfunding has made private real estate investing more accessible than ever. But risks still remain. Thorough due diligence is required to invest wisely.

Best Real Estate Crowdfunding Investment Platforms

management fees; other fees apply.Account minimum

no promotion available at this time

Access to real estate, commercial, legal and art investments.
Ability for individuals to invest in private structured credit deals.
Investments backed by assets, which may provide some protection in event of default.

Highly illiquid investments.
Most investments open only to accredited investors.
Limited offerings available.

Why We Like It

Yieldstreet allows investors to participate in crowdfunding for a wide array of alternative investments, including real estate, commercial, legal and art. The platform is open only to accredited investors.

other fees applyAccount minimum

Earn a Special 1% Return Boost

on Your First Investment

Access to commercial real estate investments.
Easy-to-use website.
Possible high rates of return.
Liquidity options for certain investments.

Only open to accredited investors.
Complex fee structure that varies by investment.

Why We Like It

EquityMultiple blends crowdfunding with a more traditional real estate investing approach that can lead to high returns. Unfortunately, it’s only available to accredited investors.

Want to compare more options? Here are our other top picks:

Last updated on June 1, 2024

How do we review real estate platforms? NerdWallet’s comprehensive review process evaluates and ranks companies that allow U.S. customers to invest in real estate, primarily through non-traded REITs or private equity. Our aim is to provide an independent assessment of providers to help arm you with information to make sound, informed judgements on which ones will best meet your needs. We adhere to strict guidelines for editorial integrity.

We collect data directly from providers through detailed questionnaires, and conduct first-hand testing and observation through provider demonstrations. The questionnaire answers, combined with demonstrations, interviews of personnel at the providers and our specialists’ hands-on research, fuel our proprietary assessment process that scores each provider’s performance across eight factors. The final output produces star ratings from poor (one star) to excellent (five stars).

For more details about the categories considered when rating brokers and our process, read our full methodology.

To recap our selections…

Invest In Real Estate Without Income History (DSCR Loans)

FAQ

Can you crowdfund for real estate?

Real estate crowdfunding is a way to raise money online for real estate acquisitions from a large group of investors. Individuals and businesses can use crowdfunding to access capital from a large group of potential investors on internet platforms and social media sites.

Is real estate crowdfunding worth it?

The Bottom Line While real estate crowdfunding and investing may not be for everyone, it can be a great way for you to start investing in real estate without needing to spend a substantial amount of money. Placing less money into the investment means that the risk will often be lower.

Can you crowdfund a loan?

Loan crowdfunding is used to raise capital by taking loans from several investors (lenders) who expect to be repaid for their loan with added interest over the period that the loan was used. The entire process takes place through a crowdfunding platform.

What is the 2% rule in real estate?

Applied to real estate, the 2% rule advises that for an investment property to have a positive cash flow, the monthly rent should be equal to or greater than two percent of the purchase price.

What is a real estate crowdfunding platform?

How much money can you invest with a real estate crowdfunding platform?

But some real estate crowdfunding platforms are working to lower that threshold so you can invest with as little as $500. In most cases, real estate crowdfunding platforms direct investors’ money into real estate investment trusts or similar investments.

Why do real estate investors use crowdfunding?

Along with crowdfunding websites, business owners turn to social media platforms such as Facebook or Twitter to market their ventures directly to wider audiences of interested investors. Real estate investors have adopted crowdfunding as an alternative to more traditional means of financing investments.

Is there liquidity in real estate crowdfunding investments?

Liquidity in real estate crowdfunding investments can vary significantly. While some platforms offer secondary markets or redemption options that allow investors to sell or exit their positions with greater ease, others may have limited liquidity. Investors should carefully consider the platform’s specific terms and investment periods.