There's an old adage in real estate… location, location, location.
I live in the DMV – Washington DC, Maryland, Virginia – and it's an area where real estate is higher than average. It's challenging to find investment properties and as someone who is neither experience nor patient, it doesn't make much sense for me to look to the local area for real estate investment opportunities. The savvier investors snatch them up before I can.
If I want to look outside this area, I'm at a disadvantage because I'm not where I'm not.
If you're interested in investing and this sounds like a familiar problem, you've probably looked to real estate crowdfunding as an alternative. Why not rely on the expertise of others to do the research and you invest smaller amounts in areas that look appealing?
Real estate crowdfunding has become one of the most popular investing mechanisms in the last five or so years. Much like peer to peer lending, real estate crowdfunding as an investment has gotten attention for some of the same reasons.
One big difference (between P2P lending and real estate crowdfunding) is the borrower and the level of research conducted by the crowdfunding site. With real estate crowdfunding, you're talking extensive due diligence by a top-notch group of individuals. They often fund the deals ahead of getting investors just to facilitate the closing. They need to do their homework or they could be left holding the bag. All an investor pays is a percentage based on assets invested and we receive a return that is comparable to real estate alternatives.
One of the big problems with many of the sites is that you need to be an accredited investor to participate. We have found a few options that offer investments that don't require you to be an accredited investor. (not sure what that is? click here to skip to that and find out!)
Which real estate crowdfunding companies offer investments for non-accredited investors?
Fundrise is a passive real estate investment option that has a very low minimum ($500) and is very accessible. Fudnrise offers eREITs, their name for the REITs available only on their platform, which means that they're available to non-accredited investors.
There are several eREITS but they invest in a mix of commercial assets and loans, collecting cash flow from interest payments, rents, and other profits from the properties. There are no transaction fees for buying into the eREITs but you do pay a 0.85% annual asset management fee.
See our Fundrise review for a more detailed look at the company and its offerings.
stREITwise is a non-public REIT that invests in institutional quality commercial properties and has been paying out 10% dividends since inception. They've invested in commercial office buildings (you can see some of their investments on the homepage) and they accessible to all level of investors.
RealtyMogul offers REITs that non-accredited investors can invest in. MogulREIT I is an online REIT that offers cash flow and equity appreciation with its investments in a mix of loans, equity and other “real estate related assets.”
They are open to investing in pretty much everything – “multi-family, office, industrial, self-storage, retail, medical office, and hospitality.” The only obvious omission is single-family homes. You can read our full review of RealtyMogul to learn more.
Groundfloor has the absolute lowest minimum investment level of all the real estate crowdfunding sites – a mere $10. They claim a return of over 10% (on average) and they score their loans on a grading scale that offers anywhere from 5% to 25%. The loans themselves are short, just 6-12 months, and they say they only approve 5% of the loans they screen.
It feels very much like a peer to peer lending site except you have the underlying real estate as collateral on the loan. The other sites feel more like investments, since the total loan value is much bigger and the terms are longer, these feel shorter like the P2P space.
Of all the crowdfunded real estate sites, I'm the least familiar CrowdStreet. They're based in Portland, OR, and they focus on commercial real estate deals. I wanted to include them because they have an option for non-accredited investors willing to put in a minimum of $10,000.
These are not technically real estate crowdfunding sites… but they get you what you are looking for in those sites – diversified real estate investment. Non-accredited investors have always been allowed to buy REITs. The rules behind REITs, and what is required for them to maintain that status, is that they own and operate real estate and distributed 90%+ of their taxable income as dividends to shareholders.
However, owning a REIT may not be what you're looking for what you want to invest in real estate crowdfunding sites. Many of the publicly traded REITs invest heavily in commercial property. Very few are in the business of owning a large portfolio of single-family homes, for example.
One of the best Vanguard funds is the Vanguard REIT ETF (VNQ). It has an expense ratio of just 0.12% and it holds a lot of property companies, like Simon Property Group (malls) and Public Storage (storage). Their number one holding is the Vanguard Real Estate II Index Fund, which is itself a mutual fund that holds a variety of REITs.
Are You an Accredited Investor?
Most real estate crowdfunding sites require that you be an accredited investor (Rule 501 of Regulation D).
To be accredited, you must:
- Have made $200,000 in annual income ($300,000 for joint investors) for the last two years with the expectation that you'll earn the same or more this year, or,
- Have a net worth over $1,000,000, individually or jointly, excluding their primary residence.
The requirement exists because the SEC wants to make sure that the folks who are investing in unregistered securities can afford to lose it. These deals are often called private placements and they don't need to register with the SEC, so they don't provide as much information as you'd expect from, say, a publicly traded company. The accredited investor requirement assumes that someone who is accredited can do due diligence on their own.
For some investors, that bar might be too high. Or perhaps it's the timing of it. You need that level of income for three years (two in the past plus the current year), perhaps that's not possible. Either way, if you want to invest in real estate crowdfunded sites and you can't an accredited investor, there are options.