Real estate investing is an amazing way to build wealth over the long term. There are nearly no other vehicles that allow you to use low-interest leverage for the purchase, give you cash flow, AND give you appreciation on the full asset value over time.
If there's one asset class that you can really bank on to help you make money in the future, it's real estate. The one caveat: real estate investing is HARD!
To make successful real estate investments, new investors need to screen hundreds of properties, visit dozens that they think might be good, put in offers on some, and hope that ONE accepts their offer. This is tough in normal times, and even more so nowadays with the real estate market going bananas.
So how can you invest in real estate? The answer: crowdfunding platforms! These are real estate investment platforms that raise money from regular folk (you and me), invest that money into real estate, and then redistribute the returns.
This post will take a deep dive into some of the most popular real estate crowdfunding platforms on the market today: Fundrise vs DiversyFund vs CrowdStreet! We'll take a look at what makes each of them unique, their pros and cons, and how they compare to each other! Let's get right into it.
What is Crowdfunding (and a REIT)?
Before getting into the specifics of each crowdfunding platform, it's important to understand exactly how they work. To grasp the dynamics behind real estate crowdfunding, let's start by talking about REITs.
As mentioned above, acquiring and managing real estate investments is tough. You need to invest money and probably 1-2 years of your time before you see any results… the cash flow and appreciation you get from real estate come even later than that. So how can ordinary people with busy schedules get into real estate? Well, REITs were the first step in the right direction.
Real Estate Investment Trusts (or REITs) are basically companies (or a fund managed by a company) that owns, operates, and finances residential or commercial real estate investment properties. Similar to mutual funds, REITs pool money from ordinary people but use it to invest in real estate. This made it possible for people who have no real estate experience to become real estate investors and share in the profits on the rental properties.
REITs invest in all sorts of property: some of these include hotels, healthcare facilities, data centers, apartment complexes, or even data centers. Also, a lot of REITs are publicly traded meaning that you can invest in the company just like any other stock.
Though REITs and private REITs were an awesome step towards making real estate investing more accessible for the public, there were still some downsides. Particular the fact that the public ones are more susceptible to general market conditions, and the private ones were hard for the aver person to access.
Enter real estate crowdfunding! Real estate crowdfunding is a space where developers offer a position in their project in exchange for some of your capital. They use a real estate crowdfunding platform to open their doors to you (someone who has the money but not the time to invest).
The slight drawback to traditional real estate “crowdfunding” (often referred to as real estate syndication) is that you sometimes need to be an accredited investor to partake in it. This basically means that traditional crowdfunding is limited to people who have a high net worth.
That's all changed, though, after new laws were passed and many new online platforms have come out and entered the game. Let's take a look at them in-depth right now!
Fundrise vs DiversyFund vs CrowdStreet Overview
This section will give a brief overview of each online platform and what they offer. Some have differences in fund structure and preferred equity, some have a higher risk than others, and some have a better starter portfolio than others. You'll find out just what makes each of these real estate crowdfunds so special.
Fundrise is an online real estate investing platform that lets regular people invest in real estate. What makes it so unique is that you don't need to be crazy wealthy to start investing with Fundrise, you just need $10! Your money, together with other investor money, will all pool together and go towards real estate projects that will hopefully make money in the long run (thus earning you money too!)
Fundrise investors have access to five different account tiers:
- Starter – The starter account is where you'll find opening investment minimums of as low as $10. There's a low minimum initial investment which is great for getting your feet wet if you've never invested in real estate before. You also have the option to set up recurring investments so that a little bit of your money goes towards investment opportunities every month.
- Basic – The basic plan doesn't have a low minimum investment of $10 like the starter plan, but you get much more! For a $1000 minimum investment, you get the ability to set investment goals and also invest with your IRA. You also gain access to invest in the Fundrise IPO.
- Core – For a $5000 minimum investment, you gain access to the core account which lets you make equity investments into eREITs and gives you 6 months of advisory fees waived for every additional friend you bring on board. On top of this, you can also customize your investing for specific goals like cash flow, growth, or diversity.
- Advanced – With the advanced account, you gain direct access to the Fundrise eFund, tons of plus plans, and some tax-advantages funds. Of course, you'll also have access to all of the features from the Core and Basic account. The advanced plan requires a $10,000 minimum investment.
- Premium – The premium account is unfortunately only available to accredited investors and takes $100,000 to buy in. This will provide you with tons of advanced features and priority access to Fundrise's investment team PLUS a full year of advisory fees waived if you refer someone else.
In general, Fundrise is great for investors with a long-term outlook looking for investment options that will give them diversification beyond just stocks and bonds. If you're willing to do a little bit of your own due diligence, Fundrise could be the right platform for you!
DiversyFund is a really special real estate investing platform which is unique in that it owns and manages properties directly instead of brokering deals between investors and projects. Because of this unusual setup, the DiversyFund doesn't charge any management fees at all!
The minimum investment is $500 and the fund is open to non-accredited investors. They also manage properties directly under the DF Growth REIT which is a public non-listed real estate investment trust. The one tiny downside about Diversyfund is that all of the dividends are reinvested, meaning that you won't realize any profit until the property is sold.
Here's how the returns work: after properties are sold, investors get a 7% preferred return. This means that the management company (DiversyFund) doesn't receive any money whatsoever until investors realize an annual compounded rate of 7% per year. After that 7%, the profits are split 65%-35% between investor and company until 12% is realized by investors. Then, any profit made after that is split 50/50.
In theory, this structure sounds good, but in practice, you don't realize any gains until AFTER the properties are sold. This means that it's likely you'll need to wait 5-7 years before you see any money at all. This can be a serious turn-off for some investors, but if you can stomach this, then DiversyFund might be for you.
DiversyFund is an ideal real estate investing platform to choose for nonaccredited investors who don't need their capital for many years to come, who don't want to pay exorbitant fees, and who are looking to diversify their portfolio into real estate.
Founded in 2013, CrowdStreet is an awesome real estate investing platform for accredited investors looking to do stand-alone deals. It is extremely user-friendly and works by linking up investors and project sponsors with project managers and the operators of the properties.
As of today, over 250 commercial real estate developers and operators have used CrowdStreet to fund their projects. On the other end of the transaction, over 100,000 users have invested with CrowdStreet and gotten a piece of a real estate project larger than them.
Though you may look at the words “commercial real estate” and just think of office spaces, CrowdStreet actually offers way more project types. This includes data centers, micro-unit multifamily, and charter schools. With CrowdStreet, you're sure to find a property that piques your interest and also suits you investing needs.
Finally, just in general, CrowdStreet is a great educational source. It provides an investment thesis for every single deal that it presents and also gives educational roundtables. Just in general, you'll probably become a better real estate investor by using CrowdStreet.
CrowdStreet is the perfect investment platform for an accredited investor who is willing to let their money sit for years (building over time). It helps if you're also extremely risk-tolerant (as these ARE sometimes risky hit-or-miss projects) and are willing to do your own due diligence into the deals that CrowdStreet has sent your way.
Pros and Cons
Before making any financial decision (be it buying a house, or opening an IRA, or investing in a mutual fund), it's important to weigh your advantages and disadvantages. At the end of the day, which real estate crowdfunding tool you choose to go with is a financial decision that could significantly affect your money situation. You'll want to know the pros and cons of each platform before diving in with your money.
Here are some of the pros and cons of each investment platform:
- Low minimum investment – At the end of the day, you're not going to find any other legit real estate investing platform offering as low of a minimum investment as $10. This is honestly a steal and a huge reason why you should at least give Fundrise some consideration.
- Easy-to-use website – The worst thing in the world is getting really excited about something, going to a website to check, and then not being able to navigate the site. With Fundrise, you don't need to worry about this as they have an extremely intuitive site that is easy to use and find information on.
- Open to everyone – It truly does not matter how much money you have at hand: you can invest with Fundrise. If you know NOTHING about real estate investing, but are still interested in tossing some of your money into a fund, go with Fundrise.
- Illiquid investment – Like basically all sites on this list, Fundrise is quite illiquid. This means that you shouldn't invest your money if you need it any time soon.
- Fees, fees, fees – If you're somebody who really likes to understand where your money is going, you probably aren't going to love Fundrise that much. Becuase of the way that it's set up, Fundrise charges confusing management fees that can be sometimes hard to sort through.
- Due diligence sometimes required – Most of the time, Fundrise will do their job in terms of screening the right projects, but sometimes they'll slip up. When/if they do, you need to be able to catch their mistake. Being able to do a little bit of due diligence helps with this a lot.
- Access to commercial real estate – DiversyFund specializes in commercial real estate, meaning that if that's the area you're interested in, DiversyFund is definitely the place you want to be.
- No management fees – Because of the nature of their company, DiversyFund charges 0% management fees which is AWESOME considering how some private equity shops charge as much as 2% per year on Assets Under Management + 20% off total profits.
- Easy to get started – You don't need to be an accredited investor and only need about $500 to start investing with DiversifyFund.
- Highly illiquid – If you thought Fundrise was restrictive, you're not going to love DiversyFund. DiversyFund makes you wait until AFTER everything is finalized before you can even sniff your money. This can be as short as 5 years out or as long as 15 years out.
- Limited choices – Because there can only be so many commercial properties for sale at once, it means that there are limited choices for the various commercial properties you can invest in.
- Potential high-returns – Compared to other real estate investing platforms, CrowdStreet has the potential to give you higher returns.
- Simple website layout – Similar to Fundrise, CrowdStreet also has an extremely easy-to-use website. You'll love CrowdStreet if you're one for digital simplicity.
- Gives you access to commercial real estate deals – Like DiversyFund, you can invest in commercial real estate deals with CrowdStreet. If you're tired of just looking at residential real estate and want to shake your portfolio up, CrowdStreet could be a good option.
- Very illiquid investments – If you want to make a quick return on your money, CrowdStreet is not the right real estate crowdfunding platform for you. It will likely be years before you can even see your money.
- High minimum investment – The $25,000 minimum investment really prevents some people from investing in the fund.
- Need to be accredited – Unfortunately, if you're not an accredited investor, CrowdStreet investing will not be available to you. This is a severe barrier to entry that keeps a lot of people from realizing the benefits of CrowdStreet.
Fundrise vs DiversyFund vs CrowdStreet Recap
In today's day and age, investing is easier than ever. A hundred years ago, you had to go to a physical stock exchange and then fill out paper orders to buy a stock. Today, you can buy a stock while sitting on the toilet and it'll take you less than 5 minutes.
Real estate, though a slower industry, has taken on a similar trend. Nowadays you can invest in real estate without ever laying eyes on the property your money will be going to. You can do this all online through REITs or crowdfunds. This post covers some of the best real estate crowdfunding platforms and compares them.
As a quick recap, here's what's unique about each of these platforms:
- Fundrise – Has an extremely low minimum investment which makes real estate investing accessible to almost everyone. Their brand is similar to Robinhood's (make investing available to as many people as possible)
- DiversyFund – Manages and owns properties directly which means that you don't get charged a management fee. You also don't need to be an accredite investor to invest with DiversyFund.
- CrowdStreet – For real estate investors with a little more experience and who want to really take their investing to the next level. You'll need to be accredited to invest with CrowdStreet and the minimum investment amount is $25,000.
So there you have it: a detailed breakdown of Fundrise vs DiversyFund vs CrowdStreet! Hopefully, you've learned something new from this post and will start taking this information and applying it to your financial decisions.
As a reminder, I am not a financial advisor and you should definitely consult with one before making any investment decision. Happy wealth-building everyone!