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Real estate is one, if not the best, way to invest and build wealth. Going back hundreds of years, real estate have performed very well, despite some periods of down turns. However, owning many physical properties in a portfolio can be a burden for some investors.
I know people who have become landlords of many properties and they have done well. For them is a way to make passive income.
I’m not one of those people. A few years ago I bought a small property for investment and after one year of renting it I decided to sell it.
Thankfully, I was able to sell at a small profit. But dealing with repairs, maintenance and whatever else goes wrong with a property is not my cup of tea.
In my opinion real estate is still a top investment choice to build wealth. So, I decided to investigate and invest in alternatives to properties’ investments.
It turns out there are a few options to invest in real estate, without owning physical properties (other than your primary home).
The market disruptor is real estate crowdfunding.
The simple definition of real estate crowdfunding is direct investment in a real estate project.
Before turning to our topic “Real Estate Crowdfunding”, let’s see about other vehicles to invest in real estate. Aside from private and closed investment opportunities, we have the options of investing in REITS mutual funds and REITS ETFs.
REITS mutual funds and ETFs are like stocks, traded in the stock market. there are very liquid and some have very good returns. These funds are made up of real estate companies stocks. Therefore, by investing in these funds, you’ll be diversifying your portfolio.
These funds don’t give you specific exposure to, for example, a project in Florida or other state. They do give you exposure to a group of real estate companies. Some investors may be ready for deeper diversification. They want to invest in specific projects with more focus. This is when Crowdfunding real estate comes in as an alternative.
Real Estate Crowdfunding for Non Accredited Investors
Crowdfunding in real estate is not a liquid investment. You can’t buy your shares and sell them in the market, like stocks or mutual funds. This makes these projects riskier than liquid investment instruments. You get a return on your money and your principal (provided the project made money) at the end of a project. Unless you buy the eREITS, these have more liquidity.
The illiquid nature of real estate crowdfunding creates the need to limit losses to investors that can’t really afford to lose a lot. That’s when accredited and non accredited classifications come into play.
Some of the real estate crowdfunding platforms require you to be an accredited investor. Other platforms accept non accredited investments.
A non accredited investor doesn’t have any requirements. However, to be an accredited investor, you need a net worth of $1 million, not including your primary residence. Also, if you earn $200,000 a year this can qualify you as an accredited investor.
Platforms to Invest in real estate crowdfunding
A real estate crowdfunding platform works with projects sponsors to offer investors the opportunity to invest directly in new developments. These platforms provide the technology and accessibility to the crowdfunding market. The number of platforms have been increasing in the last few years. This increase is a sign of the industry’s future potential, it looks exciting.
Here are 4 of the top real estate crowdfudning platforms
Fundrise – This company invented a platform for non accredited and accreditedinvestors to invest in crowdfunding real estate. It’s one of the leader in the non accredited segment of crowdfunding.
The company offers eREITs, which are electronic REITS for as little as $1,000 initial investment. This platform offers products according to regions, for income or for growth purposes. Fundrise also offers ePlans for as little as $500 initial investment.
Rich Uncles – This company is for accredited and non accredited investors. the platform is very focused on the university students housing around the country. You can invest as little as $5 to own shares of REITs and get paid monthly dividends. So, if you want to hyper focus on the student housing market, this is a good option to collect dividends.
RealtyMogul – This platform is for accredited and non accredited investors. The focus is on commercial real estate. REITS are available for both types of investors. Direct investments on specific projects are available for accredited investors, for a minimum of $5,000.
EquityMultiple – This platform is for accredited investors only. The focus is on institutional commercial real estate. You can invest in projects via equity or debt investments, The minimum investment is $5,000.
These are only four of the real estate crowdfunding sites, there are many more new comers and established ones. However, they all basically offer similar products to invest in real estate.
Is Real Estate Crowdfunding a good investment?
Real estate in general is a good investment and if you’re into building wealth, you need real estate. How you do this depends on your investment style, risk appetite and your goals. For passive investors who want more direct investments, but also want to focus on one or two particular markets, crowdfunding is the answer.
Alternatives real estate investing
Real estate investing can be lumped into passive and active investments. Passive investments include real estate mutual funds, ETFs and crowdfunding ventures. The ideal investor for passive investments is one who want to diversify into real estate, but don’t want to manage physical properties.
Active real estate investing is for people who want to invest in real estate properties for income or for appreciation. This type of investment include renting thru AirB&B, renting part of your primary residence and buying rental properties. This is for people who don’t mind managing properties.
Real estate crowd funding is a new industry with good potential, perhaps even becoming the future of real estate investing. But this does not mean that there aren’t risks with this industry. Those companies that focus on real estate and are transparent, will do well. Those that are not disciplined and focused wont have a future. Pretty much like in any other industry, eventually there will be winners and losers. The best will raise to the top.