Mortgages & Creative Financing

5 Surprising Things to Know About Real Estate Crowdfunding

3 Articles Written

Crowdfunding has redefined the real estate industry and has quickly become one of the most lucrative ways to earn passive income. In fact, the average capital raised for private properties through crowdfunding is upwards of $63 billion. Aside from being a profitable investment tool, crowdfunding is also quick and easy. Signing up on a crowdfunding site is fast and simple and in a matter of minutes, you can peruse and select your perfect investment opportunity.

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Before taking the plunge into real estate crowdfunding, here are 5 things you need to know:

You don’t have to be a millionaire

Previously, investors had to be recognized and accredited; meaning that they had to have a minimum annual income of $200,000 or a net worth of $1 million. The fact is, only 9 million people in the United States meet these requirements. More recently, real estate professionals have made real estate crowdfunding more available to the general public, thanks to SEC Regulation A+. Most crowdfunding sites only require a $5,000 investing minimum, which is perfect for those with lower financial resources.

Related: What Exactly Real Estate Crowdfunding Is — And Why You Should Care

You can choose different types of properties

Real estate crowdfunding offers a variety of properties, including single and multifamily residences, as well as commercial properties.

According to Dr. Richard Swart, crowdfunding scholar at the University of California, Berkeley, investors prefer not to invest in larger commercial properties due to complex financing. They like going for six- or four-plexes and houses of similar nature.

Danielle Babb, the founder of The Babb Group, recommends investing in commercial real estate because "commercial property helps diversify risk." Should you lose one tenant in a 10-tenant space, you only lose 10% of that income. With real estate crowdfunding, you have the choice to select the property type that you're most comfortable with.

Your investment isn’t pooled

It's a well-known fact that REITs are unpredictable and provide little or no security in the return. However, investing through real estate crowdfunding gives you complete freedom and control over your investment. All an investor has to do is select a property and choose how much they want to invest.. With real estate crowdfunding, many projects secured by first lien position and personal guarantees.

There are lower risk levels in real estate crowdfunding

With any investment, both seasoned and inexperienced investors may incur losses. When investing through a REIT, investors are required to pay 25 percent of the property’s value upfront. For example, if the property were valued at $300,000, the investor would have to pay $75,000. Instead of investing a lump sum in just one property, real estate crowdfunding allows you to spread funds across multiple properties. Since most sites require a $5,000 minimum on each investment, that $75,000 example above would allow you to investment in 15 different properties. Therefore, reducing the risk.

Related: 3 Ways to Invest in Real Estate When You Simply Don’t Have the Time

You’ll earn passive income much quicker

Real estate crowdfunding is one of the most lucrative ways to earn passive income. Choose your investment, help to fund it and watch your wealth accumulate. No need to constantly monitor your investment. If you choose to work with a crowdfunding site that pre-funds their deals, you will start earning passive income immediately.

Crowdfunding has taken the real estate industry by storm and completely changed the way we invest in residential and commercial properties. Increase your wealth and project portfolio by investing through real estate crowdfunding sites. Now that you know the basics, it’s time to get started. Sign-up on a site and start investing and making money today!

Have you participated in crowdfunding real estate? What was the most surprising thing you discovered?

Steven Kaufman, CPA, MsEDE, is a finance enthusiast and the Chief Acceleration Officer and founder of Zeus Trust Company , which operates
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    Alex Morstadt Lender from Alexandria
    Replied over 4 years ago
    Great Article! What Real Estate Crowd Funding Sites allow non accredited investors to invest? When did that change? Thanks!
    John Champagne from Austin, Texas
    Replied over 4 years ago
    Hi Alex – Intrastate crowdfunding is regulated by the State and in Texas you are required to be a resident to participate. I’m with a real state crowdfunding company in TX and we allow non-accredited investors to fund with $500 up to the $5000 limit.
    Ken Montgomery Investor from Dallas, Texas
    Replied over 4 years ago
    Alex, it really depends on the structure of the offering. True interstate crowdfunding, when it goes live in May, will allow for non-accreds and most current intrastate crowdfunding allows for non-accreds. In TX, for instance, there is a $5K cap on non-accreds but accreds can exceed that. Once you get into Reg A+ and Reg D offerings then it really depends on the type of offering that you do. Since the final crowdfunding rules (which require SEC registration) will likely only allow a cap of $1 million in capital raise, most firms are using similar rules in Reg A and D to file and have higher caps for the raise ($20-$50 mil). Some exemptions are all accreds but some, like Reg A+, allow for non-accreds. But they must be ‘qualified investors’, a term not yet defined by the SEC. So there are ways to raise capital with non-accreds online but an attorney in this area, that is far more knowledgeable than me, would be a good call to make if you go one of these routes.
    Clayton Rokosh Future real-estate investor from East Selkirk, Manitoba
    Replied over 4 years ago
    Absolutely blew my mind when I read your article Steven! I recently developed a deeper understand of using other people’s money(OPM) for your investments and now I find this….It keeps getting better and better!
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied over 4 years ago
    I’ve been researching on syndication as a way to get into apartment buildings. I believe I should research crowdfunding deals as well. Thanks for sharing.
    Timothy Friars
    Replied over 4 years ago
    I actually thought this was going to be about getting others to crowdfund your own investments, not the other way around. Never done either. Sounds…intriguing…and scary to the control freak in me.
    Robert C. Real Estate Agent from Lakewood, Colorado
    Replied over 4 years ago
    Interesting,…need to learn more about it..
    Scott King Investor from East Hampton, New York
    Replied over 4 years ago
    Ok so how would I get funding for my projects?
    Elizabeth Stewart
    Replied almost 4 years ago
    “When investing through a REIT, investors are required to pay 25 percent of the property’s value upfront.” Do you have a source for this information?