Crowdfunding vs Rental

7 Replies

With the very few details you provide here, there are just way to many variables to compare.  For example are buying a rental and adding value/equity to it or buying turnkey at market rate?  Is the crowdfunding a leveraged fund or is it all cash?  A lot more questions to be explored?

Certainly the crowdfunding is more passive than buying a rental, and the trade off is less control?  Here's an article I wrote in my BP blog on Three Key Routes for Passive Real Estate Investing that might help you think through.

Yes, can't really answer your question without a lot more details on exactly what crowdfunding deal you are looking at (is it equity or debt, is it commercial or residential, what strategy)? And then on the rental property what are you looking to compare it to (multifamily, residential, duplex/triplex, etc.). Are you managing the rental property or having someone else manage it? Etc.

@Awais Sheikh , I do both because both have their pros and cons and in my opinion neither is 100% superior to the other.

Rental properties are nice because you have direct control over them. Based on your risk tolerance, you can choose exactly how much leverage you're going to put into it, how risky or conservative of the neighborhood you're going to go into, whether you want to target price appreciation or income, etc. The downside is that you have to have enough knowledge and time, and the inclination to do all this work. You can outsource some of it, for example to property managers, but you still need to know what you're doing or you can be taken advantage of and/or lose lots of money by making rookie mistakes. There are some that go a step further and will outsource the acquisition of the rentals as well. (I'm personally not comfortable with doing that, but some are). But in my opinion, it's a very solid asset class (as long as you do it correctly and underwrite conservatively).

Crowdfunding is a passive investment, so the hardest part is choosing the investment and after that you don't have to do anything. And if you choose well, you should be getting much more professional management and experience in you personally could provide (although in exchange for a management fee). The biggest advantage is that the minimums are much lower, because you're pulling your money with others. On some platforms it might be as low as $500, which allows you to diversify into many more properties than most people could do on their own. You can also diversify by investment strategy (core, core plus, value-added, opportunistic), capital stack (equity versus debt) and asset type (residential versus commercial, multifamily, hotels, retail, you name it). The disadvantage is that you have to be able to feel comfortable vetting a sponsor and then turning over complete control to them, which not everyone can do.

Originally posted by @Ian Ippolito :

@Awais Sheikh, I do both because both have their pros and cons and in my opinion neither is 100% superior to the other.

Rental properties are nice because you have direct control over them. Based on your risk tolerance, you can choose exactly how much leverage you're going to put into it, how risky or conservative of the neighborhood you're going to go into, whether you want to target price appreciation or income, etc. The downside is that you have to have enough knowledge and time, and the inclination to do all this work. You can outsource some of it, for example to property managers, but you still need to know what you're doing or you can be taken advantage of and/or lose lots of money by making rookie mistakes. There are some that go a step further and will outsource the acquisition of the rentals as well. (I'm personally not comfortable with doing that, but some are). But in my opinion, it's a very solid asset class (as long as you do it correctly and underwrite conservatively).

Crowdfunding is a passive investment, so the hardest part is choosing the investment and after that you don't have to do anything. And if you choose well, you should be getting much more professional management and experience in you personally could provide (although in exchange for a management fee). The biggest advantage is that the minimums are much lower, because you're pulling your money with others. On some platforms it might be as low as $500, which allows you to diversify into many more properties than most people could do on their own. You can also diversify by investment strategy (core, core plus, value-added, opportunistic), capital stack (equity versus debt) and asset type (residential versus commercial, multifamily, hotels, retail, you name it). The disadvantage is that you have to be able to feel comfortable vetting a sponsor and then turning over complete control to them, which not everyone can do.

Thank you for your insights. It’s very helpful 

@Awais Sheikh my advice is simple. Get so much education and training that you know the correct answer (for you and your situation) without any doubt.

You'll make higher returns as an operator if you can execute a full time real estate biz.  

If you go passive get some education in that realm and underwrite 100 deals before investing in one. Doing so will give you a better feel for a good deal. You'll need to manage project and sponsor risk.

All the best man!

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