3 Crowdfunding Platforms I’d Recommend Based on 3 Years of Investing Across 35 Projects

by | BiggerPockets.com

As a physician, podcasts have been an absolutely critical component in my journey in learning about alternative assets, with BiggerPockets leading the way when it comes to real estate. I had the honor to be a guest on episode 219 where Brandon, Josh, and I focused on some of the more passive investing strategies suitable for time-constrained busy professionals like me, including things like turnkey rentals, private mortgage lending, and real estate crowdfunding.

I was an early adopter in the crowdfunding arena, having invested since late 2013, and many of you have reached out to me on the heels of the podcast interview wanting to know a few more details regarding which platforms I use and what my results have been, so I thought I would write this blog post to address these points.

Out of the nine different sites I am currently on, I am going to highlight three platforms that have distinct profiles in terms of the types of deals they offer. Each meets the following criteria:

  1. The platform has been in existence for a minimum of three years.
  2. I have been investing on it for at least two years.
  3. I have had at least one successful exit on a deal.

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3 Crowdfunding Platforms I’d Recommend Based on 3 Years of Investing

1. RealtyShares

So let’s start with RealtyShares.com, which I would consider a sort of jack-of-all-trades in that they offer a wide variety of deals, including single and multifamily residential, as well as commercial projects.

They offer first and second position debt, as well as plenty of equity opportunities. Depending on the type of project and deal size, their investment minimums vary greatly, and while their website banner says the minimum is $5,000, in actuality, they have projects you can participate in for as little as $2,000, ranging up to $30,000. This is been my number one site by volume, and they have an ample diversity of offerings that can suit a number of investing styles.

2. Patch of Land

Next up is PatchofLand.com, and from the beginning, they have been focused exclusively on single family residential properties with first position debt for fix and flip projects.

Accordingly, these are all short 6-to-18 month duration loans with typical interest rates in the 9 to 12% range. The minimum investment is $5,000. Patch of Land is a particular favorite of mine because when it comes to crowdfunding, I only do first position loans.

Related: Why Crowdfunding is Becoming a Widespread Way for Investors to Enhance Their Finances

For now, both RealtyShares and Patch of Land are limited to accredited investors. According to the SEC, that means you either earn more than $200,000 annually as an individual, $300,000 as a married couple, or have a net worth of $1 million minus the value of your primary home. With only 4% of the population meeting these criteria, it obviously limits the number of people who can participate, as the vast majority of platforms have this restriction. There is one platform I know of that doesn’t have this restriction, and it is called Groundfloor.com.

3. GroundFloor

Their mission has always been to cater to the non-accredited investor with residential fix and flip projects using both first and second position debt with an investment minimum at an unbelievable $10 to participate! They advertise average returns of 10% since their founding in 2013. A BIG non-financial restriction for GroundFloor, however, is that you must be a resident of one these eight states to invest.

It is a long and complicated regulatory issue as to why this is the case, but I know they are working to get a 50-state exemption, so check back for updates.

So, when I’m going on a site looking for a debt deal, there are some pretty standard elements presented to you in the user interface. Besides the standard array of pictures, you will see the overall loan size, which in this case is $147,000 with an interest rate of 10.25% and a 12-month term. You will also be presented with the after repair value (ARV) percentage, which ideally should be below 65% to 70%. There’s a graph indicating what percentage of the loan has been funded, and from my experience, most projects will fund anywhere from a few days to a week from the time they are listed.

The platforms also provide an abundance of electronic documentation, allowing investors to perform a thorough “digital due diligence” prior to committing any money. Items typically included are the developer’s track record of past projects, renovation scope of work, and some form of price analysis, such as an appraisal or market comparable. On the more long-term equity projects, the capital structures can be more complex and may include components like preferred equity and mezzanine debt.

I have certainly seen many projects get funded in a matter of hours, particularly if they’re in favorable geographic locations or the interest rate offered is very attractive. Of course, this sometimes makes it impossible to go through all of the due diligence documents and highlights one of the fundamental limitations about real estate crowdfunding: You have to trust the platforms underwriting processes. When it’s all said and done, you must have confidence that all of the deals listed have been scrutinized thoroughly. The platforms certainly have the incentive to do this because if too many deals fail to perform, investor confidence and capital would be quickly lost with very little chance of earning it back.

Related: 7 Elements to Look for in a Real Estate Crowdfunding Portal

Thus far, I think my experience validates solid underwriting. Out of the 35 projects I participated in, I’ve had 17 successful exits, 15 are current and performing as expected, while 3 are in some various stage of the foreclosure process. My overall returns have averaged a very satisfactory 11% annually for 3 years. With the foreclosures, I’m getting regular email updates from the platforms, and in all cases, they are confident that my original capital will be returned after taking possession and a subsequent liquidation sale. These relatively few negative experiences reinforce my original decision to stick with first position debt, as ultimately this is the safest place to be in the capital stack when inevitably some deals don’t perform as expected.

In summary, real estate crowdfunding represents an exciting and emerging asset class that is bringing an unprecedented level of access to the retail investor by leveraging the power of the internet. It represents a welcome way for me to diversify my lending portfolio and deserves a serious look for the studios investor willing to learn about the industry.

Have you tried out any crowdfunding platforms? Any recommendations you’d add to this list?

Leave your comments below!

About Author

kenyon meadows

Kenyon Meadows M.D. is a practicing radiation oncologist and alternative investment enthusiast. He owns a portfolio of single family rentals, does private mortgage lending, and has participated in dozens of real estate crowdfunding projects. He blogs at AlternativeFinancialMedicine.com and is the Author of Alternative Financial Medicine: High Yield investing in a low yield World. Besides real estate, his investment interests include peer-to-peer lending and small business lending among others. His insights have been featured on MSN Money and in The New York Daily News.

23 Comments

  1. Keri Middaugh

    Thanks for these recommendations! 2 questions: can an investor use Self-Directed IRA funds to make loans like this? And, do you have any platform recommendations for non-accredited investors in Michigan? Thank you!

  2. Sonia Spangenberg

    This was a helpful article, Thanks. The subject is one I have been interested in. I have not dug too deeply on this topic because I knew I am not an accredited investor, Yet! Do you have any affiliation with the three funds you recommended, other than your own investments? And, of the three foreclosures you are dealing with, which fund are they with, or are they distributed in various funds? I have been trying to think of ways to invest my pool of funds for capital expenditures and this might be a good option. I am thinking I could cover expenses with a 0% credit card and pay it off with my invested funds later. I was actually thinking of approaching a local Hard Money lender that has excellent standing, but wondered about SEC stuff. The shorter terms in the Ground Floor option could work, but I am wondering if that one has higher potential for foreclosures actions. Let me know what you think

    • kenyon meadows

      I have an ?absolutely minute? equity stake in the realtyshares platform. Otherwise I am purely an investor on all of the others.

      I prefer not to say which platforms have had the foreclosures until I have a successful resolution. I wouldn’t want to be accused of painting anyone’s impression of them prematurely. I can say that I will not have any reservations about continuing to invest on those very same platforms unless there is a rash of bad deals of course.

  3. Justin Kovach

    Love the article. Could you extend it to add a fourth platform that the non-accredited investor in the 42 ‘gray’ states could invest in? I was really intrigued by your podcast and did some research on some site but all the ones I found required you to be accredited. For those of us that are almost there its frustrating. Like standing at the window of the buffet, knowing you have studied this stuff for hundreds of hours but you aren’t allowed to taste it just yet!

    • kenyon meadows

      Check out Fundrise.com and Realtymogul.com…..they have private non traded REITS that you can invest in as a non accredited investor. It’s not the pure real estate crowdfunding model where you are investing in a single project. They have relatively low investment minimums of $1,000 I believe.

  4. Jayaram Mulupuru on

    Could you share your experience with RealtyShares projects that you have invested in? Specifically, count of successful exits, in progress and meeting performance, or in foreclosure process?

  5. William Randolph

    Thank you for the article and the podcast. Very well done. My question… How are taxes addressed? Are they assessed annually on earnings or if your assets stay in the platform are they considered long-term capital gains if over 12 months? Thanks again…

  6. kenyon meadows

    Having done only debt on the crowdfunding, the tax treatment of the interest is as ordinary income. If they do things like some of my traditional offline equity deals they provide a K-1 reflective of distributions minus the expenses, depreciation etc to mitigate the taxes.

    • kenyon meadows

      I am on Peerstreet and they seem to be going about things in the right way. The only reason I haven’t pulled the trigger on an investment with them is that their interest rates seem to be 1 to 2% lower than available on any of the other sites I invest on.

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