Investing in GP Fund vs deal by deal
June 19, 2024
Crowdfunding for real estate projects is on the rise, offering investors the opportunity to fund residential and commercial developments.
In this article, we share details about 9 leading real estate crowdfunding platforms that are making waves in the industry. Whether you’re a seasoned real estate investor looking to expand your holdings or a novice looking to dip your toe into the market, these leading crowdfunding sites offer options to suit different interests and investment styles.
We also explain the differences between sites that allow you to invest in fund-like structures like REITs, others that allow you to invest directly in individual developments through syndication, and sites that connect and educate investors and operators.
Read on!
Real estate investing platforms have become increasingly popular in recent years as a way for investors to gain exposure to real estate without having to directly purchase and manage properties.
Depending on the types of investments offered and regulatory environment, such real estate platforms also can provide a simple and accessible way for both accredited and non-accredited investors to invest in real estate opportunities like rental properties, commercial real estate, real estate funds, and more.
Real estate investing platforms essentially act as marketplaces that connect investors with investment sponsors, developers, and fund managers. Investors can browse investment opportunities, conduct due diligence, and invest in projects that match their investment goals and risk tolerance.
While traditional real estate investing requires large amounts of capital and hands-on property management, real estate investing platforms allow you to invest in real estate passively with much lower minimums. Investments may include equity, debt, or fund structures.
With the growing number of real estate investing platforms available, it’s important to choose the right one for your specific needs and goals.
Key factors you should consider:
Doing thorough due diligence on various real estate investing platforms will help you find one that is legitimate, secure and matches your investing style and goals.
Fractional real estate investing and real estate syndication are two different ways to invest in real estate. In fractional real estate investing, multiple investors own a portion of a property, sharing the costs and splitting the profits. This type of investment allows retail investors to take part in the booming real estate investment world without being rich.
On the other hand, real estate syndication is essentially a real estate investor partnership where multiple investors pool their resources together to fund a single investment. These partnerships can open the door to larger investment opportunities like multifamily properties or commercial office buildings.
While both offer unique advantages, the choice between the two depends on an investor’s personal situation, risk tolerance, and investment goals.
When considering a real-estate investment platform, it is thus imperative to understand what you are investing in: is it a fractional investment in a fund like structure (which is an equity investment in a typically regulated vehicle such as a REIT) or is it a passive investment in a real-estate syndication (which is typically a common or preferred equity investment in an LLC).
Real estate investment platforms typically come with two different options: either to invest into a REIT or a similar, fund-like structure. Or to invest into syndications, which is a private investment into a company or partnership typically looking to construct or operate a single residential, commercial or multi-family project.
It is important to understand the difference, as the risk factors vary considerably.
A REIT is a company that owns, operates, or finances income-generating real estate. Investors buy shares in the REIT, similar to buying stocks in a company. The REIT uses the funds from investors to purchase and manage properties, and profits are distributed as dividends. REITs are typically publicly traded, which provides investors with liquidity as they can buy or sell shares at any time. However, this also means that REITs are subject to strict regulations and may be prohibited from investing in certain assets. Furthermore, while REITs aren’t particularly risky investments, they don’t appreciate in value as much as other investments might.
On the other hand, a real estate syndication is a partnership where a group of investors pool their resources to invest in a property. In this setup, the investors are considered limited partners and have no management responsibilities. The day-to-day operations and decision-making are handled by the sponsor or general partner. Unlike REITs, syndications often have a defined holding period for the asset, during which investors’ funds are locked in and cannot be easily accessed or sold.
Another notable distinction lies in the tax benefits. Passive investors in syndications privately purchase direct shares in the LLC that owns the real estate asset, enabling them to access tax benefits, depending on the jurisdiction and local tax laws. This is not the case with investing in a public REIT.
Both REITs and real estate syndications offer opportunities for passive investment in real estate, but they differ in terms of liquidity, control, ownership, and tax benefits. The choice between the two would depend on an investor’s financial goals, risk tolerance, and investment horizon.
We completed a list of nine popular real estate investment platforms, ranked in no particular order and listing some key features, pros and cons of each.
Investbase is a platform that simplifies real estate investing by offering opportunities to invest in real estate syndications. The platform welcomes both accredited and non-accredited investors, providing them with access to a vast network of operators and enabling investing with as little as $25K.
Key features:
| Pros | Cons |
| Opportunity to find attractive commercial real estate deals, syndications and operators. | As with any investment, investments in real estate syndications come with risks, including volatility and lack of control. |
| Educational content about real estate investing such as Youtube videos, blog articles and events. | Like any other stock or mutual fund, returns from investments are not guaranteed. |
| Ability to view reviews and ratings of GPs. | High minimum investment amount |
| Community fostering transparency and exchange of information among investors. | Platform doesn’t offer a direct route to investment as 95% of offerings are 506(b), which requires you to know the operators before you invest. So you need to connect with the operators first. |
Fundrise is one of the largest and first real estate crowdfunding platforms. They pioneered the eREIT model that allows everyday investors to invest in private market real estate opportunities through real estate funds. Investors can build diversified portfolios with low minimums.
Investors can choose from three investment strategies offered by Fundrise: Real Estate, Prive Credit and Venture. Each strategy holds a varying assortment of investments. The company also offers a Pro account account to build a custom investment plan.
Key features:
| Pros | Cons |
| Fundrise has demonstrated strong returns for investors in the past, although this is no guarantee for future returns. | Lack of Liquidity: The primary drawback of Fundrise is the lack of liquidity. Its portfolios are designed in such a way that funds are invested for the long term, although there are quarterly liquidity windows. |
| Fundrise’s low minimum investment requirement makes it a beginner-friendly option for those looking to break into real estate investing. | Possible additional fees: While Fundrise clearly notes its asset management and advisory fees, it reserves the right to charge additional fees. |
| Variety of Investment Options: Fundrise offers a range of investment strategies, allowing investors to choose the one that best suits their financial goals. | Fundrise is a type of a REIT, which means you aren’t investing into a real estate asset directly. Buying shares of a REIT is similar to buying shares of other investments, such as mutual funds. |
RealtyMogul, a prominent player in the real estate crowdfunding sector, offers investors an opportunity to diversify their portfolios beyond traditional stocks and bonds.
Investors can choose between Income REITs and Growth REITs, providing opportunities for passive income through rent payments or growing property value.
Additionally, RealtyMogul offers private placement investments in individual properties, to qualified, accredited investors through “Private Placements” which are structured as an LLC and designed to meet specific objectives.
The platform also simplifies commercial real estate investing by giving members access to vetted opportunities with the potential to generate passive income.
Key features:
| Pros | Cons |
| Platform provides opportunities for both passive income and capital appreciation. | The minimum investment for REITs is $5,000, which may be prohibitive for some investors. |
| REITs have generated an annualized cash distribution between 6% and 8%. | Non-accredited investors are also unable to invest in individual properties in the LLC structure. |
| 10 years of history and over $1 Billion invested on the platform. | Fees charged by RealtyMogul may be higher than those associated with traditional low-cost mutual funds or ETF investing options. |
Yieldstreet is a leading private market investment platform that has revolutionized the world of alternative investing. Established with the aim of making investing more accessible and less intimidating, Yieldstreet provides its users with an easy-to-navigate platform to dive into the world of alternative investments with confidence and ease.
The platform offers a wide range of investment opportunities across multiple asset classes. From commercial real estate, venture capital, private equity, art, short term notes, and more, Yieldstreet investors gain exclusive access to a diverse portfolio of opportunities. This unique feature sets it apart from other real estate investing platforms.
Key features:
| Pros | Cons |
| Broad Selection of Asset Classes: Yieldstreet offers a variety of asset classes, allowing investors to diversify their portfolios. | Risk: Yieldstreet’s investments are both fixed-income and high-risk, which may not be suitable for all investors. |
| Customizable Investments: Yieldstreet offers a customizable set of investments tailored to individual preferences. | Yieldstreet has faced some controversies with regulators in the past. |
Arrived Homes is a real estate investment platform with the primary goal of empowering individuals worldwide to build wealth through modern real estate investing. Based in the Greater Seattle Area, Arrived Homes provides rental home investment services designed to raise capital and help people achieve financial independence.
The company’s unique business model allows anyone to purchase shares of rental properties and earn a passive income while the company handles everything from property acquisition to necessary improvements and management of daily operations. This innovative approach to real estate investment has made it possible for individuals to reap the benefits of owning rental properties without the need for substantial capital or dealing with the hassles of property management.
Key features:
| Pros | Cons |
| Accessibility: With a low minimum investment requirement, Arrived Homes makes real estate investing accessible to many who might not have been able to afford it otherwise. | Limited Investment Selection: As of now, the platform offers a relatively limited selection of properties for investment. However, this is expected to expand over time. |
| Passive Income: Investors can earn consistent passive income through quarterly dividends and potential appreciation from increased property value at the end of the investment holding period. | Long-Term Commitment: Investments with Arrived Homes typically require a longer term commitment |
| No Management Responsibilities: Investors do not have to deal with tenants or any property-related issues, as Arrived Homes handles all property management tasks. | New Platform: Being a relatively new platform, Arrived Homes does not yet have an extensive track record. |
Parcl is a revolutionary real estate investment platform that leverages blockchain technology to enable access to the global real estate market.
Parcl’s platform allows users to invest in digital square feet of physical real estate, mimicking the price behavior of the real estate market. This innovative approach provides investors with exposure to high-demand markets such as New York and Los Angeles, which are traditionally challenging to invest in due to high prices and agent fees.
Key features:
| Pros | Cons |
| Global Market Access: Parcl offers access to real estate markets around the world, allowing investors to diversify their portfolios. | Requires Blockchain Knowledge: Basic understanding of the blockchain ecosystem is necessary to use Parcl. |
| No Minimum Investment: Parcl requires no minimum investment, making it accessible to a wide range of investors. | No Direct Ownership: Investments in Parcl do not confer direct ownership interest in underlying properties. |
Holdfolio is a private online real estate platform that specializes in equity investments in multifamily value-added deals. The company was previously involved in single-family residential rentals but has since shifted its focus. Holdfolio’s unique approach involves each real estate deal only being a single property, with no multi-property funds involved.
Compared to other real estate investing platforms like REITs and real estate crowdfunding, Holdfolio offers a unique approach by focusing on individual properties rather than diversified portfolios.
Key features:
| Pros | Cons |
| Offers a passive, long-term investment strategy. | The platform may not provide the same level of returns as traditional real estate investments due to lower initial investment thresholds and fees charged by crowdfunding platforms. |
| Focuses on multifamily properties, which are often more stable than single-family properties. | The success of the company and its ability to make distributions depends on several factors, including some beyond the control of the company. |
| There are risks associated with real estate investing, including changing laws, environmental risks, and market volatility. |
Fractional.app is a San Francisco-based fintech startup that offers a social platform for fractional ownership of real estate properties. The platform allows individual investors to co-invest in real estate with other investors, enabling them to co-own properties, collaborate on decisions, and share ideas within the community.
Key features:
| Pros | Cons |
| Lower investment burden due to cost-sharing. | Limited property selection for diversification. |
| Opportunity to co-own and manage real estate properties. | Disputes among co-owners may arise regarding property management. |
| Access to a network of like-minded investors. | Risk of illiquid shares that are difficult to sell. |
CrowdStreet is a leading online private equity real estate investing platform that provides investors with direct access to commercial real estate opportunities. Since its inception, CrowdStreet has funded over 700 projects.
Key features:
| Pros | Cons |
| Access to a wide range of commercial real estate projects nationwide. | Only available to accredited investors, limiting accessibility. |
| Robust research on each project provided by the platform. | Requires a significant amount of time for research and due diligence. |
| Suitable for both active and passive investors. | As with the stock market or any investment, there’s a risk of losing money. |
June 19, 2024
May 27, 2024
