If you don’t know what real estate crowdfunding is, I suggest you go read my comprehensive review of the real estate crowdfunding marketplace or this story on the equity crowdfunding space. Long story short, real estate crowdfunding is the simple idea of allowing accredited and non-accredited investors to buy, hold and sell fractional ownership in real estate assets, like they buy, hold and sell stocks.
The implications therein are profound, since real estate investments offer big yields, huge cash flows, steady income, attractive diversification, and a strong track record of asset appreciation.
But, if you’re still reading, you already know that (else you should be reading here). And, if you already know that, then you aren’t looking for a rundown of why real estate crowdfunding is a good thing to do. You’re looking to find out which real estate crowdfunding platforms are the best.
To do that, we have to answer three very important questions.
- Is the platform legit? Because this industry is relatively new — crowdfunding wasn’t legal until 2016 — there are still lots of low-quality, scam-like platforms out there which investors should avoid.
- Who is the platform for? Each platform positions itself differently in terms of what type of investor it caters to. Some are for accredited investors (wealthy individuals with $200,000-plus in annual income, and/or a liquid net worth of over $1 million). Some are for retail investors (the rest of us). Knowing the difference is very important to optimizing your crowdfunding experience.
- What type of investments are on the platform? Each crowdfunding platform also offers different investment opportunities. These differences are with respect to the quality, liquidity, and geography of the investments, as well as many other qualities. Knowing the differences here is also very important to optimizing your crowdfunding experience.
With all that in mind, let’s review one of the more popular real estate crowdfunding platforms out there: Fundrise.
Is Fundrise Legit?
The answer here is unequivocally yes. Next to Cadre, Fundrise is arguably one of the most legit real estate crowdfunding platforms out there.
Fundrise is one of the oldest and largest crowdfunding platforms in the market. Its track record and size alone make it one of the more reputable crowdfunding platforms out there. But, even further, the company regularly files reports with the Securities and Exchange Commission (SEC). As one can see from those reports, this is a very well-capitalized company, with a strong balance sheet, and little insolvency risk.
As such, investors don’t need to worry about Fundrise and its legitimacy. This is a legit company, with enough resources and liquidity to sustain healthy operations for a lot longer.
That being said, there is one thing to note here: Fundrise makes most of its money from origination and acquisition fees, not investor fees. That creates a conflict of interest, since Fundrise’s revenues are tied to volume of projects on its platform, irrespective of quality of those investments. It also puts the company’s revenues at greater risk of falling during an economic downturn when the pace of originations slows, which means the company could be under intense pressure to up its fees.
Who Is Fundrise For?
Fundrise, although it allows accredited investors, is built with an eye towards retail investors.
You don’t need to make more than $200,000 per year to invest with Fundrise. Nor do you need a net worth above $1 million. Instead, anyone with a bank account can invest with Fundrise. The investment minimum is $500 — so you do need at least $500 to get started — but that is one of the lowest investment minimums in the whole crowdfunding space.
The fees on the platform also cater to smaller investors. That is, they are very small. Total maintenance fees amount to just 1% of net asset value. That’s about as low as fees get in the industry. There also aren’t any performance fees. As stated before, these fees could go up if the economy takes a downturn. But, for now, Fundrise operates with some of the lowest fees in the crowdfunding world.
What Type of Investments Are on Cadre?
When it comes to investment offerings, Fundrise is very unique.
Fundrise doesn’t allow investors to pick-and-choose investments. They don’t even allow investors to invest in just one project. Instead, investors sign up for an investment plan. Fundrise creates what it calls eREITs or eFunds attached to that plan. Investor money is then automatically allocated in the eREITs attached to their investment plan.
For example, Fundrise has three core investment plans: Supplemental Income, Balanced Investing, and Long Term Growth. The names are self-explanatory. Looking for yield and dividends? Go for the Supplemental Income plan. Looking for diversification and stability? Go for the Balanced Investing plan. Looking for long term asset appreciation. Go for the Long Term Growth plan.
Fundrise has smartly constructed eREITs which cater towards each investment. Say you pick the Long Term Growth plan. Your money will then be auto-invested into Fundrise eREITs designed specifically for long term asset appreciation.
For inexperienced investors looking to get their feet wet, this auto-invest program is quite attractive. It gives you exposure to what you want exposure to, without you needing to do homework on specific assets. But, for experienced and savvy real estate investors, this auto-invest program can be limiting.
Should You Invest With Cadre?
Fundrise is a great, low-hassle starter crowdfunding platform for retail investors who want to get their feet wet in real estate crowdfunding, but don’t have any expertise in real estate markets. In fact, for those investors, Fundrise is probably the best real estate crowdfunding platform out there.
But, for accredited investors with real estate investment experience, Fundrise can be greatly limiting, especially relative to other crowdfunding platforms. For those investors, platforms like Cadre and ArborCrowd are better options.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.