Best Real Estate Crowdfunding Platforms For Non-Accredited Investors

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August 27, 2022

Adam K. |

7 Minute Read

If you are a non-accredited investor looking to invest in real estate but are unsure where to start. We will show which platform shines above the rest and everything you should know before you start investing.

Skyscraper

Best Overall: Groundfloor

GROUNDFLOOR is an award-winning real estate investment platform. This platform took the honor as the best lending platform at the Benzinga fintech awards in 2020.

Groundfloor

Minimum Investment: $10

10% average interest

Groundfloor enables non-accredited investors to invest in short-term real estate loans starting at just $10, with most loans averaging 6 – 12 months in duration, while most real estate crowdfunding platforms require you to lock up your money for at least 5 years or pay a fee to sell your shares early. Plus, investors can pick which loans they want to fund, creating a truly diversified real estate portfolio on their terms. And this is why Groundfloor is my number one choice for real estate crowdfunding investing if you are a non-accredited investor.

What I Like About Groundfloor

  • Low Investment Minimum. Invest just $10.
  • Zero Fees For Investors. Borrowers pay fees.
  • Short Investment Timeline. Most loans range in duration from 6 to 12 months.
  • Risk/Return Profile. Groundfloor loans range from A (lowest risk) with yields starting at 5% to G (highest risk) with a yield starting at 15%. There are investment options for investors with all types of risk appetites.
  • Greater Control. You can choose the projects you want to fund and how much you want to invest in each project.
  • Multiple Investment Options. Other crowdfunding platforms only offer a limited number of investment options at a given time.
  • Earn 4 – 6% prefunding loans. The Stairs by Groundfloor app allows investors to earn 4 – 6% interest, paid weekly for prefunding real estate loans.

Now, even though Groundfloor is my number one choice, every platform has its shortcomings. Let’s look below:

Where Groundfloor Falls Short

  • No Liquidity. Groundfloor does not offer an option to sell your position early. Given the short duration of the notes (6-12 months), it shouldn’t be a problem for most investors.
  • Limited Investment Types. Loans are only for residential real estate investors. Other platforms offer commercial real estate, residential real estate, REIT investing, and 1031 property investments.

Runner-Up: Fundrise

Fundrise is arguably the most well-known private real estate platform. They have been around since 2010 with over 300,000 investors on the platform. In reality, Fundrise isn’t a true crowdfunding platform like Groundfloor, but they still enable individuals to invest in private real estate, through various REITs and Funds.

In addition, Fundrise allows investors to create a customized real estate investing strategy when they open a ‘Core’ account.

If you’re a non-accredited investor and are not sure where to start investing, Fundrise’s portfolio recommendation feature is a great option for you.

Fundrise

Minimum Investment: $10

Fees: 1%

What I like About Fundrise:

  • Strong Track Record – 21 consecutive quarters of returns, averaging 22.99% across all investors in 2021.
  • Low Minimum Investment: Open an account with just $10
  • History: Most mature crowdfunding platform – founded in 2010
  • Customized Recommendations: Real estate portfolio recommendations are created for your risk tolerance.
  • Multiple Investment Strategies: Depending on your goal, they offer income generation and capital appreciation.
  • Mobile App. Fundrise is one of the few real estate platforms that offer non-accredited investors a mobile app.

Where Fundrise Falls Short

  • Overwhelming Number of Account Options. While some real estate investors may consider their wide range of investment options a perk, I think most non-accredited investors may get overwhelmed with the number of investment options (11 in total), with slightly nuanced strategies.
  • Limited liquidity. Any eREIT or eFund redemptions processed before an investment is five years old will be subject to a flat 1% penalty. After five years, investors can request to redeem their shares at any time for their full value, with no penalty applied
  • $5,000 minimum investment is required to gain access to most features. While you can invest with just $10, most perks and features investors would want require a $5,000 minimum investment thereby creating a barrier to entry for some.

Best For Passive Income: RealtyMogul

RealtyMogul

Minimum Investment: $5,000

6 – 8% distribution rate

The RealtyMogul Income REIT (Real Estate Investment Trust) is a public, non-traded REIT. The Realty Mogul Income REIT has made 64 consecutive months of distributions with an annual distribution rate of 6.00%. This is a great investment option for someone looking for purely reliable income generation through real estate investing.

What I Like About RealtyMogul

  • Consistent Income. The Income REIT has distributed 67 months of consecutive distributions with an annual distribution rate of 6-8% since its inception in 2016.
  • Thorough Due Diligence. RealtyMogul has a rigorous vetting process – to date, only 1.1% of opportunities have been funded.
  • Retirement Account Investing. You can invest in a retirement account through a self-directed IRA (SDIRA).
  • Diversification. Cash flow from equity and debt investments create diversification across the capital stack.

What I Don’t Like About RealtyMogul

  • High Minimum Investment. A minimum investment of $5,000 creates barriers to entry for some non-accredited investors.
  • Restrictions for Non-Accredited Investors. RealtyMogul does not allow non-accredited investors to invest in individual properties, only in their REIT program.
  • Limited Liquidity. If you invest in a RealtyMogul REIT, you can sell your shares back after at 100% of NAV after 3 years. Otherwise, you have to only sell back at a discount.

Best For Commercial Real Estate: Streitwise

Streitwise

Minimum Investment: $5,000

8-10% distribution rate

What I Like About Streitwise

  • Same Investment Options For All Investors. Streitwise offers non-accredited and accredited investors the same investment options. Other platforms offer additional investment options or services for accredited investors.
  • Own & Operate Real Estate Investments. Most platforms do not own and operate the investments posted on their platforms. They serve as a middleman for real estate developers to raise funding for their projects. This can create a misalignment between investors and the company.
  • Transparent Fee Structure Streitwise is upfront about its fee structure. There are no hidden fees buried in its offering documents.
  • Over $5 million skin-in-the-game. The founders invested over $5 million of their own money with Streitwise. This means there is a shared alignment between investors and shareholders.
  • Modest Leverage. Streitwise only borrows 51% to fund its current project. Modest leverage reduces risk and maximizes returns.
  • Dividend Yield. 8 – 10% quarterly dividend since 2017

What I Don’t Like About Streitwise

  • High Minimum Investment. Minimum $5,000 investment. This is a lot of money if you are just starting to learn about real estate crowdfunding.
  • Limited Redemption Program. Only after 5 years can you redeem your Investment at 100% of Net Asset Value.

A Note About Fees: Many real estate crowdfunding platforms advertise a fee between 1% – 2%, but there are often additional fees buried in their offering circulars that are not widely publicized.

Best For A Set-It And Forget It Approach: DiversyFund

DiversyFund

Minimum Investment: $500

What I Like About DiversyFund

  • Focused Value-Add Investment Strategy. The fund only focuses solely on a value-add investment strategy that targets an IRR of 10% – 20%. This means they acquire and renovate properties in order to increase value. Given that they only manage 1 type of strategy this allows the company to become experts at value-add strategies, which in the long run will be beneficial for their investors.
  • Preferred EquityReturns. DiversyFund investments are qualified as a preferred equity class of shares in the Capital Stack. This means preferred equity investors are given preference relative to common equity investors as it relates to cash flow distribution.

    In the case of DiversyFund, it is split into 2 parts. First, investors first receive a 7% return on their investment, then the sponsor is entitled to a ‘catch-up’ return of 53.85% of the preferred returns, secondly, Diversyfund receives 35% of the remaining profits, and investors receive 65%.
  • Skin-in-the-Game. This means the fund managers (DiversyFund) also invested their own money into the investments offered to its clients. This shows that the sponsor has a vested interest in making the deals profitable as they stand to make or lose money too.
  • They own and manage all their properties. Many real estate crowdfunding platforms serve as a middleman, commonly referred to as the sponsor of the deal; connecting investors with developers. DiversyFund manages the entire process in-house. For some investors, this can provide peace of mind, and illustrates the company is well-positioned and manage an end-to-end real investing deal.

What I Don’t Like About DiversyFund

  • No cash distributions until asset sales start. When you invest with DiversyFund, all dividends earned are reinvested and investors in the fund do not realize any profits until the assets are sold. Diversy has an estimated 5-year hold period. While I’m listing this as a con, this is what I meant by a set-it and forget-it investing approach.
  • No Liquidity Options. Diversyfund does not offer any early redemption features if you wish to exit your investment early. If you cannot afford to lock up your money for 5 years, DiversyFund is not a great option for you.

The Bottom Line

For non-accredited investors interested in real estate crowdfunding, there is a wide range of options and features with varying minimum investments.

What matters is what are you looking for in your real estate crowdfunding experience. Some individuals like at perks and features of Fundrise, while others want a focused investment strategy like DiversyFund, while others may not want to lock up their money for 5 years.

BEST OVERALL: Groundfloor Groundfloor
RUNNER-UP: Fundrise Fundrise
BEST FOR PASSIVE INCOME: RealtyMogul RealtyMogul
BEST FOR COMMERCIAL REAL ESTATE: Streitwise Streitwise
BEST FOR SET-IT-AND-FORGET IT APPROACH: DiversyFundDiversyFund

Accredited vs. Non-Accredited Investor

Accredited investors meet either the financial criteria or the professional criteria. If you do not meet any of these criteria, you are considered a non-accredited investor and are subject to more investment restrictions.

Financial Criteria

  • Net worth over $1 million, excluding your primary residence (individually or with spouse or partner)
  • Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years and reasonably expects the same for the current year.

Professional Criteria

  • Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)

Benefits of Real Estate Crowdfunding Investing

Private real estate provides uncorrelated returns to the stock market, is generally less volatile, and can potentially have higher dividends than publicly-traded REITs.

Benefits of Real Estate Crowdfunding Investing

  • Income. Over the past 20 years, NPI (the index that tracks private real estate performance) has averaged a higher rate than the yields of other major asset classes such as publicly-traded REITs, Bonds, and Stocks.
  • Stability. Private real estate has historically demonstrated a low correlation with publicly traded stocks and REITs. When public sectors of the market have exhibited more significant degrees of volatility and vulnerability to investor sentiment, real estate has been steady in comparison — especially during the past three major economic crises.
  • Hedge Against Inflation. Rents and property values tend to increase in conjunction with inflation.
  • Diversification. Private real estate, in general, is less correlated to the overall stock market compared to publicly-traded REITs.

What Is A REIT?

Many real estate crowdfunding platforms structure their companies as REITs.

But what exactly is a REIT?

Real Estate Investment Trust. The term REIT is a tax concept. As long as a company satisfies a long list of requirements set forth by the IRS, it can qualify as a REIT.

Requirements to qualify as a REIT include:

● The kinds of assets it owns
● The kind of income it generates
● Who owns it
● How much of its income it distributes to its owners

Some REITs are public, and some REITs are private. REITs can invest in multiple classes of real estate or just one class of real estate, for example, mortgages. The most well-known requirement for REITs is that they are required to distribute 90% of their income to their investors.

There are several tax advantages of qualifying as a REIT, mainly avoiding double taxation: once at the corporate level and then at the individual level – that’s why the REIT distributes 90% of its income to the owners.

Real World Investor.com

Adam

Adam is the founder of realworldinvestor.com, an investing website dedicated to helping discerning individuals make the best investment decisions.

Before starting Real World Investor, he was a Vice President at the 3rd largest investment bank in the US. He also spent time at prestigious firms like J.P. Morgan and Deloitte Consulting. He has over 10 years of experience working in financial services. His experience includes working with complex derivatives while spending many years working on a trading floor.

He has a bachelor's degree in Business Administration, majoring in finance. Adam is married and resides in New Jersey with his wife.

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