This is the second part of a 2 part series covering ways to capitalize on real estate crowdfunding. Go to Part 1, in case you missed it, where I provide context on the real estate industry and innovative funding approaches being taken. At Fund Wisdom we have primarily focused on startups offering equity to invest in directly through portals, but as more real estate is offered on these platforms we assess this area of investment and the overlap. I detail some of the top real estate portals based upon transaction volume and break out based upon real estate asset classes of funding.
Debt: Marketplace P2P Property Lending
Capital Repayment with Interest - Debt crowdfunding is the funding of debt from individuals, groups, or institutions, more commonly known as peer-to-peer lending (P2P lending). The practice of matching borrowers and lenders through online platforms associated with debt crowdfunding allow borrowers to gain access to funds quickly and often at lower interest rates than those offered by banks.
The benefit to investors is the inherent ability to lend money at a range of interest rates based on proprietary credit scores assigned by each platform. Investors can potentially receive regular, attractive returns while leveling risk across various borrowers.
Some platforms take some or all an existing real estate loan, secured by a deed on the underlying property, and syndicate it out to a network of individual investors at a fixed rate of return. Other platforms act as the lender, issuing a loan to a real estate developer or flipper. In either case, the platform’s network of investors is offered a flat annual rate of return. According to Passive Income MD "typically between 7% and 12% - over a relatively short term - generally 6 to 18 months. Since these investments are secured by the property and short in a term, they tend to be a good fit for more risk-averse investors."
Benefits: the ability to customize investment based on financial obligation, fixed payments, and the ability to diversify the portfolio.
The wide range and unique variety of portals allow anyone interested in real estate to gain access to a wide ranging market and new ways to invest. Crowdfunding real estate investing grants investors the access they need to engage in a variety of real estate investing projects. We look to rank based upon amount transacted and money raised (according to Crunchbase) to fund the business.
- RealtyShares/Iintoo IIRR Management Services acquired RealtyShares increasing the overall assets under management to $2.5 billion. The company operates an online marketplace assisting its members in browsing real estate investments and interfacing with an investment page for specific offerings. They offer multi-family residential, office, industrial, self-storage, retail, medical office, and hospitality facilities and structures them in the form of debt and equity. Fees for the debt are 2%.
- PeerStreet - raised $110 million and transacted an additional $4.25 billion late 2019, but the only AUM number posted is from early 2019 at $1 billion. They built a vetted network of private lenders with diverse sources of capital, providing lending at a local community level. These P2P real estate loans typically carry 6-36 month terms. Once you invest in a loan or note through PeerStreet, you must remain in the investment until it pays off. They lowered their minimum to $100 in April 2019. They do initial review and vetting. Focused on accredited investors only at the time of writing. We also have an affiliate partnership with them.
The Real-Estate Crowdfunding Review lists it's rating of the the top platforms for accredited investors for 2019 and a separate listing for those that do not meet this wealth requirement. The top rated is Peer Street.
- RealtyMogul raised $45 million and transacted $2 billion. They operate as an online marketplace for real estate investment for accredited and non accredited investors. The platform enables investment in real estate investments that have already been evaluated via their due diligence team. Borrowers acquire business or commercial purpose mortgage loans and sponsors to raise equity. RealtyMoguls platform also offers fix-and-flip loans, bridge and permanent loans, and joint venture equity. It serves accredited investors via mostly finished assets in residential, retail, commercial, office, and industrial projects. We have an affiliate relationship with this team.
- GROUNDFLOOR raised $38 million and posted annual transactions of $100 million. We have not been able to source the gross total of transactions so it may be higher. They are a US-based online real estate lending platform. It was the first company to achieve SEC qualification utilizing Regulation A+; this market is also open to non-accredited investors. Type of asset: developments. Real estate asset class: residential land. We recently established an affiliate relationship with them.
- Sharestates raised $30 million and transacted $2.5 billion. They function as an online marketplace offering a minimum investment of $5000. The company allocates investments in cash flow properties. It enables investors to earn returns on real estate properties, and property developers to fund projects.
- Patch of Land, raised $25 million and transacted $725 million, an online peer-to-peer real estate crowdfunding marketplace and loan provider. The portal connects real estate developers requiring financing with lenders and real estate investors. The company focuses on six to 24-month real estate first-lien mortgage loans with borrower guarantees. Type of asset: development and finished assets.
- Fund That Flip: raised $11 million, focuses on residential real estate redevelopment projects serving accredited investors in the United States.
- Capital On Demand no data for funding - investors share in net profits of property. Tax Treatment is pass-through of depreciation and mortgage expense deductions; some capital gains treatment also possible.
- Bitcasas no data for funding - focused on cross-border platform for investment in the mortgage loans backed by the US Real Estate. They use blockchain based tokenization to enable fractional ownership of real estate mortgage loans. BitCasas plans to issue legally compliant
Security Token Offerings (STOs) under Reg D 506c exemption for US accredited investors and Reg S exemption for international investors. Our friends at CrowdCrux did a review on this portal.
Investment for Ownership Stake enables investors to distribute risk across a number of shareholders. The backer collects shares in exchange for the capital pledged. Equities.com published an article in 2017 suggesting what to look for in investments in real estate equity funding portals. At Fund Wisdom we focus on this investment structure applied to early stage startup companies that offer the potential for high returns due to the risk. The risk is typically greater in startup equity funding portals than real estate. Below are a list of real estate portals we have reviewed:
Fundrise $4.9 Bil transacted real estate investments showcased on their historical investment performance page, also stating average annualized returns in 2019 of 9.47%. They raised $55.5 million. Fundrise provides development and finished assets across residential and commercial. Between 2014 and 2018, the company averaged 8.76% to 12.25% annualized yields, net fees (1.0%), and an upfront cost of 2% in asset origination fees. They allow for $500 minimums and were founded in 2012. They also help showcase top opportunity zones, or tax advantaged areas that are encouraging investment.
CrowdStreet in early 2019 they had $500 million transacted and at the time of writing this raised $24.9 million. The platform provides a virtual commercial real estate marketplace that connects accredited investors with institutional real estate investments. Its online portal supports commercial real estate developers and operators to acquire, convert, and manage investors for their projects. Type of asset: development and finished assets. We have an affiliate relationship.
Cadre raised $133 Million according to Crunchbase as of July 2021. They provide access to institutional-quality real estate deals, in large apartment buildings, hotels, and offices which typically mature over 5 years or longer. They state they identify properties by using a tech-driven analysis and industry leading expertise. Their focus is fewer high quality deals over volume. They generate most of their revenue from recurring management fees of 1.5% of Net Asset Value (NAV) versus one-time transaction fees, and leverage incentives tied to deals outperforming their target levels, therefore incentives are tied to long-term deal performance, not high transaction volume. They require a minimum of $50,000 to invest, which goes into a Special Purpose Entity (SPE) Real Cadre LLC who is the pass-through owner of the equity or debt in the property. They offer a secondary market to sell off shares prior to property sale date a few times a year. Ryan Williams is the CEO and Co-Founder and has been able to help secure funding from VCs like Andreesen Khosla and Goldman. We have an affiliate relationship.
EquityMultiple, raised $4 million, focused on institutional-grade commercial real estate projects while offering both debt and equity investments. The company operates as an online real estate investing and finance platform connecting accredited investors with commercial real estate assets. We had a chance to team up with Yieldtalk and Crowdwise to build an event with their founder and CEO Charles Clinton. We have an affiliate relationship.
Equitydoor no transaction or funding data found. They focus on the US market and offer $1,000 minimums. Investors can inspect offering materials, such as legal due diligence items. Legal documents, signatures and fund transfers can all be handled through the platform so investors and issuers can complete the entire transaction through the secure website. The issuer covers the fees for setting up the project.
1031 Crowdfunding no transaction data found. They offer commercial equity investments that qualify for 1031 exchanges for people who own existing real estate and want to sell without being taxed. The platform offers single property investments and multi-property funds.
Republic recently expanded by breaking out a real estate specific section of their investment offerings. We had been following their equity and crypto based startup base.
If you are willing to incur management fees as you believe in the skills of a portfolio manager and look to attain diversification platforms are offering funds as well. Many of those listed already offer funds but below are a few companies that focus just in funds:
AlphaFlow - They raised $6.4 million. Fees: 1%/year Minimum: 1 year lock up and $10,000. They buy debt and equity and offer advisory and portfolio management services.
RealCrowd – raised $1.7 million. Commercial real estate investment market. The average individual deal-size for investment opportunities falls just shy of $30 million, while funds have ranged in sizes ranging from $15 million to $150 million.
Real Estate Investment Trusts (REITs) are funds offering diversification with some tax advantages. I was lucky enough to work at Iron Mountain during the transition the firm went through to qualify as a REIT in 2014. Crowdfunding platforms have specialized and designed to solve niche conditions within the real estate market. Each investment vehicle offers a unique focus and value proposition to investors. Fundrise and RealtyMogul offer semi-blind eREIT funds that aggregate properties throughout the U.S. These investments offer built-in diversity and very low minimums, making them appropriate for less experienced investors. These REITs offer investors a way to invest in multiple properties or types of real estate:
Fundrise eREIT: generating continual cash flow through debt investments in commercial real estate assets (pays a 9% dividend, 2020).
MogulREIT I: the fund makes investments in debt and debt-like real estate-related assets.
MogulREIT II: the fund invests in multifamily apartment communities
DiversyFund The DiversyFund Growth REIT is SEC-regulated that builds wealth by investing in cash-flowing apartment buildings.
REITs are apt to flourish in an environment of easy monetary policy where the mostly hybrid form of real estate vehicle, acts like a fund offering broad diversification with tax incentive. Technology is driving real estate investing from single unit rentals and land leasing to large funds like this.
Success Factors: Achieving Funding for Real Estate Projects
A solid crowdfunding effort is due in large part to building traction, growing number of adopters and advocates towards gaining approval and establishing social proof among existing and potential investors. Social proof is where observers follow the actions of others with the belief that the "others" know something they don't.Unbiased product reviews from an independent party are trusted over a brand's product description and content so most funding platforms have provided open feedback forum style review sites.
The initial adopters and potential brand advocates influence investment. The confidence displayed by early adopters is critical to the achievement of crowdfunding efforts prior, during, and after the event which ultimately informs and authenticates the project. Scale determines how profitable a crowdfunding platform ought to be.
Top Value-Added Real Estate Websites
We also recognize sites that can be used to attain market insights by their collection of sale and rental listing data:
- Zillow Market Cap: $10.5 Bil, allows users to post homes for sale and rent and known for the "Make Me Move" price. They offer advanced search capabilities accessing for sale and rental listings. The platform allows you to buy and sell houses directly through Zillow. They offer marketing solutions to assist real estate professionals to connect with consumers. They provide an application programming interface (API) and developer support network. The company operates the most popular suite of mobile real estate apps, with more than two dozen apps across all major platforms. They build their own value estimator: Zestimate. Other brands include StreetEasy, HotPads, and Naked Apartments, for business rental and mortgage professionals include Mortech, Dotloop, Bridge Interactive, and New Home Feed. They offer a home loans product, the affiliated lender providing mortgage pre-approval and financing. Zillow acquired Trulia in 2015 offering peer-reviewed recommendations, local insights, and map overlays. The site provides details on commuting, crime stats and reports, schooling, church locations, shopping and nearby businesses.
- Realtor.com, Market cap: 6.9 Bil, offers statics about neighborhoods, a massive variety of listings that are customizable based on individual preferences, including apartment listings and regional mortgage rates.
- Homes.com: the site offers buyers, sellers, renters, and profit-seekers with current real estate information, tools, and home listing.
- Move Inc. (the Move network includes Realtor.com) and has an established alliance with the National Association of Realtors, for operating Realtor.com, a subsidiary of News Corp., market capitalization at 852.84 Mil, the company serves the Move Network of real estate websites.
- Homefinder is a real estate portal presenting listings to assist home buyers, sellers, renters, and landlords in achieving their real estate goals. One of the only real estate sites that have its' open house tab as well as a bookmark for foreclosures, a tab for rent-to-own, and one for auctions.
- Xome is the only platform that digitally relates all critical touchpoints along the real estate process. It makes the process of buying and selling a home more transparent for consumers by offering Status dashboards, Dynamic ratings of agents and real estate professionals, and Real-time property data. It acts as a broker providing qualified real estate agents and mortgage lenders. The platform allows you to buy, sell, find agents, receive houses via email, and take virtual tours of residences. The company also provides a real estate an auction platform with one of the largest real estate owned (REO), short sale, foreclosure, and luxury property auctions.
- Redfin is a broker portal focused on providing real estate agents. They have sellers pay a 1 to 2% listing fee and commit to purchase within 365 days of closing. There is additional fees to compensate the brokerage representing the buyer usually in the 2.5 to 3.0% range, where buyers are given a small portion ( ~0.5%) of this fee by Redfin. The portal offers 3D tours of their home listings as well.
- 42 Floors: Online commercial real estate space marketplace
- LiquidSpace: is an online marketplace and workspace network for renting office space.
- Roofstock provides online real estate services, including buying, selling, leasing, real estate investment, and property management services.
- American Homeowner Preservation – uses capital to purchase distressed mortgages within the United States at massive discounts.
- Appear Here: offers short-term space. The company's online platform allows landlords to list their space for free, for brands to book, like booking a hotel room.
Before investing in one of these portals we suggest you speak with a Chartered Financial Advisor. Our goal is to provide data and insights to reduce your fees, improve your access to innovative offerings so you can act on your own. With a low upfront cost of participation, real estate equity crowdfunding continues to grow into 2020. We believe the trend will further gain in popularity as the broader market begins to tighten. New and seasoned investors will have to do more with less to capitalize on fruitful returns that become harder to find.
These platforms increase availability of information to investors and speculators alike. While the growth potential is attractive, investors need to tread cautiously. All investments worth your time and hard-earned cash will inherently present challenges and risks, producing the higher rates of return you desire.
Reach out to us if you have any questions and as usual let us know what you think in the comments below.