Which is the Best Real Estate Crowdfunding Platform for you?
Discover the best real estate crowdfunding platform for you in this head-to-head: Fundrise vs. Diversyfund vs. Groundfloor review.
Real estate investing is a popular option for those looking to invest in a lucrative, albeit sometimes risky, field. Many find the up-front cost of purchasing real estate assets prohibitive. Between the purchase price of the property, closing fees, and renovations, acquiring real estate can be expensive.
Additionally, there’s the cost associated with listing and selling a renovated property or managing multiple tenants and properties (or paying someone else to do that!). Put all these factors together, and you have the makings of a costly investment.
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While these investments can pay off in the long run, many folks don’t have the time or the funds to play the waiting game. That’s where real estate crowdfunding platforms offer a solution. Groundfloor vs Fundrise vs Diversyfund each offer distinct real estate investing apps.
Real estate crowdfunding has increasingly become a popular way for all investors, not just the super-wealthy, to add real estate to their investment portfolios. Instead of requiring large amounts of time and money upfront, crowdfunding — along with peer-to-peer lending — is a way for investors to:
- Lend money to real estate purchasers and earn money as the borrower repays the loan with interest.
- Join others to buy real property and earn capital appreciation and monthly income.
While there are many online real estate crowdfunding platforms, today we will explore three designed for investors of all income levels. As we compare Fundrise vs. Groundfloor vs. DiversyFund, you’ll be able to see which crowdfunding platform is best for your personal finance goals.
Why Invest in Real Estate?
Three main reasons to invest in real estate crowdfunding:
- Real estate investments usually appreciate. It’s useful to grasp the potential correlation between real estate appreciation, interest rates, and available supply. As interest rates increase, real estate loans are more expensive, curtailing demand. When real estate inventory or supply is lower, prices tend to drift higher.
- Real estate investments are popular because everyone needs a place to live or work. Unless you invest in a genuinely undesirable town or fail to bring a dilapidated building up to living standards, your real estate investment will likely draw tenants and yield cashflow.
- If you, or the real estate syndicators buy at the right price and manage the property well, then real estate can lead to passive income. Passive income is a type of cash flow that requires little work after it has been set up. Apartment buildings, for example, might bring in passive cash flow from rental payments. Investing in real estate notes, for example, delivers regular cashflow, with minimal oversight.
What is Real Estate Crowdfunding?
Real estate crowdfunding is an online investment strategy for pooling together individual investors’ funds to finance real estate properties. Through real estate crowdfunding, many investors pool their money and together each can own a slice of larger apartment buildings, commercial real estate, and real estate loans.
If you consider real estate investing on your own, whether commercial real estate, office buildings, or residential real estate, you’ll encounter high minimum investment amounts. Even buying private real estate, like a single-family home, can be out of reach for beginning investors.
Today, crowdfunded real estate platforms are readily available and offer a wide range of investment options. Real estate crowdfunding is one solution to avoiding the high minimum investment required to get into individual real estate deals.
Groundfloor real estate, Fundrise and its competitors, and Diversyfund offer various paths to real estate investing through equity (ownership) and debt (lending) offers. Both Fundrise and Groundfloor offer entry into passive real estate investing with only $10.
Many real estate crowdfunding platforms are available today with various minimum investment requirements, management fees, and real estate investments. However, crowdfunding is not available to all investors. Real estate investment is sometimes reserved for only a particular brand of investors called accredited investors.
Fortunately, Fundrise, Diversyfund, and Groundfloor give small, non-accredited investors access to real estate crowdfunding.
Accredited Vs. Non-Accredited Investors
Non-accredited investors are simply everyday investors. There are no requirements or special perks for non-accredited investors. Everyday investors can find an investment option with an affordable minimum investment to get started in any number of stocks and bonds, but there are some limitations. While these investors may be able to get into a few real estate investment platforms, including REITs, there are greater options available to accredited investors.
Accredited investors have more investment options than everyday investors due to their special status. Even though all investors can find diverse investment options, accredited investors have additional ways to diversify their investment portfolio.
For example, these investors can access investment options that are not available to the public. These investments are called private placements investments and are not regulated by the Securities and Exchange Commission (SEC), which means they can be high-risk. However, accredited investors are expected to have ample knowledge to help them make more informed choices than non-accredited investors.
Accredited investors are individuals or businesses that meet one or more of the following criteria:
- Individual accredited investors earn over $200,000 annually for at least two years in a row. Married accredited investors must earn over $300,000 yearly.
- Boast a net worth of $1 million or more, whether single or married.
- Have over $5 million in investments as a private business or organization.
- Be an organization or private business with equity owners who are accredited investors in their own right.
Recently, the SEC expanded the accredited investor definition to include “knowledgeable employees” or licensed securities representatives or investment advisors. That makes it easier for those without an annual income of $200,000+ or a high net worth to get into crowdfunded real estate, among other more specialized investments beyond the stock market.
Differences Between Debt and Equity Crowdfunding
Not all real estate investment options are equal. Online real estate crowdfunding platforms typically offer two types of investments: debt and equity. Understanding the difference between equity and debt investment options is essential for real estate investors, as each option has benefits and drawbacks.
Debt Investments
With a real estate crowd funded debt investment, the investor lends money to a buyer. As an investor, you might imagine yourself filling the role of a traditional bank and you’re investing in real estate loans. A few investors might lend money to a single buyer in a real estate crowdfunding situation.
Debt investments are a good component of a diversified portfolio. If you have a low-risk tolerance, you’ll be happy to know that the property secures the loan which makes debt investments lower risk than some other real estate deals.
The return on investment is fixed and determined by the interest rate and repayment terms. Investors receive a predetermined amount of money based on the portion of the loan they own and the loan’s interest rate.
The time horizon can range from several months to several years, depending upon the project and the platform.
Of course, there are downsides to investing in real estate loans. For one, your return on investment is fixed. Additionally, if the buyer pays off their mortgage early, your investment might yield less than expected.
There’s also a default risk when the borrower fails to pay. If the buyer doesn’t repay their loan, you might lose part of your investment. That’s why it’s essential to invest in more than one loan.
Goundfloor investing is known for its real estate debt opportunities and offers investors an easy path to invest small amounts of money into a pool of real estate loans.
Equity Investments
Equity investments are another peer lending option for real estate investors. These investments give investors a stake in a given property. As the property generates rental income, investors receive returns equal to their share in the property. When the property is sold, investors receive a proportion of the sale, including any appreciation.
While the available investments are diverse, investing in real estate equity can lead to a portfolio of partial shares of real estate properties like apartment buildings or commercial real estate investments, which collect rental income.
However, individual equity investment can come with greater risk than investing in a real estate fund with many properties. If the real estate doesn’t increase in value or cannot service its debt, then equity investors risk a loss of their principal, if they need to sell and ongoing cashflow.
These crowdfunded investments are illiquid, which means your money will be inaccessible for some time. The time horizon ranges from months to several years. These investments are suitable for those seeking long-term investments to add to a diversified portfolio.
| Groundfloor | Diversyfund | Fundrise | |
| Minimum Investment | $10 | $500 | $10 |
| Fee | 0.00 – all fees paid by the borrower | Varies per investment – listed in the fund circular | 1.0% – 1.85%, depending upon the fund |
| Offer | Real estate debt | Multi-family real estate – capital appreciation through improving property | Debt and equity in residential, commercial, and multi-family real estate |
Fundrise Vs. DiversyFund Vs. Groundfloor – Which Is the Best Real Estate Crowdfunding Platform For You?
While quite a few real estate crowdfunding options are available, three stand out due to their vast portfolio of real estate options, track record of offering quality service to investors, and fair minimum investment and asset management fee structures.
Realize that all of these investments are less liquid than investing in stocks, ETFs and mutual funds. Be aware of the required holding period, from several months to years, before investing.
Read on to learn more about these three real estate investing platforms: Fundrise, DiversyFund, and Groundfloor.
Groundfloor
Groundfloor enables investors to “be the bank” and make investing in real estate loans accessible to everyone. Unlike the other platforms, Groundfloor is a debt-only offer. That means you are joining with others to loan money to short-term real estate “flippers” and other types of borrowers. Those folks buy property, fix it up, and resell it, within a shorter period.
Standout features of Groundfloor include:
- $10 minimum
- Access to a diversified portfolio of loans through Auto Invest
- Loans are repaid roughly between 6 to 18 months
- Approximately 10% percent return annually, since inception in 2013
- Available to international investors, with a $1,000 minimum
Groundfloor offers clients low initial investments and shorter investment terms than many competitors.
Groundfloor Rollover Notes offer greater utility, with 30-Day and 90-Day terms. Rollover Notes require a higher $1,000 minimum. Once your repayment comes in, the principal amount is automatically reinvested in a new Rollover Note of the same duration while you keep the accrued interest. What makes them more liquid than other Groundfloor products is the ability to cancel your investment within the first 30 days of the Note.
All investors can invest with Groundfloor; you don’t need to be accredited to use their platform. They do offer additional benefits to accredited investors, however.
Fee Structure and Minimums
Groundfloor requires $10 to invest for Auto Invest loan portfolio.
Groundfloor Rollover Note minimum: $1,000
International investors minimum: $5,000
There are no fees for investors, all fees are paid by the borrowers.
Investments
All Groundfloor investments are loans, funded for real estate purchase and renovations. Loans are in a first lien position.
- Auto Invest: Pool of diversified real estate loans
- Rollover Notes: Auto rollover of notes with access to capital withdrawal within first 30 days of investment
- The LRO investments: Investors to pick their own properties, in which to invest. These loans are submitted to the SEC (Securities and Exchange Commission) for qualification.
Liquidity
Investments are not liquid, like REITS, which are traded on the stock market. However, Groundfloor does have a shorter timeframe for investments when compared to Fundrise and DiversyFund.
Groundfloor Pros
- No management fees and a minimum investment amount of $10
- Monthly dividend payments and return of principal at loan maturity
- Auto Invest provides immediate diversification through investing a pool of real estate loans
- Shorter loan terms make the investments more liquid than some competitor crowdfunding sites
Groundfloor Cons
- Loan defaults can reduce returns, although Groundfloor has an average 6% return rate on defaulted loans
- No secondary market: Users’ cash must remain for the entire term.
Who Is Groundfloor Best For?
Of these three crowdfunding platforms, Groundfloor stands out with relatively shorter liquidity. The lack of fees is also a draw.
Groundfloor is excellent for those seeking cash flow. The website claims an average 10% annual return.
Groundfloor is also ideal for investors who want a DIY investment. Investors can choose from a fund through auto invest or by selecting their own loans, through the LRO investments. Groundfloor is good for investors seeking higher monthly cash flow than typically available from a CD or money market fund. But, be aware that real estate investments are not insured nor are the returns guaranteed.
Fundrise
Fundrise is a real estate investing platform offering opportunities to investors seeking diverse equity, debt, and venture capital investing.
Fundrise specializes in longer-term investments and recommends investors expect a 5-year commitment at minimum. They offer equity and debt investments which appeal to those seeking steady cash flow and individuals after capital appreciation. Equity means investing in percentage ownership of the real estate, while debt means acting as the lender and loaning money to the buyer.
You do not need to be an accredited investor to work with Fundrise. Their only requirements are that investors must be U.S. citizens or permanent residents, 18 years or older, and currently living in the U.S.
Fee Structure and Minimums
Management fees at Fundrise include a 0.15% annual fee for advising and an asset management fee of 0.85%. The Fundrise Innovation Fund charges 1.85%.
They offer advisory fee waivers based on the number of friends you refer to the platform.
The minimum investment amount changes based on the investment:
- Innovation Fund – $10
- fundrise IPO – $500
- IRA – $1,000
- Other minimums apply for various investment plans
Investments
Fundrise has quite a few investment options available, including:
- Debt and equity
- Commercial real estate
- Private real estate
- Single-family homes
- Apartment buildings
- Private equity
- IPO
The investments are combined into funds and categorized by strategy and asset-type:
- Supplemental Income – Real estate debt providing cash flow.
- Long-term Growth – Focus on real estate capital appreciation through improving the properties.
- Balanced Investing – Combination of debt and equity investments providing income and appreciation.
- Venture Capital – Private, pre-IPO, technology companies
Liquidity
Fundrise notes that investors might be unable to liquidate their investments anytime. The platform will consider requests to liquidate shares quarterly and monthly, after a 60 day waiting period for the fundrise eFund. Liquidation requests are not guaranteed, and they may be unable to accommodate the request. Investors may incur fees associated with prematurely liquidated assets.
Fundrise Pros
- Fundrise allows you to invest in various investments, including single-family homes, commercial real estate, apartment buildings, and more.
- Fundrise is available to all investors, not just wealthy accredited individuals.
- The number of available investment portfolios offer an option at various price points with the opportunity for capital appreciation, income, and diversification.
- Investors can earn bonus shares when referring friends to Fundrise through the Invitation Program.
Fundrise Cons
- The 0.85% management fee is steep. Investors may still prefer to seek out a company without management fees, such as Groundfloor.
- Clients will need to provide personal information to gain more than a cursory look at the investment offerings at Fundrise. The website lacks transparency and could offer more clarity on plan assets.
- No live customer service.
Who Is Fundrise Best For?
Fundrise is best for investors who want access to debt and equity investments. Fundrise users must be willing to leave their money tied up for a while. The platform emphasizes that most investments are a 5-year commitment, with premature liquidation not guaranteed.
Clients who are looking for a well-rounded portfolio that goes beyond stocks and bonds might appreciate Fundrise. This real estate crowdfunding platform gives investors unique real estate, Venture, and IPO investments.
DiversyFund
DiversyFund has a unique strategy. DiversyFund buys real estate directly, improves the property and ultimately sells it.
The company offers private real estate offers for both non-accredited and accredited investors. The types of investments and funds, vary. Investments are available, until the offer is filled.
- Multifamily Fund – $500 minimum – for all investors
- DiversyFund Venture Investments – $25,000 minimum – accredited investors
- The Independent – $50,000 minimum – accredited investors
DiversyFund uses a straightforward investment strategy. The company buys apartment buildings, improves them, and aims to add value for 5 years. At some point, the company will sell the buildings, and you, as a partial owner, will profit from potential capital appreciation.
DiversyFund offers the opportunity for capital appreciation, and occasionally cash flow through direct real estate ownership, not debt.
You do not need to be an accredited investor to invest in the Multifamily Fund. All U.S. residents are welcome to invest.
Fee Structure and Minimum
DiversyFund owns and manages all its properties, letting them pass the savings on to its investors. The platform charges investors fees, based upon the specific investment. The platform reports that fees are listed on the investing circular.
for non-accredited investors, the minimum initial investment is $500, although $2,500 is recommended. The higher tier offers, for accredited investors have higher minimums.
Investments
The DiversyFund REIT investor will participate in the non-publicly traded REIT, which buys large apartment complexes, improves them, and resells the property at a profit. They include the following:
- Public, non-traded Real Estate Investment Trust
- Multi-family apartment buildings with 100 or more units.
- Real estate equity investing only.
Liquidity
Assets are not liquid, and DiversyFund states that there is a minimum one year lockup. In special circumstances, funds can be redeemed. Expected duration of fund is listed, and that is the investors holding period. DiversyFund typically sells properties after approximately five years. Although, the five years is a guide and investments might not be sold within the five-year term and you might have to wait longer to receive your initial investment.
Unlike investing in public REITs, which can be bought and sold daily on the stock market, the Diversyfund offers are illiquid.
DiversyFund Pros
- DiversyFund offers a clear investment strategy. They follow the same process for all investments: Acquire apartment buildings, renovate, allow for appreciation, and sell.
- The $500 initial investment makes DiversyFund accessible for many would-be and beginner investors.
DiversyFund Cons
- Limited investment options for investors.
- Diversyfund does not promise cash flow. The rents received on the property are typically used for repairs and to buy new multi-family buildings. Upon liquidation, you’ll receive your payment.
- Investor funds are illiquid, until the properties are sold.
Who is DiversyFund Best for?
DiversyFund is best for investors seeking capital appreciation and who are comfortable with their investments remaining illiquid for at least 5 years. This policy has limited exceptions, so investors must be certain that they can leave the money invested for a while.
Diversyfund is best for investors seeking capital appreciation, not regular cash flow.
Other investors who would benefit from DiversyFund are those who have some of their portfolios in the stock market or other real estate assets, like commercial properties. They want to dip their toes into multi-family real estate for a more diversified portfolio.
Wrap up
Overall, Fundrise, DiversyFund, and Groundfloor all offer a range of benefits. Within each category, the platforms have their distinct advantages and disadvantages.
Affordability and expected cash flow: In terms of affordability, Groundfloor and Fundrise are tied with a $10 investment minimum. However, Groundfloor is the only platform with no management fees, for investors. Groundfloor also offers 11 years of regular cash flow and a 10% annual return.
Transparency in the Investment Strategy: DiversyFund is clear about its investment strategy, but the website lacks a strong user experience. They follow a 5-stage investment plan with every building they purchase, which makes them predictable and trustworthy. Investors will appreciate understanding precisely what to expect along the way. This investment strategy has worked for them and kept investors happy for quite some time.
Investment Diversity: In this category, Fundrise is the most successful. Whereas DiversyFund and Groundfloor focus on niche investments, Fundrise is suitable for those who want to invest in a wide range of real estate assets. Investors can choose debt and equity investments from various asset types, such as commercial buildings and single-family homes.
Liquidity: Groundfloor has the shortest lock up period, as investors can receive return of principal with loan maturity, which ranges from 6 to 18 months. The Groundfloor Rollover Notes offer withdrawals within the first 30 days of a note.
Shared Benefits
One benefit that all three platforms share is that they are not limited to accredited investors only. While Groundfloor specifically notes that accredited investors can receive special offers, they still focus on their goal of helping the “everyday” investor reach their dreams of real estate investment.
Compared to traditional real estate investments, these platforms are also quite affordable. While Groundfloor vs. Fundrise have $10 minimums, even the $500 minimum required at Diversyfund is much lower than investing in real estate.
Shared Limitations
A potential limitation to all these platforms is that investment capital is is tied up and not readily accessible. Whereas stocks and bonds are relatively liquid and easily traded, real estate requires a longer commitment. Many of the complaints made by investors revolve around their lack of understanding the illiquidity of the investment.
Like all investments, real estate comes with risk. Properties can miss their appreciation and rental expectations. Borrowers might default. Crowdfunding platforms must thoroughly vet the properties that they offer to investors. Debt real estate investment platforms must vet the borrowers. Like all suitable investments, real estate needs to be diversified as well.
Changes in interest rates and market conditions can impact returns on crowdfunding real estate investments.
As with all investing, real estate crowdfunding returns might not meet expectations, and losses are possible. That’s the reason for a diversified portfolio, to minimize the impact of a losing investment on your overall net worth.
Real Estate Crowdfunding Alternatives
REITs are companies that own or finance real estate across many property sectors. If you prefer to choose investments governed by the Securities and Exchange Commission or SEC, REITs might be your best bet.
Real estate investment trusts, or REITs, come in wide varieties and trade on U.S. stock exchanges. Most offer cash flow as they are legally required to pay out at least 90% of their taxable income to investors.
Following are examples of REIT sectors:
- Diversified
- Mortgage
- Apartment buildings
- Commercial property
- Shopping malls
- University Housing
- Data centers
- Storage centers
- Mortgages
- Industrial real estate
- And more
Small investors can choose to invest in REITs via any investment brokerage firm.
How Do I Choose?
In choosing between these three crowdfunding platforms, investors should consider the following:
- Initial investment amounts and liquidity. Understand what you are investing in and how long you will need to leave your money tied up. Choose a platform with a minimum investment amount that fits for you.
- Potential for ROI vs. potential losses. Groundfloor makes this easy to determine with their borrower ranking system. Similarly, DiversyFund emphasizes the success of its 5-step investment strategy, which offers some security. It’s up to you to determine the potential for loss and weigh that against expected returns.
- Weigh private real estate investment with the liquidity and ease of investing in publicly traded real estate investment trusts or REITs.
Ultimately, the crowdfunding platform you choose should complement your unique financial situation and investment strategy.
Additionally, you should be comfortable with your chosen platform, understand the lock up period and perform your own due diligence. Finally, the investment opportunities should work well within your portfolio and offer diversification not available through other investments.
FAQ
REIT (real estate investment trust) is a company that finances or owns income-yielding real estate across a property sector range. Such a firm must meet specific requirements to become a REIT. Further, most companies operate on major stock exchanges, offering investors many benefits.
Groundfloor and Fundrise are solid real estate investment platforms, each with a $10 minimum. Groundfloor offers only real estate debt investments, while Fundrise provides both real estate debt and equity offers. Fundrise has an annual asset management fee of up to 1.85%, while Groundfloor has no management fee for those investing in real estate notes.
Fundrise is better than Diversyfund if you’re a starter investor. The former has a minimum investment requirement of $10, which might not be favorable for people with little money. On the other hand, the latter only requires a $500 minimum investment. Fundrise also offers a greater quantity of both debt and equity investments. Fortunately, both support non-accredited investors.
Groundfloor is better than Fundrise in terms of liquidity. Groundfloor offers short-term investment opportunities (6-18 months), while Fundrise’s investment period is 5 years or more. With Fundrise, you’ll have your money tied up for a more extended period. The best investment for you is one that fits with your personal goals, risk level, and financial situation.
Yes, you can make money with Fundrise. Once you invest your money in the company, might receive dividends after every 3 months (quarterly dividends). Another source of income in this platform is property appreciation over time.
Yes, real estate investing Apps can be worth it. The tools are helpful to investors, and real estate investors have reaped many benefits from them. Benefits include investing in an asset class less correlated with traditional financial assets. Cash flow is another benefit of many real estate apps. You can also invest small amounts of money in many real estate apps. Just ‘t invest money in a real estate app with a lock up period, if you think you’ll need the cash soo.
We like Groundfloor notes and believe it is a good investment for several reasons:
-No management fees
-Low $10 minimum investment
-Liquidity available from one month to 18 months
-Groundfloor loans are backed by real estate
-Historical 10% annual return since 2013
A real estate crowdfunding investment platform is an online website and/or app that allows several investors to pool their funds together and buy shares of real estate shares as a group. Today, this crowdfunding avenue is a popular way of diversifying investment portfolios by investors of all ages.
Yes, DiversyFund can be a good investment. Diversyfund is SEC-qualified: It complies with SEC regulations and publicly avails its financial information. Also, it offers commercial real estate investment opportunities, which are helpful in portfolio diversification. Just be aware of the high-ish fee structure and lack of immediate liquidity.
The average income return on Fundrise is 5.29% between 2017 and mid-2023. The platform’s annual returns between 2017 and 2022 range from 1.50-22.99%. Throughout the entire period, only one quarter had a negative return. Past investment returns don’t predict future performance.
The Diversyfund website doesn’t state past returns. In general, past returns rarely indicate your individual projected performance. A variety of factors will determine your ultimate average return.
You get out money from Fundrise at the end of the investment period, which is five years. Also, you can withdraw your funds from eFund or eReITs before the maturity date but must pay a fee of about 1%. The after-5-years, withdrawal is fee-free.
Yes, Fundrise and Diversyfund pay dividends. Fundrise issues quarterly dividends to its customers. On the other hand, Diversyfund earns dividends every month but in most cases, re-invests them into REITs until the investment period lapses.
Related
- Groundfloor Review
- EquityMultiple Real Estate Review
- Investing in Real Estate Notes Guide
- Learn About Real Estate and Crowdfunding – Without the Hassle
- Are You Cut Out to Buy a Fixer Upper?
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