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.
Real estate investing is a popular option for those looking to invest in a lucrative, albeit sometimes risky, field. However, many find the up-front cost associated with purchasing real estate assets to be prohibitive. Between the purchase price of the property, closing fees, and renovations, acquiring real estate can be expensive. Add to that the cost associated with either listing and selling a renovated property, or managing multiple tenants and properties (or paying someone else to do that!), and you have the makings of a very expensive investment.
- Which is the Best Real Estate Crowdfunding Platform for you?
- Why Invest in Real Estate?
- What is Real Estate Crowdfunding?
- Differences Between Debt and Equity Crowdfunding
- Fundrise vs DiversyFund vs Groundfloor – Which is Best for You?
- Wrap up
While these investments can pay off in the long-run, many folks simply don’t have the time or the funds to play the waiting game. That’s where real estate crowdfunding platforms offer a solution.
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 with others to buy real property and earn capital capital appreciation and monthly income.
While there are many online real estate crowdfunding platforms, today we will explore three that are designed for investors of all income levels. As we compare DiversyFund vs. Groundfloor vs. Fundrise, you’ll be able to see which crowdfunding platform is best for your personal finance goals.
Why Invest in Real Estate?
There are three main reasons why investing in real estate is a good move for your portfolio.
First, you frequently see your real estate investment appreciate in value over time. Although real estate projects, such as flipping houses, can be expensive, residential real estate tends to show encouraging return on investment. Over the last year, single family homes in many areas have increased in value, making them a nice real estate investment if you’re interested in selling after a few years.
Second, real estate investments are good because everyone needs a place to live or work. Unless you make a real estate investment in a truly undesirable town, or fail to bring a dilapidated building up to living standards, it’s likely your real estate investment will draw tenants.
Finally, real estate can sometimes 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.
That being said, flipping private real estate or being a landlord can be a lot of work. There are easier ways to start with real estate investing that require less upfront capital and time commitments: crowdfunded real estate.
What is Real Estate Crowdfunding?
If you have considered real estate investing on your own, whether commercial real estate, office buildings, or residential real estate, you may have noticed that the minimum investment seems to be pretty steep. Even buying private real estate, like a single family home, can be out of reach for beginning investors.
There’s good news, however: crowdfunded real estate platforms are becoming increasingly popular and offer a wide range of investment options.
Real estate crowdfunding is the answer to the issue of the high minimum investment required to get into real estate investing. Through real estate crowdfunding platforms, investors can purchase fractions of real estate assets.
One way to invest in crowdfunded real estate is through a platform like Fundrise. Fundrise allows investors to get started with a minimum investment of only $1,000, which gives them a share in real estate investments. This smaller minimum investment means much less risk than purchasing private real estate outright, but still gives investors the opportunity to benefit from real estate investing.
There are many real estate crowdfunding platforms available today, with a wide variety of minimum investment requirements, management fees, and real estate investments. However, real estate crowdfunding is not available to all investors. Investing in real estate is sometimes reserved for only a special brand of investors called accredited investors.
Fortunately, Fundrise, Diversyfund, and Groundfloor give small, non-accredited investors access to real estate crowdfunding.
What are accredited vs non-accredited investors?
Non-accredited investors are simply the everyday investor. 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 real estate investing, 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, an accredited investor will have additional ways to diversify their investment portfolio. For example, these investors can access investment options that are not available to the pubic. These investments are called private placements investment, 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 that will help them make more informed choices than someone who is not an accredited investor.
Although it sounds like you need a special degree or certificate to become an accredited investor, that’s not the case. Instead, accredited investors are individuals or businesses that meet one or more of the following criteria:
- Individual accredited investors earn over $200,000 per year 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 decided that individuals can become an accredited investor if they are deemed “knowledgeable employees,” or if they are licensed securities representatives or investment advisors. This 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 different sort of investments: debt investments and equity investments. Understanding the difference between equity and debt investment options is essential for real estate investors, as each option comes with its own benefits and drawbacks.
Debt investments are a type of ofer in which the investor lends money to a buyer. As an investor, you might imagine yourself filling the role of a traditional bank: essentially, you’re investing in real estate loans. In a real estate crowdfunding situation, a few different investors might lend money to a single buyer.
As far as real estate lending goes, 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 itself secures the loan. This makes debt investments are lower risk than some other real estate deals.
The return on investment will be fixed based on the repayment terms. Investors will receive a predetermined amount of money based on the portion of the property they own and the loan’s interest rate.
The time horizon for real estate deals like these can be fairly short, often lasting 6-24 months. This can be a good option for those who want a short-term investment.
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 you expected.
There’s also default risk, when the borrower fails to pay. If the buyer doesn’t pay back their loan, you might lose part of your investment. That’s why it’s important to invest in more than one loan.
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.
While the available investments are diverse, investing in equities can lead to a portfolio of real estate properties like commercial real estate or apartment buildings, which collect rental income. This does mean that equity investors rarely have a cap on their earnings; if a property does quite well, you’ll see that reflected in your net worth!
However, an individual equity investment can come with greater risk than investing in a real estate fund which owns many properties. If the real estate doesn’t increase in value then equity investors are more at risk of a loss.
These investments are illiquid, which means your money will be inaccessible for a period of time. The time horizon is approximately 5-10 years, which makes these investments good for those seeking a long-term investment to add to a diversified portfolio.
Diversyfund is one platform that offers the opportunity to invest in apartment buildings.
Fundrise vs DiversyFund vs Groundfloor – Which is Best for You?
While there are quite a few real estate crowdfunding options 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.
Read on to learn more about these three real estate investing platforms: Fundrise, DiversyFund, and Groundfloor.
Fundrise offers real estate investing that is accessible to investors seeking diverse equity and debt investing. According to their website, they’re committed to providing “high-quality, resilient assets” and offer fairly low management fees.
Fundrise specializes in longer-term investments, and recommends investors see their relationship as a 5-year commitment at minimum. They offer equity and debt investments whilch appeal to those seeking steady cash flow and individuals after capital appreciation. Equity means that you are investing in a percentage ownership of real estate while debt means you are acting as the lender and loaning money to the actual 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 of age 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%. They do offer advisory fee waivers based on the number of friends you refer to the platform.
The minimum investment amount changes based on the investment portfolio package you choose:
- Basic: $1,000
- Core: $5,000
- Advanced: $10,000
- Premium: $100,000
Fundrise has quite a few investment options available, including:
- Debt and equity
- Commercial real estate
- Private real estate
- Single family homes
- Apartment buildings
Here is a sample of currently available properties:
Fundrise notes that investors might not be able to liquidate their investments at any time. The platform will consider requests to liquidate shares, however they may not be able to accomodate the request. Investors may incur fees associated with prematurely liquidated assets.
- Fundrise allows you to invest in a wide variety of investments, including single family homes, commercial real estate, apartment buildings, and more. This is a boon for investors seeking diversified investments with a longer time horizon.
- Fundrise has a relaltively low annual management fee for advisory services.
- Investors can have advisory fees waived if they refer friends to Fundrise.
- The number of available investment portfolios offers an investment option at various price points with the opportuntity for capital appreciation, income, and diversification.
- The 0.85% asset management fee is a little hefty, particularly as your portfolio value rises. While this is an annual management fee, not a monthly one, larger investors may still prefer to seek out a company with lower fees.
- Clients will need to provide personal information to gain more than a cursory look at the investment offerings at Fundrise. The website could offer more clarity on assets within each plan.
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 awhile. The platform emphasizes that most investments are a 5-year commitment, so though premature liquidation is possible in some cases.
Clients who are looking for a well-rounded portfolio that goes beyond stocks and bonds will also appreciate Fundrise. This real estate crowdfunding platform gives investors unique investments that promise the potential for greater returns.
Finally, wealthier investors may benefit from Fundrise due to their tiered portfolio system. Those who can swing the $100,000 minimum initial investment will be able to invest in specialized private funds as they come available.
DiversyFund has a unique strategy. DiversyFund uses a very straightforward investment strategy. Through a Real Estate Investment Trust called the Growth REIT, the company buys apartment buildings with 100+ units, improves them and aims to add value over the course of 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 cash flow and capital appreciation through direct real estate ownership, not debt.
DiveryFund’s grand mission is “to empower the everyday investor, with the ultimate goal of closing the wealth gap.”
Since DiversyFund is geared toward the everyman and woman, you do not need to be an accredited investor to take advantage of their services. All U.S. residents are welcome to invest.
Fee Structure and Minimums
DiversyFund owns and manages all their own properties, and this lets them pass the savings on to their investors. There are no management or broker fees for users associated with this platform. This differentiates DiversyFund from several other platforms.
The minimum initial investment is $500, making DiversyFund the more affordable option for beginning investors vs. Fundrise.
The DiversyFund investor will participate in the non-publicly traded REIT, which buys large apartment complexes, improves them and then resells the property, at a profit.
- Public, non-traded Real Estate Investment Trust
- Multi-family, apartment buildings with 100 or more units.
- Real estate equity investing only.
Assets are not liquid, and DiversyFund does not make exceptions to this rule. However, DiversyFund typically sells properties after approximately 5 years. This means that while clients will need to remain committed for the full time period, these investments are relatively short-term in comparison with real estate crowdfunding platforms.
Unlike investing in REITs, which can be bought and sold daily on the stock market, all of these types of offers are illiquid.
- DiversyFund offers a very clear investment strategy. They are transparent and follow the same process for all investments: acquire apartment buildings, renovate, allow for appreciation, and sell.
- There are no fees for the investor. This is distinct from Fundrise.
- The $500 initial investment makes DiversyFund accessible for many would-be investors with lower net worths.
- Fewer diversified options when compared to Fundrise. DiversyFund only offers multi-family, 100+ unit assets.
- Diversyfund does not offer cashflow. The rents received on the property are used for repairs and to buy new multi-family buidings. Upon liquidation, you’re receive your payment.
- Clients cannot liquidate assets. Although DiversyFund has a good reason for this, this is a limitation for investors who are not comfortable having funds tied up for 5 years.
Who is DiversyFund Best for?
DiversyFund is best for clients seeking capital appreciation and who are comfortable with their investments remaining illiquid for at least 5 years. There are no exceptions to this policy, so clients need to be sure they’re able to leave money invested for a while.
Diversyfund is best for investors who are seeking capital appreciation not regular cash flow.
Other investors who would benefit from DiversyFund are those who might have some of their portfolio in the stock market or other real estate assets, like commercial properties, but want to dip their toes into multi-family real estate for a more diversified portfolio.
Because DiversyFund only invests in apartment buildings, clients won’t get the full diversity that comes with commercial real estate, for example. For this reason, DiversyFund might be best for clients who don’t mind using different investment platforms or publicly traded REITs to create a well-rounded real estate portfolio.
Like Fundrise and DiversyFund, Groundfloor seeks to make real estate investing 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.” Those are folks that buy property, fix it up, and resell it, within a shorter period of time.
Groundfloor offers clients low initial investments and shorter investment terms than competitors. They also allow investors to choose their own level of risk. Would-be borrowers are ranked according to how risky they are. Investing with the least risky borrowers offer average returns of 5.5%, while the most risky offer average returns up to 25%.
Groundfloor recently launched several new features: including – auto-investing – Users request Groundfloor to reinvest cash payments in specific loan grades automatically as new loans are added to the platform. This reduces the amount of cash sitting in the account and increases overall returns.
GROUNDFLOOR also claims that investments have yielded an average annualized return of 10.42% in 2020 and 10.5% since inception.
All investors can work with Groundfloor; you don’t need to be an accredited investor to take advantage of their platform. They do offer additional benefits to accredited investors, however.
Fee Structure and Minimums
Of the three platforms, Groundfloor is the most affordable for all investors. The minimum is only $10! While this seems like an impossibly small investment, it shows the power of crowdfunding.
Groundfloor does not charge fees to investors, either.
- Loans to purchase residential real estate.
- Real estate debt.
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.
- No fees and a minimum of $10 make Groundfloor affordable for all investors. This removes the barrier many face when they try to invest in real estate.
- Self-assessed risk gives investors more flexibility regarding risk. Investors can choose to invest in borrowers with a good track record for smaller but more likely returns. Alternately, investors can take a gamble and invest in riskier borrowers for a potentially greater ROI.
- Shorter loan terms make the investments more liquid than some competitor crowdfunding sites.
- Limited diversity. Investors are limited to single family, residential properties. The absence of commercial properties may not be a deal-breaker for all investors, but it does promise a different sort of cash flow.
- No secondary market. Users cash must remain for the length of the term.
- Groundfloor currently offers loans in only 28 U.S. states.
Who is Groundfloor Best for?
Out of these three crowdfunding platforms, Groundfloor stands out against DiversyFund and Fundrise as being the best for small investors. In fact, there’s no competition! The $10 minimum and absence of fees makes Groundfloor appealing and low-risk for anyone who has considered real estate investing.
Groundfloor is great for those seeking cash flow. The website claims an average 10% annual return.
Groundfloor is also ideal for investors who want a bit of DIY investment. Investors are able to assess the risk involved in all potential borrowers and see their possible ROI before investing. While Groundfloor also offers a tool to help clients choose investments based on their risk tolerance, the ability to choose for themselves is a nice touch.
Overall, Fundrise, DiversyFund, and Groundfloor all offer a range of benefits. Within each category the platforms have their distinct advantages and disadvantages.
Affordability: In terms of affordability, Groundfloor clearly takes first place. It’s hard to beat a $10 investment minimum. However, when we factor in the $0 fees there is no competition. While a $10 investment will yield very little ROI, even with a 25% potential yield on the riskiest borrowers, this is also a low-risk way to test out real estate investing and gradually build from a starter portfolio to a more expansive portfolio as you gain experience.
Transparency in the Investment Strategy: DiversyFund is very clear about their investment strategy. They follow a 5-stage investment plan with every building they purchase, which makes them predictable and trustworthy. Investors will appreciate understanding exactly what to expect along the way. This investment strategy has worked for them and kept investors happy for some time now.
Investment Diversity: In this category, Fundrise is the most successful. Whereas DiversyFund and Groundfloor focus on niche investments, Fundrise is good for those who want to invest in a wide range of real estate assets. Investors can choose both debt and equity investments; they can also choose from a wide range of asset types, such as commercial buildings and single-family homes.
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 “everyman” investor reach his or her dreams of real estate investment.
In comparison to traditional real estate investments, these platforms are also quite affordable. While Groundfloor vs. Fundrise seems like no competition, even the $1,000 minimum required at Fundrise is much less than investing in real estate on your own.
A potential limitation to all these platforms is that investments will be tied up for quite some time. Whereas stocks and bonds are fairly liquid and easily traded, real estate requires a longer commitment. Only Fundrise offers clients the possibility of early liquidation, but even that is not guaranteed. Investors who are uncomfortable with the 5-year timeline posed by Fundrise and DiversyFund might like Groundfloor’s shorter-term loans best.
Like all investments, of course, real estate comes with its certain risks. These crowdfunding platforms place heavy emphasis on vetting the properties and borrowers they offer to investors, but investors will still need to do their own due diligence. Like all good investments, real estate needs to be diversified as well. In some ways, that makes Fundrise the most appealing of these platforms. Only Fundrise offers a wide mix of assets that covers commercial and private real estate.
As with all investing, real estate crowdfunding returns might not meet expectations, ans 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 many varieties and trade on U.S. stock exchanges. Most offer cash flow as they are required by law to pay out at least 90% of its taxable income to investors.
Following are examples of REIT sectors:
- Apartment buildings
- Commercial property
- Shopping malls
- University housing
- Data centers
- Storage centers
- 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:
- Initial investment amounts and risk. You may be able to afford the $1,000 minimum Fundrise investment, but are you willing to risk that much?
- Potential for ROI vs. potential losses. Groundfloor makes this easy to determine with their borrower ranking system. Similarly, DiversyFund emphasizes the success of their 5-step investment strategy, which offers some security.
- Diversification. It is possible to get diversification through multiple platforms or investment firms. Would it be a hardship to invest across different platforms? Do you prefer the ease of using only one platform to manage all of your crowdfunding dollars?
Ultimately, the crowdfunding platform you choose should complement your unique financial situation. It should be affordable in that your investments are not liquid. Additionally, you should be comfortable with the precautions your chosen platform takes to vet investment opportunities. Finally, the investment opportunities should work well within your portfolio and offer diversification that is not available through other investments.
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