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. However, 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 either 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.
- 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 the Best Real Estate Crowdfunding Platform For You?
- Fee Structure and Minimums
- Wrap up
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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.
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 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 over time. Although real estate projects, such as house flipping, can be expensive, residential real estate tends to show encouraging returns on investment. Over the last year, single-family homes in many areas have increased in value, making them an excellent real estate investment if you’re interested in selling after a few years.
Second, real estate investments are always in demand 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.
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 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?
Real estate crowdfunding is an online investment strategy for pooling together individual investors’ funds to finance real estate properties.
If you consider real estate investing on your own, whether commercial real estate, office buildings, or residential real estate, you’ll notice that the minimum investment seems 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 investment. Investors can purchase fractions of real estate assets through crowdfunding platforms.
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 $10, 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 allows investors to benefit from real estate investing.
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, 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 will 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.
Although it sounds like you need a particular 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 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 decided that individuals can become accredited investors if they are deemed “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.
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: Essentially, you’re investing in real estate loans. A few investors might lend money to a single buyer in a real estate crowdfunding situation.
Regarding real estate lending, 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. That makes debt investments lower risk than some other real estate deals.
The return on investment will be fixed based on the interest rate repayment terms. Investors will 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 is known for it’s real estate debt opportunities.
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 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. That means that equity investors rarely have a cap on their earnings; If a property does quReite well, you’ll see that reflected in your net worth!
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, then equity investors risk a loss of their principal, if they need to sell..
These crowdfunded investments are illiquid, which means your money will be inaccessible for some time. The time horizon is approximately 5-10 years, which makes these investments suitable 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.
|Offer||Real estate debt||Mulri-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.
Read on to learn more about these three real estate investing platforms: Fundrise, DiversyFund, and Groundfloor.
Fundrise is a real estate investing platform offering investment opportunities to investors seeking diverse equity and debt investing. Their website says they’re committed to providing “high-quality, resilient assets” and offer relatively low management fees.
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%. 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 portfolio package you choose:
- Starter portfolio: $10
- 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 be unable to liquidate their investments anytime. The platform will consider requests to liquidate shares, but they may be unable to accommodate the request. Investors may incur fees associated with prematurely liquidated assets.
- Fundrise allows you to invest in various investments, including single-family homes, commercial real estate, apartment buildings, and more. That is a boon for investors seeking diversified investments with a longer time horizon.
- 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 have advisory fees waived if they refer friends to Fundrise.
- The 0.85% management fee is a little hefty, particularly as your portfolio value rises. While this is an annual management fee, not a monthly one, more prominent 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.
- 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. Hence, 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 can invest in specialized private funds as they become available.
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. Three tiers of investments:
- Growth REITs – $500 minimum – for all investors
- Premier Direct SPVs- $50,000 minimum – accredited investors
- Premier Opportunity Fund – $25,000 minimum – accredited investors
DiversyFund uses a very 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 cash flow and capital appreciation through direct real estate ownership, not debt.
You do not need to be an accredited investor to invest in the Growith REIT. 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 a 2% annual asset management fee: 2% for every invested dollar. However, a project may have a 2-4% developer fee. A developer finds, acquires, and manages the property.
The minimum initial investment is $500, making DiversyFund the more affordable option for beginning investors vs. Fundrise. The higher tier offers, for accredited investors will have higher minimums.
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.
Assets are not liquid, and DiversyFund does not make exceptions to this rule. However, 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, all these offers are illiquid.
- 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 investors with lower net worths.
- Fewer diversified options when compared to Fundrise. DiversyFund only offers multi-family, 100+ unit assets.
- 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. Although DiversyFund has a good reason for this, this is a limitation for investors uncomfortable with 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. This policy has no exceptions, so clients must be sure 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.
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 folks buy property, fix it up, and resell it, within a shorter period.
Groundfloor offers clients low initial investments and shorter investment terms than competitors. They also allow investors to choose their level of risk. Would-be borrowers are ranked according to how risky they are. Investing with the least risky borrowers offer average returns of 10%, while the riskiest offer average returns of up to 25%.
Groundfloor recently launched several new features: Auto-investing – Users request Groundfloor reinvest cash payments in specific loan grades automatically as new loans are added to the platform. That 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 about 10% since inception.
All investors can work 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 $1,000 to invest, but charges no management fees.
- 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 management fees and a minimum investment amount of $1,000.
- Self-assessed risk gives investors more flexibility regarding risk. Investors can invest in borrowers with a good track record for smaller but more likely returns. Alternatively, investors can gamble and invest in riskier borrowers for a potentially more significant 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 cash flow.
- No secondary market: Users’ cash must remain for the entire term.
- Groundfloor currently offers loans in only 28 U.S. states.
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 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 takes first place. It’s hard to beat a $10 investment minimum. However, there is no competition when we factor in the $0 fees. While a $10 investment will yield minimal 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 its investment strategy. 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.
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 their dreams of real estate investment.
Compared to traditional real estate investments, these platforms are also quite affordable. While Groundfloor vs. Fundrise have minimums below $500, even the $1,000 minimum required at Fundrise is much less than investing in real estate.
A potential limitation to all these platforms is that investments will be tied up for quite some time. Whereas stocks and bonds are relatively 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 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 certain risks. These crowdfunding platforms heavily emphasize vetting the properties and borrowers they offer to investors, but they will still need to do their due diligence. Like all suitable investments, real estate needs to be diversified as well. That makes Fundrise the most appealing of these platforms. Fundrise offers a broad mix of commercial and private real estate assets.
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:
- 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 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. It should be affordable and complement your overall investment strategy.
Additionally, you should be comfortable with your chosen platform’s precautions to vet investment opportunities. Finally, the investment opportunities should work well within your portfolio and offer diversification not available through other investments.
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 aresolid investment platforms for all investors. However, Groundfloor loans may have a higher default risk than Fundrise. Fundrise has an annual asset management fee of up to 1%, while Groundfloor has no stated management fee.
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 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. Hence, you’ll have your money tied up for a more extended period with Fundrise. 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, you’ll 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.
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 high-ish fee structure.
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.
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