When you hear the word “crowdfunding” you might automatically think of fundraising sites like Kickstarter and GoFundMe. However, crowdfunding sites have changed even the investing world, offering new ways for startups, equity firms, and real estate entrepreneurs to raise money for their projects.
Crowdfunding investing is one way to get started in passive investing. This form of investing is ideal if you want to take a hands-off approach to invest or if you simply don’t have the time to devote to researching all of your investment options.
In this guide of investment opportunities, I’ll walk you through some of the most popular crowdfunding investing sites for individual investors, explain how they work, what sets them apart, how much they charge, and how much you can expect in ROI (returns on investment).
Fundrise is my top pick for crowdfunding investing platforms. It’s one of the best all-around investing options for both accredited and non-accredited investors. Fundrise has a relatively low minimum investment requirement when compared to other platforms ($1,000), is easy to use, and has fairly low management fees.
Fundrise was established in 2012 to make it easier for individuals of all income levels to invest in real estate properties. Today, Fundrise manages over $1 billion in real estate assets for over 130,000 investors. Fundrise is one of a handful of real estate crowdfunding sites that gives you a chance to enter the real estate world through real estate investment trusts (REITs). Rather than investing in a share of stock, with a REIT you are investing in a share of real estate. Investment money helps fund real estate deals from small business to huge cooperations.
RealtyMogul is another popular real estate crowdfunding investment option. What sets this platform apart from other crowdfunding investment sites is that the company personally visits and assesses all of the real estate properties it lists. They also only team up with partners with a proven track record of success in real estate. While this platform is open to both accredited and non-accredited investors, those without accreditation can only invest in REITs.
Launching just after Fundrise, RealtyMogul first hit the investment scene in 2013. To date, RealtyMogul has paid over $172 million to investors, financed over $2 billion in real estate properties, and has over 200,000 registered users.
Investment options available
Individual properties (including retail, multifamily, office, self-storage, industrial, and commercial real estate)
If you’re an accredited investor looking to invest passively in real estate, Crowdstreet is worth researching. Crowdstreet offers access to thoroughly vetted real estate investments, including individual properties or funds. This crowdfunding platform prides itself on its quality listings and boasts an intuitive and sleek interface that’s easy to navigate. Crowdstreet can only be used if you’re an accredited investor.
Crowdstreet was formed in 2014 and combines decades of real estate investment experience with cutting-edge technology. More than $1.46 billion has been invested into nearly 500 projects to date, and $170 million has been paid in distributions.
Another top crowdfunding investment platform in the real estate field is PeerStreet. This platform specializes in real estate loans and is open to accredited investors only. Your investment money serves to fund borrowers' loans. When monthly payments are due, you’ll receive a cut of the payment. PeerStreet allows you to adjust your portfolio entirely manually or automatically for maximum diversification.
PeerStreet was founded in 2013, when founders Brew Johnson, Bretty Cosby, and Alex Perelman were inspired to create a better system for real estate loans.
Investing, even though a real estate crowdfunding platform, can be expensive. That’s why I like Streitwise’s low-budget approach to a crowdfunding investment platform. Both accredited investors and non-accredited investors can get started for only $1,000.
Unlike other crowdfunding platforms, you won’t choose investments with Streitwise. Instead, you’ll invest a set amount that allows you to buy shares of 1st Streit Office Inc, a REIT owned by Streitwise and their owners, Tryperion Partners. The company then uses your money to invest in vetted real estate projects. I like that Streitwise has some skin in the game here — choosing winning investments is in their best interest and yours.
Streitwise first started in 2018 and has gained a favorable reputation for its smart investments. Streitwise has over $5.4 billion in transaction experience.
Investing always has some risk, but RealCrowd tries to reduce that risk as much as possible by only investing your money in companies that don’t need your capital. To partner with RealCrowd, companies must have a minimum of 10 years of experience and more than $50 million in transactions.
The downside to this low-risk crowdfunding investing platform? Well, there are two. First, RealCrowd does have a high investment minimum, ranging from $25,000 to $50,000 (and that’s the low end). Secondly, RealCrowd can only be used by accredited investors.
RealCrowd was founded in 2013 and has raised more than $44 million to date.
Investment options available
Individual properties (including retail, multifamily, office, self-storage, and industrial buildings)
Next, is Groundfloor, a company that offers a low-cost approach to real estate investing. This crowdfunding platform allows accredited and non-accredited investors to fund short-term loans to real estate property flippers so they can rehab and resell the property for a profit. What’s great about Groundfloor is that you can get started with just $10. On the downside, loans can be very high risk and require a decent amount of research to choose a deal that’s most likely to succeed.
Groundfloor started in 2013 and was the first crowdfunding investing startup to become qualified through the SEC (U.S. Securities and Exchange Commission).
Investment options available
Real estate loans for single-family, multi-family, and commercial projects
Imagine if you’d had the foresight to invest in startups like Facebook or Youtube before they took off? SeedInvest offers equity investments, which allow investors to fund startups and other private companies online. The startups allowed to fundraise on SeedInvest are thoroughly reviewed to minimize risk, with only 1% of the startups applying actually making it onto the platform.
SeedInvest also has a low minimum investment requirement ($200 per startup) and will recommend startups to begin building your portfolio. Alternatively, you can search for startups on your own and make manual adjustments.
Ryan Feit and James Han started SeedInvest in 2012 when they learned how hard it was for entrepreneurs to raise capital online for startups. Since then, SeedInvest has funded over 975 companies at an average of $975,000 per company.
To be considered an accredited investor, you must have made more than $200,000 annually ($300,000 for joint investors) for the past two years. Alternatively, if you have and maintain a $1 million net worth or higher, you can be considered an accredited investor.
How is equity crowdfunding different from other crowdfunding types?
Equity crowdfunding allows investors to buy a stake in a startup or private company. Not only do investors receive a share in the company and change to earn ROI, but they also become partial shareholders.
How do crowdfunding investors get paid?
Your payment schedule as an investor depending on the platform you invest with and the type of investment you make. Real estate loans, for instance, typically have monthly payments. Dividend investing, however, might only have quarterly payments. Additionally, the platform you choose may allow you to opt for different payment schedules.
How successful is crowdfunding?
With every investment, there’s a substantial amount of risk that you should be aware of, and with crowdfunding, this is no different. It’s important to research your investment options ahead of time, no matter how safe they appear. That said, each crowdfunding investment platform offers its own risk evaluations, projections, and expected returns. CrowdStreet, for instance, offers some of the highest returns (up to 25%) but also has one of the steepest minimum investment requirements.
What percentage does crowdfunding take?
When you invest via a crowdfunding platform, you’ll typically be required to pay a fee for use of the software. Fundrise and RealtyMogul, for instance, have relatively low fees, while Streitwise has relatively steep fees. Some platforms have no investor fees at all, such as RealCrowd, but are typically limited to accredited investors.
Pros and cons of crowdfunding investing
Low minimum investment requirements. Crowdfunding investing platforms have really changed the way we view investing, bringing formerly out-of-reach investment options (particularly in real estate) to lower-income individuals. I love that many crowdfunding platforms have lower than industry average requirements to get started, with platforms like GroundFloor only requiring a $10 minimum and SeedInvest requiring only $200 per startup.
More transparent process. For many investors, particularly those just starting out, crowdfunding investing platforms can offer a transparent and easy-to-understand approach to investing. Most platforms offer comprehensive reports on investment projects, so you know exactly what you’re getting into before deciding to fund a particular investment.
Higher than average returns. On the upside, you could see higher than average returns by investing through crowdfunding platforms. Since most crowdfunding platforms undergo an extensive vetting process and thoroughly research each company they partner with, finding the right opportunities for your portfolio, you could earn 12% to 14% in returns, on average, per year.
Returns can take years. Crowdfunding investing isn’t a great idea for anyone looking to make quick returns. Though it depends on the investment type, in general, crowdfunding investments are low liquidity investments. It can take months or even years for your investments to begin to generate any type of returns.
Lack of control. If you’re used to a more active approach to investing, turning to a crowdfunding platform might not be easy for you. Once you invest in a project, you turn over control to the project owners. If you’re funding a house flipping project, for example, you’ll have no say in how the project is managed or completed. This passive investment style isn’t for everyone.
Returns are lower than active investments. While returns can be higher than investing in stocks, you’ll also find that investing in crowdfunding platforms typically generates lower returns than if you were to actively invest in real estate and manage or sell the property. Of course, this level of investment requires a significant time commitment in exchange for higher returns, so it’s important to ask yourself which type of investment best suits your lifestyle.
The bottom line
Investing through crowdfunding platforms is a great way for you to grow your portfolio, whether you’re a new or seasoned investor. I love that many popular crowdfunding investing platforms do not require you to be an accredited investor to sign up and have low minimum investment requirements (on average).
If you’re looking to begin your passive investment journey and start gaining returns, I recommend FundRise as the best overall crowdfunding platform. I’d also recommend looking into GroundFloor and SeedInvest since both have low minimum investment requirements. For more experienced and accredited investors, I’d recommend high-return platforms like CrowdStreet.
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