Maybe you received a mailer for a crowdfunding platform. Or perhaps you came across an ad on Facebook.
No matter how you’ve come across real estate crowdfunding, there is no denying that it is becoming a popular alternative to REITs and real estate mutual funds.
But is it the right choice for your portfolio?
In this article, we’ll explore what real estate crowdfunding is, what the best platforms are, and the risks of investing in a crowdfunding platform.
What is Crowdfunding
Crowdfunding allows you to invest via an online platform that pools money from multiple investors to fund real estate projects, including multifamily properties.
These platforms act as intermediaries. They connect real estate developers and operators with investors who can participate in deals with relatively low minimum investments, often starting at $5,000 to $25,000. Through these digital platforms, both accredited and sometimes non-accredited investors can access real estate investments that were traditionally available only to institutional investors or high-net-worth individuals.
Crowdfunding was made possible by the 2012 JOBS Act, which allows these platforms to handle all aspects of the investment process digitally. From investor onboarding and document signing to distribution payments and investment updates, crowdfunding platforms can do it all.
How does Crowdfunding Work?
Real estate crowdfunding platforms act as digital marketplaces where sponsors list their investment opportunities and investors can browse and select deals that match their investment criteria.
When a sponsor wants to raise capital for a multifamily property, they submit their project to the platform for review. The platform conducts initial due diligence on both the sponsor and the deal, then creates a digital offering package that includes property details, financial projections, risk factors, and investment terms.
Once approved, the platform markets the opportunity to its investor base.
Interested investors can review all documentation online, sign subscription agreements electronically, and transfer funds through the platform's secure portal – all without speaking to someone!
When the funding target is reached, the deal closes and the platform handles ongoing investor relations, including distributing quarterly reports, managing payment distributions, and providing tax documents.
The platform typically earns fees from both sponsors (for listing and managing the offering) and investors (usually through asset management fees or promotes), while also handling all regulatory compliance and reporting requirements.
The Most Popular Multifamily Crowdfunding Platforms
If you haven’t noticed the trends, real estate crowdfunding continues to gain in popularity. It’s so popular that it’s estimated to reach $300B by 2032. With more options available than ever, here are some of the top platforms:
- CrowdStreet: One of the largest and most established platforms, focusing on commercial real estate including multifamily properties. They exclusively work with accredited investors and have a strong track record of institutional-quality deals.
- RealtyMogul: A well-known platform that offers both individual property investments and REITs. They're particularly active in the multifamily space and accept both accredited and non-accredited investors through their REIT products.
- Fundrise: Popular for its low minimum investments (starting at $10) and accessibility to non-accredited investors. While they offer diversified eREIT products rather than direct property investments, they have significant multifamily exposure in their portfolios and are known for their user-friendly platform.
- EquityMultiple: Known for its institutional-quality deals and focus on commercial real estate, including multifamily properties. They maintain high standards for sponsor approval and typically offer investments to accredited investors only.
These platforms may be popular, but they are not without their risks. Read on as we explain the pros and cons of real estate crowdfunding.
Pros and Cons of Crowdfunding
Crowdfunding is a popular way to diversify your portfolio with multifamily real estate, but it’s important to be aware of the risks that come with it.
The pros of real estate crowdfunding:
- Lower minimum investments compared to traditional syndications
- Access to institutional-quality deals that were previously only available to large investors
- Easy digital access to deal information, documentation, and ongoing reporting
- Simple investment process with digital signing and fund transfers
- Built-in due diligence by the platform on sponsors and deals
- Regular automated distributions and tax document delivery
The cons of real estate crowdfunding:
- Limited ability to conduct personal due diligence on sponsors or negotiate terms
- Higher overall fees (platform fees plus sponsor fees) compared to direct syndication investments
- Less direct relationship with the sponsor/operator
- Potential for platform risk (what happens to investments if the platform fails?)
- Often more competitive deals due to broader investor exposure
- May have longer holding periods due to preset exit strategies
- Some platforms pool investments, reducing direct ownership benefits
- Potential for deals to be oversubscribed quickly, limiting investment opportunities
As with all investments, you need to make sure that you’ve done proper due diligence to make sure that the platform fits in with your risk tolerance and investment goals. For those looking for a bit more control over the properties that they invest in, a real estate syndication may be a good alternative.
Crowdfunding vs a Real Estate Syndication
Like a crowdfunding platform, a real estate syndication pools money from a group of investors to purchase a multifamily property (or collection of properties in a diversified fund). A real estate syndication differs from a crowdfunding platform in a few key ways:
- Direct Relationship & Communication: In a syndication, investors work directly with sponsors, allowing for deeper relationships, personal communication, and often better access to the deal team. In crowdfunding, communication is typically standardized and goes through the platform. Investors have limited direct access to sponsors and rely on platform-provided updates and reports.
- Investment Minimums & Terms: Syndications generally have higher minimums ($50,000-$100,000+) but often with more negotiable terms for larger investors. Crowdfunding platforms have lower minimums ($5,000-$25,000) but rigid, standardized terms. Little to no room for negotiation regardless of investment size.
- Due Diligence Process: In a syndication, investors can conduct thorough due diligence directly with sponsors, including site visits, detailed questions, and reference checks. They have access to the sponsor's full track record and team. Meanwhile, a crowdfunding platform handles initial due diligence, but investors have limited ability to dig deeper. Information is typically presented in a standardized format with less detail than direct syndications.
- Fee Structure: Syndications generally have lower overall fees since there's no platform layer. Fees typically include sponsor promote/carried interest and asset management fees. Crowdfunding platforms have additional platform fees on top of sponsor fees, resulting in higher overall costs.
- Control & Flexibility: In a syndication, larger investors may have some influence over major decisions and exit timing. More flexibility in deal structure and terms. Crowdfunding platforms offer little to no investor control or influence over property decisions. Preset exit strategies with limited flexibility.
A real estate syndication could be the best of both worlds: a passive investment opportunity in real estate with part-ownership benefits.
Are Crowdfunding Platforms a Good Investment?
Crowdfunding platforms can be good investment vehicles, but whether they are the right investment for you depends on a few factors such as your:
- Goals
- Experience level
- Resources
Like any investment option, they should be evaluated as part of an overall investment strategy rather than viewed as universally "good" or "bad."
Due to the lower minimums and simplicity, crowdfunding is a popular choice for non-accredited investors or those new to investing in real estate. Sophisticated investors who wish to be closer to the sponsor may benefit from other options, like a real estate syndication.
Interested in Multifamily Real Estate? Download Our Free Investor Guide
Whether you invest in a REIT, a crowdfund, or a syndication there are many ways to diversify your portfolio with multifamily real estate.
Between selecting where to invest, which firm to choose, and how much, we understand if you have questions. That’s why we created a free guide to show you the ins and outs of investing in multifamily real estate. Fill out the form below to get your free guide. In it, you’ll learn:
- The tax benefits of investing in multifamily real estate
- How to choose a firm
- The best markets to invest in
And more!
