For several years now, crowdfunding has given entrepreneurs a way to raise money without having to seek out venture capital. The crowdfunding movement has since expanded to real estate. It is estimated that crowdfunding investors will be putting $2.5 billion into the U.S. real estate market in 2015. As an investor, crowdfunding opens up investment opportunities that may have previously only been available to the uber wealthy. (For more, see Real Estate and Crowdfunding: A New Path For Investors.)
Let’s take a look at five of the top real estate crowdfunding companies.
Launched in 2012, Fundrise was founded by Ben and Dan Miller with the hopes that the average Joe would have the opportunity to invest in the same real estate projects as corporate institutions.
"The idea behind Fundrise is straightforward. Technology allows us to dramatically reduce costs and provide our investors with better returns, while allowing us to cast a much wider net,” says Fundrise CEO Ben Miller. “We are able to find the needles in the haystack that others can't because of the sheer volume of opportunities we see."
The Fundrise online marketplace allows investors to pick different real estate projects to invest in for as little as $5,000. Each week Fundrise receives over 250 new deal proposals, but only 5% of those actually meet its rigorous approval standards. Fundrise offers a diverse selection of potential investments: investors can invest in a single family home project, a multi-family condominium building or even a mixed-use manufacturing building. The platform pre-funds all deals upfront so investors start accruing interest as soon as their investment settles.
Founded in 2003 by Rodrigo Niño, Prodigy Network connects accredited investors with Manhattan commercial real estate through a secure online platform. Prodigy offers investment options in most major cities for multi-family, office, retail and hospitality properties. The platform gives investors the opportunity to invest as little as $10,000 in a project; however; the total portfolio must consist of $20,000 in assets. As an investor, you will receive frequent project updates and financial statements to keep investors informed of the current state of their holdings.
Prodigy goes through an extensive six-point vetting process for each investment. The company only partners with experienced developers that have a track record of success, invests in properties in locations with high growth potential, offers investments in major markets with solid fundamentals to avoid potential bubbles and invests in projects that will improve neighborhoods, eventually boosting the properties’ overall value. In addition, all investments are run through a bank account controlled by a third party and investors will have access to the company’s equity partners and favorable lender terms.
iFunding was co-founded by William Skelley and Sohin Shah in 2012. The company offers investors several different asset classes to choose from, including high-rise buildings in Manhattan or single family homes in Phoenix. Investors can start with just $5,000, which is much better than the traditional $50,000 to $100,000 that used to be required for real estate investing. Before picking an investment, investors will have the opportunity to review various pieces of information, such as the estimated return on investment, length of the investment and the details of other companies and individuals involved in the investment.
One interesting and unique feature of iFunding is hosted webinars with prospective investors. These webinars present investors with different real estate projects and allow them to ask questions. iFunding offers commercial real estate investments that include multifamily, office, industrial, retail, hospitality and land.
Realty Mogul was founded in 2013 with the purpose of making it easier for individuals to invest in real estate. Since its launch, the platform has raised $10.1 million in funding. To date, Realty Mogul has over 15,000 active users, with a total of $70 million in investments across more than 240 properties. One of the platform’s most well-known crowdfunding campaigns is a $1.5 million stake, or 15% share, in the Hard Rock Hotel Palm Springs. This was the first crowdfunded hotel deal.
Like the other platforms, Realty Mogul gives investors access to a wide range of property types, ranging from multi-family and retail to medical office and hospitality. The investment period can last six to twelve months, and investors start earning a return within a few weeks of the period.
The goal of RealtyShares is the same as most other real estate crowdfunding platforms: provide quality real estate investments to accredited investors. The platform is hoping to bridge the gap between project sponsors and the developers behind each project.
Once an investment is 100% funded, it usually takes two to three weeks for the property to close and the investors to start accruing a return on their investment. Returns for different investments can vary, but RealtyShares CEO Nav Athwal says that it can be anywhere from 8% all the way up to 20%. Investors can choose to invest in several different types of properties, including residential, commercial, retail and mixed-use.
In April, the company announced a $10 million Series A round of funding, which will help it to increase its number of underwriters and build out the number of available properties available to investors.
The Bottom Line
It is no secret that real estate crowdfunding has caught fire. With the amount of capital that has been flowing into these companies over the past 12 to 24 months, they are likely to continue to grow. This means more investment opportunities for individuals.