How Crowdfunding is Expanding the REIT Market

Real estate investment companies are using new U.S. crowdfunding rules to raise additional capital for new vehicles that are generating superior returns.

Fundrise's REIT Expansion

​Fundrise, one of the pioneers of the online real estate crowdfunding industry, introduced this week, three new funds to their family of eREITs™, which  essentially are a public but non-traded REIT. The additions are the Fundrise West Coast Opportunistic REIT, Fundrise Midland Opportunistic REIT, and Fundrise East Coast Opportunistic REIT. Until now, Fundrise managed two REITs, one being income-focused and other being focused on growth, that both made investments throughout the country. However, the new REITs will each target specific geographic locations in the U.S. Income and growth will be their main investment objectives.

Fast Fundraising

Fundrise says that it has raised over $84 million from individual investors since debuting its first REIT in December 2015, and its second one a little more than five months ago. The company says it's on track to raise a total of $250 million in a little over 12 months. (See also, Is Fundrise's New eREIT Right for You?)

Strong Returns

Fundrise's Growth eREIT™ investors are earning an approximate 8% annualized dividend, while Income eREIT™ investors earn approximately 11.25% gross annualized, Jordan Sale, director of marketing at Fundrise, told Investopedia. (See also, How To Analyze Real Estate Investment Trusts.)

RealtyMogul.com’s MogulREIT I is another crowdfunded REIT that was launched this year. Like Fundrise's REITs, the MogulREIT makes debt and equity investments in various types of commercial property with an aim to distribute a steady stream of income. The REITs NAV is currently fixed until September 2017 at $10 per share, and its first dividend payout was distributed to investors earlier this month, which equates to an approximate 8% return on an annualized basis.  

To put those returns into perspective, last year the FTSE NAREIT Composite increased by only 2.05%.

Crowdfunding's Driver

Equity crowdfunding has been on the rise ever since Regulation A+ was finalized and adopted by the Securities and Exchange Commission (SEC) early last year. It essentially exempts companies from the need to register certain small issues of securities, and also allows them to offer those securities to non-accredited investors, helping to attract funds.