Real Estate Crowdfunding & Investing Sites Reviews
Are you confused trying to choose from the 100+ real estate crowdfunding sites? So was the case with us.
Different from other types of crowdfunding, there’s no one leading site, where you can quickly invest in every type of real estate investment you need to diversify a portfolio. Few open investments are only covered by the average sites. Also, there is no one site that covers all the investment types in the form of equity, debt, commercial, residential, specialty, core, core plus, value-added, opportunistic. Hence, to fund your portfolio, several sites have to be used.
But which ones?
The Best Real Estate Crowdfunding Sites
How did we come up with this list?
Due diligence required
The random pick is a bad idea. There are a few great sites, a good number of solid sites, and a much larger number of poor sites. The prior look has to be given at all your choices; otherwise, you can end up making a very expensive mistake.
However, most sites won’t reveal their warts without a lot of prodding. So here is what we did. We spent three months doing in-depth reviews of every site. We signed up for everyone, reviewed site documentation, interviewed account reps, support staff, and principals. We pored through reams of legal documents and investment contracts. Not to forget, we also interviewed actual investors.
While some sites were very helpful, others were indifferent. Several were irresponsibly evasive, and a few were outright hostile. All the important information we found (warts and all) is disclosed in the rankings, reviews, and/or the feature comparison matrix. Click here to view the final result.
The following requirements are to be met by the site in order to qualify as a top site:
- Functional site: Site is live and operational for business (versus in beta). The site cannot look homemade or unprofessional.
- Functional sign-up: Site requires a password and verifies the email address. It can create a user account error-free.
- Focuses just on real estate crowdfunding, and isn’t a “jack of all trades” site that attempts to do all types of crowdfunding in the same way (meaning that it does real estate poorly).
- Real online crowdfunding versus broker. “Real” means that the site posts all available investments online. In addition, it provides all information on them necessary to invest online which includes all due diligence documents, such as leases, appraisals etc. The missing piece in broker sites is some or all of the above things. They often require interacting with a salesperson, who will attempt to steer you to their preferred investments.
- Location: All investments must be based on U.S. Foreign real estate is more volatile, risky, and difficult for US-based investors to assess. It is significantly less likely to follow historical U.S. returns and more difficult to determine proper diversification, etc.
- Availability: It is available to investors in all U.S. states.
- Not a zombie: Has as at least one real/open investment, and no investments with detectably fake/sample data.
- Transparency: Allows investors to fully share and critique information on investments with others.
- Minimal selection: At least three available investments in a month.
The features moved a site up in the rankings while it moved it down, in the case of lack of the feature.
- Pre-funding: Pre-funded sites have a number of huge advantages over non-pre-funded sites. Click here to see the full definition.
- Low investor fees: The lower the fee, the more headroom the investment has if something goes wrong. Moreover, lower the fee, the more the investors keep for themselves. The average fee considered for direct property investment is 1%.
- Low investor minimums: As discussed in this article on portfolio diversification, high minimums put proper diversification out of the reach of most investors. No site in the industry does a sufficient job of this. If investment minimums climb above the average of $10,000 for some or all investments, then the site was docked.
- True skin in the game: Not just share success but also a financial loss, if investor loss occurs. Currently, there is only one site for this. It is Acquire Real Estate with the feature of co-investment.
- Positive investor feedback: Negative feedback is counted against a site.
- Bankruptcy protection: Predefined investor protection if the site goes bankrupt. Click here to see the full definition.
- Velocity: At least one investment closed in a month.
- The company has venture capital funding. A VC-backed company has had it’s business model and strategies successfully vetted by an investment professional. In addition, funding allows the company the financial freedom to pre-fund deals, which is better for both sponsors and investors.
- Minor factor for tiebreakers: Has investments for specific properties, and isn’t completely just third-party fund managers. There’s nothing wrong with investments for third-party fund managers. However, in the case of a tie between two sites, sites that have investments for specific properties were given a small edge over sites that don’t. The reason being, there is a question on the long-term viability of sites that are just resellers of existing funds. In order to avoid unnecessary fees, several investors said they bypass such sites and go directly to the fund. This disintermediation makes me question the long-term survival of such sites. Venture capital firm seems to agree with me, in voting with their money. There is no company that offers only fund managers has received any VC funding. And six out of the seven that have, are pure direct investment sites. Only one company out of seven offers fund managers, that too, not on all investments.
Since I’m an investor, the ratings are based on which sites are best for other investors like me. In case you disagree with my methodology or definitions, you can access the raw data in the feature by feature comparison matrix, and determine which sites work best for you. The same matrix will be helpful in viewing sponsor fees, if you’re a sponsor (looking to raise money for real estate), etc. You can find the best site for your purposes too.
Most sites don’t provide the money to the sponsor until all the investors fill the offering (and may never give the money if too few investors are interested). Sites that pre-fund, give the money to the sponsor right away, and thereafter, it is offered to the investors.
This makes the site to be extra sure about the investment. Because if it’s not bought by enough investors, they will own part or all of it. So we can see that the marketplace has more “skin in the game”.
Pre-funding is also great because your money goes to work as soon as you deposit it. Whereas in the case of non-pre-funding sites, you have to wait until the deal is successfully sold to every investor. This leads to a reduction in your return, and in the worst case (where the marketplace can’t sell enough investors), means that after waiting, you won’t even be able to invest. Pre-funding sites avoid all of these problems.
Lastly, sponsors also love the idea of the convenience of pre-funding because it gives them their money sooner and with more certainty. This also helps investors, as they can access a larger more competitive pool of investments.
Currently, the sites that pre-fund every investment are Lendinghome, Patch of Land, Acquire Real Estate, and City Funders.
There’s so much competition in the industry that some sites are bound to go belly up. If you buy an investment, and the site goes bankrupt, you might become very uncomfortable. Without an administrator, the investment can’t perform basic functions and at the very least prevent you from getting back your money when you expected. Further, a bankruptcy court could rule that the funds need to be tied up for additional months or years while they finish the process of unwinding the company. And in the most extreme case, the court could rule that your funds should be confiscated and used to pay the debts of the company. Obviously, all of these are horrible outcomes.
Thanks to the many sites that are dealing with this by setting things up to protect investors in case of a bankruptcy, although only a few do it fully. Most sites separate the investment’s legal entity from the investment marketplace so that a bankruptcy court would not link them together to pay the debts of the parent marketplace. This involves not only how the entity is set up, but also how it is managed (for instance, not sharing financial accounts between them, etc.).
While this is a welcoming first step, it’s still not enough. In case, a bankruptcy happens, there needs to be some way to allow the investment to continue running. The best sites have certain rules in the contract that makes this happen.
Currently, DiversyFund, Equity Multiple, Full Capital Stack, and Peerrealty are the few sites that have rules that allow investors to vote on a new administrator if the site goes bankrupt. While this is far superior to letting the investment hang in limbo for potentially forever, both of these require time to execute. So, you could expect the status to be unknown for several months or more.
At present, Realty Shares, Peerstreet, iFunding, Patch of Land and Share States are the very best protected sites that go one step further and set up the backup administrator in advance. The transition for your investment should be smooth, with this kind of scenario.