When crowdfunding rose on its initial wave of popularity, it was strictly a means of raising money for personal causes and makers of board games and household gadgets and whatnot. That all changed with the passage of the JOBS Act of 2012. The JOBS Act was sold as a response to the lack of capital available to startups in the wake of the Great Recession. It legalized the crowdfunding of securities so that campaigners could raise money from investors in a public campaign.
From there, it was natural that real estate developers would turn to crowdfunding as a new way of attracting investment. Six years after the passage of the JOBS Act, crowdfunding real estate has become quite the growth industry, with countless real estate crowdfunding sites popping up, offering equity and/or debt crowdfunding deals to accredited investors, and, in many cases, non-accredited investors as well.
With the crowdfunding industry projected to be worth in excess of $300 billion by the year 2025, there’s never been a better time for those in the real estate business to consider crowdfunding as a means of reaching investors who would otherwise be inaccessible. Here are 10 of the most popular and well-regarded real estate crowdfunding platforms out there.
Self-described as a “marketplace lending platform for real estate debt,” PeerStreet was founded in 2013 by real estate attorney Brew Johnson and former Google executive Brett Crosby as a means of giving accredited investors access to real estate investment opportunities. PeerStreet has originated over $500 million in real estate loans as of October 2017. Most remarkably, PeerStreet claims to have not lost a single dollar in investor principal throughout its entire existence.
Let’s get the skinny on PeerStreet’s real estate crowdfunding marketplace.
Real estate companies seeking to connect to investors online.
How Does PeerStreet Work?
PeerStreet states the following regarding their loans:
PeerStreet loans are generally secured by first liens on real estate. PeerStreet partners with top-tier originators across the country and carefully vets their loans before making them available to our investors. Most of our loans are short in duration (6-24 months) with LTVs typically below 75%.
PeerStreet applies a servicing fee of betweenÂ 0.25%-1.00% on each loan offered. Their loans offer, on average, 6-12% annualized returns.
PeerStreet runs extensive due diligence on both the loans advertised on its site and on its loan origination partners. Before a loan can be featured on PeerStreet, the company does the following:
- Performs independent underwriting of all loans using both manual processes and big data analytics
- Reviews an independent valuation (BPO/Appraisal)
- Ensures each loan complies with PeerStreetâs underwriting guidelines
- Reviews legal documentation
For loan origination partners, PeerStreet performs the following checks:
- Reviews track records
- Reviews financials
- Reviews licensing and adherence to state usury laws
- Runs background checks
- Reviews legal and underwriting processes
PeerStreet’s campaigns have an investment minimum of just $1,000 — lower than the typical $10K investment minimum.
How To Start A PeerStreet Campaign
Contact PeerStreet with details of your loan campaign proposal and wait to hear what they think.
PeerStreet’s reputation among investors is second-to-none, so attracting investors to your real estate crowdfunding project may be easier than with other platforms. Their policy of complete transparency to investors (PeerStreet investors can review the performance of every loan ever featured on the site) and strict vetting for loans and loan originators makes PeerStreet a standout company among real estate crowdfunding platforms.
Visit the PeerStreet website
With over $700 million in real estate investments facilitated since its founding in 2013, RealtyShares is at the tip of the real estate crowdfunding spear. Both equity and debt crowdfunding are available, and every deal on the site is strictly vetted before being allowed to campaign. Read on to learn more about this heavyweight real estate crowdfunding contender.
Connecting real estate businesses and projects — both commercial and residential — to accredited investors.
How Does RealtyShares Work?
RealtyShares names three different types of real estate investments that can be listed on its site.
(1) Â Cash-flowing/Value-Add equity investments in commercial and residential properties such as apartments, retail, office and pools of single family homes;
(2) Â Equity investments in Fix & Flips located in high demand/low supply markets;
(3) Â Loans secured by residential and commercial real estate.
On the loan side, RealtyShares lists fixed-rate bridge loans, floating-rate bridge loans, small balance permanent loans, and triple-net loans. On the equity side, RealtyShares lists common and preferred equity offerings. Rates and fees for RealtyShares’s various debt and equity products are given on the website at the links provided.
RealtyShares does its due diligence for investors by running background and credit checks on all funding campaign sponsors. As for the cost of running a campaign, RealtyShares says the following:
Real Estate Companies that raise capital through our investment platform will be required to reimburse RealtyShares for its out of pocket expenses related to establishing and managing the fund that invests in your project. Â These costs typically include legal, accounting and compliance costs.
The exact amount of the reimbursement will depend on the specific investment opportunity. Please contact usÂ hereÂ for more details.
Only accredited investors can invest in a RealtyShares campaign. The minimum investment amount is $5,000.
How To Start A RealtyShares Campaign
Create an account on RealtyShares’s site and submit an application. The company will get back to you within 24-48 hours to let you know if you’ve been accepted. It will then request additional information. You’d better know what you’re doing, as RealtyShares states “Currently, only a small percentage of prospective investments are listed on the site.”
RealtyShares has a reputation for being one of the top platforms for crowdfunding real estate deals. Having financedÂ over 1,000 projects in 39 states thus far, the company has a proven track recordÂ and is a solid choice indeed for the real estate business looking to source investment.
Visit the RealtyShares website
Launched in 2013 and headquartered in Los Angeles, RealtyMogul offers both equity and debt financing for real estate projects. Over $338 million has been invested thus far through RealtyMogul, financing over 350 commercial and residential properties valued at over $1.5 billion.
Let’s see what makes RealtyMogul tick.
Raising equity for commercial projects and conducting debt crowdfunding for both commercial and residential real estate.
How Does RealtyMogul Work?
RealtyMogul’s FAQ details how their campaigns work, but here are some pertinent details. Real estate companies can raise from between $1 million and $5 million from accredited investors in an equity campaign for commercial real estate. Terms, rates, and fees for RealtyMogul equity raises can be found here.
RealtyMogul also offers debt campaigns for both commercial and residential real estate. Most of these loans are sold to institutional investors. RealtyMogul offers hard money loans, bridge loans, and permanent loans. Information regarding terms and fees can be found here.
RealtyMogul runsÂ background, criminal and credit checks on all who apply to campaign.
How To Start A RealtyMogul Campaign
You begin the application process on the website, providing information about your firm, the property in question, and other details. A company representative will then contact you, take you through the due diligence process, and work with you in setting up your campaign.
Through RealtyMogul, the Hard Rock Hotel Palm Springs raised more than $1.5 million in equity financing in what was the first equity crowdfunding campaign ever conducted by a hotel. A pioneer in the industry, RealtyMogul’s track record inspires confidence.
Visit the RealtyMogul website
Founded in 2017, MinnowCFunding is a recent entry to the real estate crowdfunding race. Headquartered in Los Angeles, MinnowCFunding is a “funding portal” as defined by the law. This means it can offer Regulation Crowdfunding, or equity crowdfunding with non-accredited investors. MinnowCFunding does not offer debt crowdfunding.
MinnowCFunding consists of “a team of real estate veterans and advisors with over 50 years of collective experience underwriting and managing residential and commercial real estate.” Let’s learn more, shall we?
Real estate companies looking to conduct equity crowdfunding campaigns that are open to all investors, not just accredited investors.
How Does MinnowCFunding Work?
Through MinnowCFunding, equity campaigns can be launched for the following real estate types:
- Residential rental real estate
- Commercial real estate
- Industrial real estate
- Retail real estate
- Mixed-use real estate
Due to legal limits on Regulation Crowdfunding, a maximum of $1.07 million can be raised per year by any single entity.
Be warned that MinnowCFunding takes 7% of what you raise as a platform fee.
Companies looking to campaign for equity must undergo strict vetting: “Our experienced real estate and financial experts review the credentials and plans of the investment target.”
The minimum investment amount for a MinnowCFunding campaign is just $1,000.
How To Start A MinnowCFunding Campaign
Contact MinnowCFunding with your crowdfunding proposal and see what their agents tell you. The company doesn’t yet have a lot of information posted regarding the application process.
MinnowCFunding is the new kid on the block when it comes to real estate crowdfunding, yet they’ve generated a fair amount of buzz in the short time they’ve been around. Those in the real estate industry interested in Regulation Crowdfunding should give them a look.
Visit the MinnowCFunding website
Judging by the name, you might assume AlphaFlow was some kind of non-FDA-approved prostate supplement. However, you would be libellously wrong. Shame on you.
Founded in 2015, AlphaFlow, in their own words, “purchases first lien mortgage notes from top-tier originators around the nation, providing non-conventional liquidity to residential real estate lenders..” Let’s look at AlphaFlow in greater detail.
Connecting real estate companies to investors via loan originators. The loan originator offers the investor a balanced portfolio of diversified real estate investments — the investor doesn’t actually choose the individual projects to invest in.
How Does AlphaFlow Work?
AlphaFlow works with companies like PeerStreet to find residential debt crowdfunding campaigns. They take what they believe to be the best campaigns, make sure they are spread out across the US, and build portfolios to offer investors so the investor doesn’t have to do the heavy lifting.
AlphaFlow describes their loan products as follows:
- Asset-backed (first-lien) mortgage note
- Loan amounts between $75K-$2MM
- 6-12 month duration
- 7% + interest rate
- Personal guarantee
The company states the following regarding loan originators wishing to use the platform:
AlphaFlow conducts extensive due diligence on each originator partner. Lender onboarding entails strict review of the firmâs management staff, historical loan performance, underwriting guidelines, quality control metrics, and onsite review by AlphaFlow of their lending operations.
How To Start An AlphaFlow Campaign
Individual real estate companies don’t apply to raise funds on AlphaFlow. Rather, lending platforms apply to AlphaFlow, and if the platform is onboarded, it serves as a source of residential debt deals from which AlphaFlow draws to build its portfolios for investors.
AlphaFlow makes investing in real estate easy by offering portfolios comprised of diversified, pre-vetted residential loans.
Visit the AlphaFlow website
Launched in 2012, Fundrise’s brand of real estate crowdfunding is somewhat akin to that of AlphaFlow. Fundrise’s investors see their investments spread out over the company’s portfolio, which includes both commercial and residential real estate. The investor doesn’t choose which projects to invest in.
Investors invest in Fundrise’s portfolio through the vehicles of the eREIT (an electronic Real Estate Investment Trust — it resembles a mutual fund for real estate projects) and the eFund (similar to the eREIT).
People who want to invest in real estate but don’t want to choose the individual investments.
How Does Fundrise Work?
Fundrise sources real estate investment from around the US, then offers anybody and everybody (not just accredited investors) the chance to invest in Fundrise’s portfolio.
Fundrise doesn’t publicly release the duration, interest rates, etc. of their loan products. On the investor side, FundriseÂ allows investments of as little as $500 and takes aÂ 0.85% annual asset management fee.
There are no limits as to who can invest with Fundrise. As for real estate companies looking to raise funds with Fundrise, the company is not publicly seeking new projects right now, so no rules for companies looking for investment are given.
How To Start A Fundrise Campaign
You can’t apply for funding through Fundrise’s website, so you’ll have to contact the company via other channels if you have an irresistible deal to propose.
Fundrise is known for its supreme ease of use for the investor. It’s a great way for the average person to invest in something that is independent fromÂ the stock market.
Visit the Fundrise website
7) Patch Of Land
Born in 2013, Patch Of Land is a hard-money debt crowdfunding site for real estate investments — mostly residential, but some commercial. The company was founded by Jason Fritton (who lobbied for the passage of the JOBS Act that made real estate crowdfunding possible in the first place), and his brother Brian.
On Patch Of Land’s About page, the company posts the following mission statement:
Patch of Land aims to solve the problem of slow, inefficient, fragmented and obscure private real estate lending by using the latest technology, data and process efficiency to more accurately assign risk profiles and project viability, while greatly reducing time and cost of loan underwriting for borrowers with real estate projects that are overlooked or rejected by banks and traditional lenders.
Real estate companies and the investors who love them.
How Does Patch Of Land Work?
For real estate projects, Patch Of Land offers three different types of loan program:
- Fix & Flip Loan Program
- Rental Loan Program
- Commercial Loan Program
Details of each loan program are given at the link. One thing each has in common is that you can campaign for a maximum of $3 million USD.
Patch Of Land details the performance of its loans here. Some of the highlights: Patch Of Land has funded 986 loans to the tune of over $442 million with a realized rate of return of 10.88%. (Numbers current as of 3/25/18)
Patch Of Land Rules
Regarding the due diligence process, Patch Of Land states:
We will conduct due diligence process and review all the required documentation, including an appraisal. Typically we can close your loan in as little as seven days. Our process is transparent; we do not charge âjunk feesâ or hidden fees of any kind.
How To Start A Patch Of Land Campaign
Patch Of Land details the application process for borrowers here. Perhaps the highlight of the process is the fact that filling out the application, according to the company, takes only five minutes.
If you’d rather speak to a person about your prospective funding campaign, call a Patch Of Land agent at 1-888-959-1465 with details of your project.
Check out Patch Of Land’s track record and see if they might be the real estate funding solution you’re looking for.
Visit the Patch Of Land website
GroundFloor provides debt crowdfunding for residential real estate developers. Founded in 2013 in Atlanta, GroundFloor offersÂ fix-and-flip hard money loans for both accredited and non-accredited investors to, well, invest in.
You can invest as little as $10 in a GroundFloor crowdfunded real estate loan. Yes, $10, no typo. Though, I’m not entirely sure what the point of that would be.
Currently, GroundFloor can only be used in a limited number of US states. I’ll tell you which ones in a bit.
Financing fix-and-flip real estate projects.
How Does GroundFloor Work?
GroundFloor describes their loans thusly to borrowers:
- Rates starting at 5.4%
- Fix-and-flip hard money loans from $75,000 to $2,000,000 for residential properties (Please note: cannot be owner-occupied)
- Closing as fast as 15 days
- Monthly payments or balloon payment at maturity date
- All points can be rolled into the loan
- No personal guarantee required
- Lend up to 70% ARV (after repair value)
- Borrow up to 90% LTC (loan to cost)
- Fast and simple application with minimal documentation (no tax returns, no bank statements)
GroundFloor also touts 8-12%Â annualized returns on average on their loans with 6-12 month terms.
Of course, GroundFloor doesn’t let projects crowdfund loans without doing some vetting:
The product is based on venture loans to real estate entrepreneurs, originated and serviced by Groundfloor. Prior to offering, every loan is pre-funded by Groundfloor after a thorough vetting of the borrower’s experience, credit worthiness, and business plan, plus an assessment of the property value on an as-is and as-improved basis.
As of this moment, you can only raise funds through GroundFloor in the following states: Massachusetts, Maryland, DC, Virginia, Georgia, Illinois, Texas, Washington, and California. However, GroundFloor recently announced that due to theirÂ offering having just been qualified by the U.S. Securities & Exchange Commission under Tier II of Regulation A, they will be operating in all 50 states in short order. Just not quite yet.
Note that in a recent press release, the companyÂ said: “Groundfloor has not historicallyÂ charged any investor fees, but may elect to begin doing so in the near future.”
How To Start A GroundFloor Campaign
If you reside in one of the aforementioned states, apply online and see what GroundFloor says. Alternately, call the company atÂ 678-701-1194 and strike up a chat.
GroundFloor may only be getting started, but they seem to be making some moves to gain a foothold in the industry.
Visit the GroundFloor website
With an all-caps name that makes me feel like I’m yelling at you just by typing it, EQUITYMULTIPLE offers commercial real estate crowdfunding in the form of syndicated debt, equity, and preferred equity raises.
EQUITYMULTIPLE is a young company, having been founded in 2015. However, extolling their familiarity with the field, EQUITYMULTIPLE states:
Experience matters. While other platforms are backed by venture capital companies, we’re backed by a real estate company – Mission Capital, a recognized national leader in commercial real estate debt & equity finance.
Commercial real estate developers looking for crowdfunded investment, investors looking for real estate deals, and people who like shouting.
Only accredited investors can invest through EQUITYMULTIPLE.
How Does EQUITYMULTIPLE Work?
Here are the details of EQUITYMULTIPLE’s syndicated debt offerings:
- Target Rate to Investors: 7-12%
- Typical LTV: 50-75%
- Typical Term: 6-24 months
The details for the company’s preferred equity offerings:
- Target Current Preferred Return: 6-12%
- Target Total Preferred Return: 50-75%
- Typical Term: 1-3 years
Lastly, the company’s regular equity offerings:
- Target Annual Cash Return: 6-12%
- Target Internal Rate of Return to Investors: 14%+
- Typical Term: 1-3 years
Regarding due diligence, EQUITYMULTIPLE describes the platform’s vetting process:
We will provide a comprehensive diligence request list. Once these items are received, our team will determine if the deal meets the requirements of EQUITYMULTIPLE’s investor network. During this time, the Sponsor and EQUITYMULTIPLE will begin discussions surrounding the terms of the anticipated Offering.
How To Start An EQUITYMULTIPLE Campaign
EQUITYMULTIPLE’s deal submission and funding process is detailed here. One key point: once you submit your deal, EQUITYMULTIPLE “will get back to you within two business days with follow-up questions or preliminary approval.”
EQUITYMULTIPLE is a real estate crowdfunding platform just finding its sea legs. Keep an eye on these folks.
Visit the EQUITYMULTIPLE website
10) Small Change
Launched in 2014 and headquartered in Pittsburgh, Small Change may not have the longest track record, but the equity real estate crowdfunding platform distinguishes itself by associating its brand with social responsibility:
We created Small Change to allow everyday people to invest in real estate projects that change cities and neighborhoods for the better, and we created our proprietary Change Index to track that change.
The Change Index is a way for Small Change to assess real estate developments in terms of their access to public transportation, the walkability of the area, access to parks and fresh food, and other factors.
Developers of residential, commercial, and mixed-use properties that score sufficiently highly on the company’s Change Index. Non-accredited investors can invest in some projects, while others are strictly for accredited investors.
How Does Small Change Work?
Small Change advertises average returns of betweenÂ 8-10%. The minimum investment amount on a Small Change project is just $500.
Small Change doesn’t provide much in the way of details as to how their investments perform. Hopefully, this will change in the future.
Small Change Rules
The company’s Change Index is a fairly comprehensive scoring system for how beneficial a real estate development is to the wider community. Projects must hit a certain target score on each metric before being allowed to use the platform. I recommend reading the details of the Index carefully if you’re thinking about using Small Change for your real estate venture.
How To Start A Small Change Campaign
You’ll have to create an account and get in touch with the company to ask about getting your project on the platform. Small Change doesn’t provide any granular detail as to how to do this.
It’s good that at least one real estate crowdfunderÂ seems aware of the fact that not all real estate developments benefit the community and that such developments should be viewed through the prism of social responsibility. For that, I tip my cap to Small Change and the Change Index.
Visit the Small Change website
Real estate crowdfunding can hardly be said to be a mature industry at this point. After all, it’s only about six years old. As such, the industry is in flux, and my list of leading real estate crowdfunders would undoubtedly be different if I were to write this article in another few years.
That’s not to say real estate crowdfunding can’t work for you right now — indeed, evidence indicates quite the contrary. Check out the companies I’ve listed above if you want to get a good picture of where the industry stands today.
The post 10 Great Real Estate Crowdfunding Platforms For Businesses appeared first on Merchant Maverick.