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Investing in real estate is quite possibly one of the most misunderstood concepts in all of investing.
Many who are new to the idea might think it requires huge down payments and lawyers on retainer to safely invest in rental properties.
Luckily, crowdfunding hit the ground running when Congress paved the way with loosened regulations in 2012.
Several companies came to the forefront as experts in raising money for real estate investments, and CrowdStreet is one of the best…for a certain kind of investor.
Let’s dive into the details and examine whether CrowdStreetis for you, how it works, and how it stacks up compared to competitors.
CrowdStreet Real Estate Investing Pros and Cons
CrowdStreet can be a powerful tool for real estate investing, and to help explain why here are the pros and cons to help lay the groundwork for later.
Pros:
- No fees to sign up: While funds and individual listings come with varying fees, signing up as an investor and getting approved does not involve any fees
- Easier access to commercial real estate: Until now, commercial real estate was only for those who go specifically looking for it. Now, it’s accessible with a few clicks.
- Deal flow: CrowdStreet is consistently high on the list of crowdfunding companies with the highest deal flow, offering plenty of opportunities
- Clever web-based platform: The online platform is very user-friendly and makes the whole process seamless.
Cons:
- Highest minimum investment: You need at least $25,000 to even invest in the REIT fund.
- You must be an accredited investor: But only to directly invest in individual properties
- Demanding time commitments: Most investments have very strict investment minimums
What Is CrowdStreet?
CrowdStreet, as we mentioned, is a website that offers prospective clients access to crowdfunded commercial real estate investments.
The website provides investors access to real estate investment opportunities and access to a plethora of educational materials.
How Does CrowdStreet Work?
CrowdStreet isn’t exactly for the beginner when it comes to real estate investment. However, the process of signing up to peruse listings is surprisingly easy.
You simply create an account with a name, email address, and login details, then you’re good to go.
Whether you click “yes” or “no” when asked if you’re an accredited investor, you can still look through the listings on the marketplace.
CrowdStreet has three ways to invest in commercial real estate.
- Diversified Funds and Vehicles: These are essentially REIT funds that are pools of money invested in predetermined, diversified assets.
- Individual Deals: These are the individual listings that investors can research and invest in directly.
- Tailored Portfolio: You will have the opportunity to sit down with a dedicated rep and put together your own portfolio of assets. The minimum investment for this service is quite a bit higher at $250,000.
As of this writing, there are five listings under the “funds and vehicles” tab in the CrowdStreet marketplace. Each one has different targets, but they are all pre-packaged, non-public REITs.
When it comes to individual deals, prospective investors can “indicate interest” in a listing, which doesn’t lock you into the investment.
Once the listing goes live, approved investors (more on this later) can go through the process of depositing funds.
Funds are then locked. There are heavy penalties for early withdrawal (if any at all is allowed), and you’ll be locked into the target investment period.
CrowdStreet Features and Benefits
The online platform is a gem. You can easily navigate between the three investment options mentioned earlier, and the listings tell you exactly what you need to start researching opportunities.
Direct Sponsor Investment Opportunities
We’ll get into some more details about fees later, but the reason that CrowdStreet doesn’t require any fees to sign up is because the sponsors are the ones who pay the fees.
Sponsors are the firms that are setting up the deals to purchase or build the property they intend to list on CrowdStreet.
When they submit an opportunity to CrowdStreet for review, they are taken through a rigorous background check as a start.
Then, based on their track record, sponsors receive one of three designations depending on the size of their portfolio and years of experience: Emerging, Seasoned, and Tenured.
Thorough Research and Due Diligence
Speaking of sponsors, CrowdStreet receives offers from hundreds of sponsors, but only around five out of every hundred submissions make it to the marketplace, according to CrowdStreet’s website.
The company combs through every aspect of the sponsor firm and their property to verify that the property or properties are fit to be shown to CrowdStreet’s investors.
This includes typical documents like the business plan, property appraisals, and other due diligence documents.
CrowdStreet also puts the prospective asset through proprietary programs to determine the type of asset, projected returns, and location data. If the asset is of the standard required, then the marketplace will see it.
Only Allows Accredited Investors
As we’ve mentioned a few times, individual deals are mostly only offered to accredited investors. This is an SEC designation that comes with a few hard requirements:
- You have invested assets excluding your personal residence of at least $1 million
- You made at least $200,000 personally or $300,000 with your spouse in the last three years.
The idea behind this is that if you have substantial enough assets, you will have been exposed to plenty of investment advice and material.
As a result, accredited investors are expected to understand the risks associated with certain investment opportunities not available to regular investors.
Transparent Deals and Offerings
Investors and even casual browsers can look through the thumbnails of the various listings available.
These thumbnails provide some top-level info, such as a property photo, target rate of return, cash yield, and target investment period.
When you find a listing you like and decide to invest in it, you are investing directly with the property’s sponsor.
One of CrowdStreet’s best features is that they don’t put a brick wall between you and the sponsor. Rather they simply connect investors and sponsors.
Nothing about the opportunity is hidden – while the thumbnail details are fairly high level, the full listing details offer plenty of information for those who require detailed research before investing.
Access to Real Estate Deals Nationwide
CrowdStreet takes submissions from all over the US. There are no restrictions to location, though the location does come into the review process, so there might be some locations that are more heavily represented if those markets seem to provide better opportunities for investors.
Diversification
If you are an accredited investor, the investment opportunities are extremely diverse within the realm of real estate.
Even though CrowdStreet specializes in commercial properties like office buildings and industrial developments, they have several current listings for multi-family (apartment) buildings, medical buildings, and hotels.
CrowdStreet Fees Explained
While there is no fee to sign up and review listings, there are management fees on most of the diversified funds charged by CrowdStreet. These tend to run between 0.5% and 1.00% per year
When it comes to individual listings, fees vary depending on the deal structure. Luckily, the fees are plainly laid out on each listing’s details page.
Who Should Use CrowdStreet?
CrowdStreet is plainly not for beginners. While some background in real estate is helpful, their resources and support offer education for those who may not have real estate experience, let alone commercial real estate experience. So, it’s not even necessarily for experienced investors.
With the excruciatingly high minimum investment and the requirement to be an accredited investor in most cases, CrowdStreet is for high-net-worth individuals looking to expand their portfolio and add real estate, whether for capital gains or for annual cash flow.
How Does CrowdStreet Compare to Other Real Estate Investing Sites?
#1. DiversyFund vs. CrowdStreet
DiversyFund offers assets with a low minimum investment of $500.
Most of their listings are residential, falling in the apartments and condos categories, whereas CrowdStreet offers nearly every type of commercial real estate asset.
>> Learn More: DiversyFund Review
#2. CrowdStreet vs. Fundrise
The elephant in the room between these two is the gaping chasm between the minimum investment at Fundrise ($500) compared to that of CrowdStreet.
The other big difference is that Fundrise offers both residential and commercial properties while CrowdStreet is only commercial (multi-family falls into commercial real estate in most cases).
>> Learn More: Fundrise Review
#3. RealtyMogul vs. CrowdStreet
Both of these companies focus only on commercial real estate, and the individual listings require one to qualify as an accredited investor.
However, RealtyMogul offers investors two very compelling REIT funds, each with a minimum investment of $5,000.
Fees for RealtyMogul are a bit lower at a max of 0.50%, though again, the fees on individual listings vary depending on the deal structure.
>> Learn More: RealtyMogul Review
Frequently Asked Questions
Which Is better Fundrise or CrowdStreet?
First and foremost, this is heavily dependent on whether you are an accredited investor or not. Secondly, it depends on what your investment goals are.
CrowdStreet is a very compelling option if you need to diversify your portfolio because you have too much money you need to put somewhere.
Fundrise is more for beginners. They certainly have high-dollar offerings, but they cater to those who want to dabble with a few hundred or a few thousand dollars to start learning about real estate.
So, to answer the question, it depends on you as an investor because these two companies cater to different types.
What Is the Minimum Investment on CrowdStreet?
The minimum investment is $25,000, even for the REIT funds. This is quite steep, but then we’ve mentioned that CrowdStreet caters to high-dollar investors.
It should also be mentioned that you don’t necessarily need to be an accredited investor to put $25,000 in one of the REITs, but you should still have a good idea of what you’re investing in and the risks involved before doing so.
Is It Safe to Use CrowdStreet?
Certainly! Security on the website itself is top-notch. Your investment portfolio might be visible to only specific personnel within the company, but you can rest assured they are protecting your information.
Is CrowdStreet a Safe Investment?
It would be a stretch to say that your investment is safe because, at the end of the day, all investments carry the risk of loss.
However, the process CrowdStreet uses to accept sponsored properties has proven to return more to their investors over the years than their competitors.
This is only a record of past performance, though, and shouldn’t be taken to mean they will continue this trend indefinitely.
How Much Should I Invest in CrowdStreet?
Again, that depends entirely on you. If you have a net worth of over $1 million (not including your primary residence), and you have $25,000 sitting in cash in our current low-rate environment, you fit the bill perfectly.
If you’ve got $10 million sitting somewhere and need to invest in it, you probably have teams of investment advisors who can help you figure out exactly how much to invest.
Either way, you should only invest what you can afford to lose without losing sleep.
Bottom Line: CrowdStreet Review
From the perspective of a high-net-worth individual (which we aren’t), CrowdStreet is a very compelling crowdfunding website.
If you’re interested in getting directly involved in some very interesting and potentially lucrative commercial real estate deals, CrowdStreet is really in a category of one.
While it does have its drawbacks, such as lack of access to company representatives, the platform is easy to use, the listings are very high quality, and the deal flow is exceptional.
