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If you’re a long-time reader of this blog, you already know that I think passive income is one of the best ways to grow your personal wealth and find financial freedom. Today I want to introduce you to an investment strategy that has long-term potential for passive income: real estate crowdfunding.
What is real estate crowdfunding?
The term crowdfunding is likely not new to you, but real estate crowdfunding is not in the same category as sites like Go Fund Me or Kickstarter. It’s not a platform where you put your hard-earned money towards someone else’s entrepreneurial dream, just to get maybe some free swag when they find success. Real estate crowdfunding is a much more sophisticated concept, with the potential to earn something way better than product swag: passive income.
Historically, investing in real estate has largely been a rich man’s game. Most opportunities were only for the wealthy and well-connected, or large institutional investors, like pension funds, university endowments, and hedge funds. So what changed? In a nutshell, the 2012 JOBS Act took down a lot of red tape surrounding the securities industry, opening the door for real estate firms to raise money for their projects through crowdfunding platforms. As a result, individual investors gained a new way to be able to add private equity (meaning not traded on the public markets) real estate to their investment portfolios.
How does real estate crowdfunding work?
Investing in real estate with crowdfunding isn’t about assembling a giant team of landlords to share in the responsibilities of owning a property, like finding dependable tenants or fixing plumbing issues at all hours of the night. It’s a way for individual investors to contribute a percentage of the overall funding for a real estate project, alongside others who are doing the same thing. This approach affords investors access to projects that they may otherwise be unable to afford.
There are many different types of properties available for investment. Some commercial examples include apartment buildings in growing metros, hotels in the most traveled regions of the country, or even new lab space for the life sciences industry.
How does investing in real estate generate passive income?
We’ve already covered the passive part (remember, no plumbing issues or tenant complaints!), but where does the income come in? It will depend on the business plan of the deal you invest in, but generally speaking, there are two ways real estate investments generate passive income. The first is with ongoing distributions (sometimes it’s a literal check in the mail!) paid to investors by the firm behind the deal. This tends to be more likely in properties with strong tenants and steady monthly rents, for instance, an office or apartment building. The second is through a share of the final sale price of a property, which is often the case when properties are under construction or undergoing major renovations.
As always, all investing involves risk. There is always the chance the project underperforms and you lose your initial investment. You should always research any potential investment and evaluate if it will work for you and your portfolio.
How can I invest with real estate crowdfunding?
If your first thought was to google “how to invest in real estate crowdfunding”, don’t: I’ve already done the heavy lifting for you.
CrowdStreet is the nation’s largest online real estate investing platform, connecting accredited investors directly to institutional-quality real estate across the U.S. Started in 2014, they’ve earned a reputation for working with best-in-class real estate firms. Since inception, CrowdStreet Marketplace investors have invested more than $2.6 billion across 560+ deals, earning $360 million in distributions. Some of their recently funded deals include an apartment building in Nashville’s famous music row, a hotel renovation right next to the home of the Utah Jazz NBA team, and a new life sciences lab space in research-centric Boston.
Their online Marketplace, which is where users are able to compare and review real estate investment projects, is easy to navigate. What I liked the best was how much information is given about the business plan and real estate firm behind each deal. You’ll have to create an account to see all the details. For every deal, they host a webinar with the real estate firm behind the project, so you can opt into those to learn more before making the decision to invest. There’s even a live Q&A session!
If you’re ready to learn more, get started today by creating your account for free at CrowdStreet.com.
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The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.