But that all changed with the arrival of real estate crowdfunding platforms. This are peer-to-peer investment platforms, where project developers come for funding provided by individual investors, like you. With an investment of as little as just a few dollars in some cases, you can participate in this very lucrative investment class.
Some real estate crowdfunding platforms require you to be an accredited investor. That’s someone who has either a high net worth or an above-average income, or both, and is presumed to have the financial resources to absorb potential losses. But there are real estate crowdfunding platforms that allow non-accredited investors. And those platforms are the subject of this guide. We’re going to explain the fundamentals of real estate crowdfunding investing, as well as provide what we believe to be the best investments for non-accredited investors.
Table of Contents:
Our Top Pick For Best Investment for Non-Accredited Investors: Rich Uncles
Rich Uncles offers the very best in commercial real estate investing, with full professional management. And not only do they accept non-accredited investors, but you can invest with as little as $5. Not only is that a big advantage for small investors, but it also gives you an opportunity to spread a relatively small investment across different plans. Meanwhile, the platform charges no annual management fee, an arrangement that can only improve the long-term performance of your investments.
We also like the way their investments are constructed. They lease their properties to big-name companies, to provide greater stability. They also use an ingenious leasing technique, in which the tenant pays all expenses related to the property, including real estate taxes and insurance, plus monthly rent to Rich Uncles.
Real estate crowdfunding may be a relatively new concept, but the investment methodology used by this platform puts the odds decidedly in your favor.
Our Runner Up Pick for Best Investment for Non-Accredited Investors: RealtyMogul
RealtyMogul also invests in commercial property, giving small investors a chance to participate in a type of investing once reserved only for institutional and large individual investors. But the strength of this platform is that they give you an opportunity to choose the type of return flow you want. You can choose income, capital appreciation, or a combination of both.
The minimum initial investment requirement is substantially higher than that for Rich Uncles, at $1,000. But that’s an amount that’s still low enough to allow many small, non-accredited investors to participate in the platform.
|Best Investments for Non-Accredited Investors||Best for|
|Rich Uncles||No management fee and very small initial investment|
|RealtyMogul||Choice of income, capital appreciation, or both|
|Fundrise||Published investment returns|
|Groundfloor||Investors who want to participate in property flips|
|Real Estate Investment Trusts (REITs)||Investors who want to invest in commercial real estate, but aren’t comfortable with real estate crowdfunding platforms|
Best Investments for Non-Accredited Investors
1. Rich Uncles
Rich Uncles gets its name from the platform’s two managers, who act as your “uncles” in the real estate investment business. When you invest with Rich Uncles, you invest through prepackaged REITs. The platform is available for both accredited and non-accredited investors, depending on the REIT selected.
Rich Uncles invests in commercial property, leasing to well-established, big-name companies, such as McDonald’s, Starbucks, and Walgreens. They also use a rent strategy referred to as triple net leases. These are lease terms under which the tenant pays the property taxes, property insurance, and any required maintenance–in addition to the monthly rent. REITs are equity-based and pay monthly income distributions.
Best for: No management fee and very small initial investment. Not only does Rich Uncles have no management fee, but you can also invest with the platform for as little as $5 or $500, depending on the REIT you invest in.
Read more: Rich Uncles Review
RealtyMogul is one of the most popular real estate crowdfunding platforms for both accredited and non-accredited investors. They invest in commercial real estate, such as office buildings, retail space, and apartment buildings. Private placement investments are available for accredited investors, but non-accredited investors can participate in public REITs offered by the company.
RealtyMogul investments offer both regular income distributions, plus capital appreciation once an underlying investment has been sold. This gives you the opportunity to get the benefit of both income and growth on your invested principal. However, whether you will receive regular income, capital appreciation, or both will depend on the type of investment you make. RealtyMogul offers equity, preferred equity, and debt investments.
The minimum required investment is $1,000, which will allow participation by many small investors. The platform charges an annual management fee of between 1% and 1.5% of your investment.
Best for: Choice of income, capital appreciation, or both. Debt investments provide regular income, while equity investments are focused on capital appreciation. Preferred equity investments offer both.
Read More: RealtyMogul Review
Fundrise is one of the few real estate crowdfunding platforms that makes all its investments available to non-accredited investors. But the investment plans they offer are a bit different from other real estate crowdfunding platforms.
For example, Fundrise offers electronic REITs–called eREITS–and electronic funds–called eFunds. eREITs are invested in commercial property, with the primary purpose of generating income. They’re not publicly-traded REITs, however Fundrise does offer the ability to redeem your shares through their quarterly share redemption program. On the other hand, eFunds are designed to produce investment growth, also through commercial real estate investments.
Fundrise requires a minimum initial investment of $500, and charges an annual management fee equal to 1% of your invested principal. On income-producing funds, quarterly dividends are paid.
Best for: Published investment returns. Most investment platforms, including real estate crowdfunding platforms, are understandably hesitant to disclose annual returns. Not so with Fundrise. They disclose annual returns of between 8.7% and 12.4%, depending on the specific investment.
Read More: Fundrise Review
Learn More: Fundrise vs. Realty Mogul – Which Crowdfunding Real Estate Platform is Better?
You’ve likely seen the TV programs on HGTV and other channels involving property flips. That’s where an investor purchases a distressed property, renovates it, and sell it at a much higher price. If you’ve ever wanted to participate in that kind of investment, but didn’t feel comfortable doing it on your own, you’ll have a chance to do it through a real estate crowdfunding platform known as Groundfloor.
Unlike other real estate crowdfunding platforms, they don’t invest in commercial property, sticking strictly with small residential property flips. The investments are also short-term in nature, generally paying out in 6 to 12 months. As an investor, you’ll provide short-term financing for the flip. After the property is sold, you’ll be repaid your principal, plus the interest on the financing you provided.
The platform claims an annual average return of about 10%, however, they do not pay income distributions. The minimum required investment is just $10, and there are no management fees charged against your investment.
Best for: Investors who want to participate in property flips. If you’ve been intrigued by the property flipping activity you see on TV, Groundfloor will be a way to get your feet wet. You might even start investing in flips through the platform, then eventually get more directly involved.
Real Estate Investment Trusts (REITs)
Real estate investment trusts, or REITs, are essentially mutual funds that invest in commercial real estate. That includes office buildings, retail space, large apartment complexes, warehouses, hotels, medical facilities, and other large real estate projects. Many REITs specialize in a certain type of property, such as retail or office space.
One of the major advantages with REITs is that they are available to all investors–there is generally no accredited investor requirement. They also trade on major stock exchanges, making them easily available through popular investment brokerage accounts. And since REITs are generally publicly traded, they can be both bought and sold at will. And since they trade as shares, there is no minimum investment required. You can buy into a REIT for as little as the price of one share of the fund.
REITs also have an impressive track record on investment returns. Between 1972 and 2018 equity REITs outperformed the S&P 500 11.62% to 10.53%.That doesn’t mean REITs should replace stocks in your portfolio. But the high returns make a case for adding REITs to the equity portion of your portfolio, along with stocks.
Much like stocks, REITs pay dividends, often higher than other types of investments. By law, they’re required to distribute at least 90% of their income to their shareholders.
Best for: Investors who want to invest in commercial real estate, but aren’t comfortable with real estate crowdfunding platforms. REITs represent a more general type of investment than real estate crowdfunding platforms. It’s an opportunity to participate in investments in large commercial projects, that are fully managed by real estate investment professionals.
Best Online Discount Brokers
- Ally Invest: Best for new investors and those looking for a very easy website to navigate.
- TD Ameritrade: Ideal for more experienced traders looking for a rich set of tools and resources.
- E*TRADE offers trading platforms and tools for any investment style.
What’s the Difference Between Accredited and Non-Accredited Investors?
Throughout this guide, we’ve been focusing on the best investments for non-accredited investors. But at this point, you’re probably wondering exactly what an accredited investor is, and why the status is required with some investments.
As explained at the very beginning, accredited investors have either a high net worth, high income, or both. For this reason, they’re considered to have a greater ability to withstand the losses inherent with risky investments, like commercial real estate and real estate crowdfunding platforms.
There is a specific definition as to what constitutes an accredited investor. According to the Securities and Exchange Commission (SEC), accredited investors meet one or both of the following qualifications:
- Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
Are Investments for Non-Accredited Investors Totally Safe?
While all investments, other than fixed-income investments guaranteed by the U.S. government or insured by the FDIC, involve some degree of risk, commercial real estate is considered to have a higher level of risk than other risk-based investments, like stocks and mutual funds. In addition, investor understanding of commercial real estate is generally more limited than it is for other equity-type investments.
One of the major risk factors with commercial real estate investments is the lack of liquidity. When you invest in these programs, you’re generally expected to remain invested for several years. This is why there is an accredited investor requirement for the riskiest types of commercial real estate investments.
Generally speaking, commercial real estate investments for non-accredited investors are considered to be somewhat safer than those restricted to accredited investors only. As you can see from some of the real estate crowdfunding platforms we’ve listed above, they often make fund type investments, like private REITs, available to non-accredited investors, while reserving higher risk private placement deals for accredited investors.
Why Should I Add Investments For Non-Accredited Investors to My Portfolio?
A strong portfolio is one that’s well-balanced. That means it includes not only traditional investments like stocks, mutual funds, exchange traded funds, and fixed income investments, like CDs and bonds, but also a real estate allocation.
One of the major advantages with real estate investments–particularly commercial real estate–is that it’s generally negatively correlated with financial investments, like stocks. That means that while the financial markets are falling, commercial real estate can be stable, or even increasing in value. It gives you at least one asset in your portfolio that may rise while other equity investments are falling.
But still another advantage with real estate crowdfunding platforms is that they often invest in commercial real estate using unique strategies. For example, Groundfloor enables you to participate in highly profitable fix-and-flip residential deals. If you want to do that on your own, you’d need a large amount of investment capital, as well as significant expertise, and even ready sources of financing. But through the use of a real estate crowdfunding platform, you can participate with a small amount of money.
In a real way, real estate crowdfunding enables you to participate in niche type real estate investments, that are either not available through more conventional sources, or impractical if you were to try to do them on your own.
Pros and Cons of Investments for Non-Accredited Investors
- You can participate in sophisticated commercial real estate investments with a small amount of money.
- Because of its emphasis on commercial real estate, real estate crowdfunding investments can outperform more traditional investments, like stocks.
- Commercial real estate is a non-correlated investment, meaning it can rise in value when stocks are falling. It can provide an important diversification during unstable financial markets.
- You can choose the type of return you want–regular income, capital appreciation, or even a combination of both.
- You can also choose the specific type of property you want to invest in. That can be small residential flips, office buildings, retail spaces, or other specializations.
- Real estate crowdfunding investments are generally long-term in nature, requiring you to be invested for several years.
- Investments are not particularly liquid. Though some platforms do enable you to redeem your shares, most require you to remain invested until the underlying properties are sold.
- You are not the owner of the underlying properties. Instead, you hold shares in the crowdfunding platform, which is the usual property owner.
- Real estate crowdfunding does involve risk. There is the potential you can lose some or all of your investment.
- Transparency is somewhat limited, since real estate crowdfunding investments are not publicly traded.
Learn More: Beginner’s Guide to Real Estate Investing
Investing through real estate crowdfunding has become one of the most exciting investment opportunities of the past decade. It allows small investors–including those that are non-accredited–to participate in commercial real estate. Since commercial real estate has historically been one of the very best investments available, it’s one any investor who has properly evaluated the risks should consider investing in.