Real estate crowdfunding has been on the rise in recent years, because it gives investors an opportunity to participate in complex property investments, including especially commercial real estate, with very little money up front. And since commercial real estate is one of the most time-honored ways the rich build wealth, they’ve opened up an entire investment segment to the average person.
Two of the most popular real estate crowdfunding platforms are Fundrise and RealtyMogul. Though each go about the business of investing in real estate in a somewhat different way, they both provide opportunities for small investors to take advantage of the many investment benefits of commercial real estate.
Which is the best between the two? It may simply come down to your own personal preferences.
Both Fundrise and RealtyMogul are real estate crowdfunding platforms. That means they’re online sites where investors can come to choose various pre-packaged and custom real estate investments. Both use basically the same investment methodology. You invest through funds, most commonly real estate investment trusts or REITs offered by each service.
The REITs are like mutual funds, comprised of several investment properties. The makeup of each fund typically includes commercial-type real estate, such as office buildings, retail shopping centers, and large apartment complexes, among other types of properties.
But RealtyMogul also offers private placements, that enable you to invest in very specific individual properties or small groups of properties. Because of the more complex nature of these investments, a larger initial investment is required, and you also need to be an accredited investor.
To qualify as an accredited investor you must either have an annual income of at least $200,000 (or $300,000 if you’re married) for the past two years, with a reasonable expectation it will continue in the future, or you must have a minimum net worth of $1 million, not including your primary residence.
Naturally, the accredited investor status limits RealtyMogul private placement investments to a relatively small number of people.
Fundrise has its own investment specialization, but it does not require accredited investor status. Departing from the usual process of investing in commercial real estate, Fundrise’s eFunds invest in individual properties or small groups of properties. These are investments with potentially higher rewards, as well as higher risk.
The table below shows the basic features of both investment platform side-by-side:
|Initial Investment||$500 to $10,000||$5,000 for taxable and IRA accounts, and $15,000 to $50,000 on private placements|
|Management fee||0.85% to 3% per year||1.00% to 1.50% for REITs; up to 2% for dispositions the on equity-based investments; fees vary on private placements|
|Stated return on investment||8.76% to 12.42%||4.50% to 7.81% on REITs, varies on private placements|
|Investment methodology||eREITs & eFunds||REITs and private placements|
|Specific types of real estate investments||eREIT: Apartment buildings, shopping centers, office buildings; eFunds: individual residential properties or small groups of residential properties||Office buildings, retail space, apartment complexes|
|IRA availability||Yes, through self-directed IRA||Yes, through self-directed IRA|
|Mobile accessibility||iOS devices, available on the App Store||No specific mobile app, but website can be accessed from your mobile device|
|Accredited investor requirement||No||No on REITs, yes on private placement investments|
|Availability||All 50 states||Not indicated|
|Review||Fundrise Review||RealtyMogul Review|
The investment methodologies between the two platforms are very similar. The primary investment vehicles offered are REITs. These are funds that hold several properties for investment diversification purposes. You don’t own the properties held in the funds directly, but rather shares of the REIT that owns the properties.
REITs offered are private REITs. That means, unlike typical publicly-traded REITs, they don’t trade on the financial markets. Fundrise and RealtyMogul REITs are available only on each respective platform.
That does create something of a built-in limitation, which is typical to real estate crowdfunding platforms. Since the REITs offered are not available on financial exchanges, they can’t be readily sold. Each platform provides some limited level of liquidity if you want to sell your position, but you must generally plan to remain invested for several years, especially if you want to earn the indicated return on your investment.
REITs typically pay dividends on a regular basis, but they also offer the potential for capital appreciation as the underlying properties appreciate in value, and are sold at a profit.
Each fund is specifically managed by real estate professionals at Fundrise and RealtyMogul. They typically seek out undervalued properties offering strong positive cash flows and good potential for future increases in value. It’s an opportunity for small investors to participate in sophisticated investments passively, and with a small upfront investment.
Fundrise offers two primary investments, eREITs and eFunds (eFunds will be covered a bit further down in this article).
eREITs are funds that invest in commercial real estate, including office buildings, retail shopping centers and related properties.
Fundrise offers seven different eREITs:
- East Coast eREIT: Holds debt and equity investments in commercial properties located on the East Coast.
- Heartland eREIT: Uses the same investment approach, except with properties located specifically in the Midwest region.
- Income eREIT 2019: Invests in senior and mezzanine debt with the aim of maximizing current income. It has a current annualized dividend of 8.50%.
- Income eREIT: Also invests primarily in debt investments to generate steady income, though it does this primarily by investing in smaller market properties. The current annual dividend yield is 7.50%.
- Growth eREIT: Fund that focuses on acquiring commercial properties that have potential for capital appreciation. Invests primarily in multifamily properties, acquired at below market value.
- Growth eREIT 2019: This is a recently created fund also oriented toward capital appreciation.
- Growth eREIT V: New eREIT that has not yet acquired properties. Similar to the Growth eREIT, it will focus on capital appreciation.
The seven eREITs specialize in either capital appreciation or stable income. Dividends are paid on a quarterly basis from the funds that offer them. You’ll be able to select investment packages comprised of a mix of eREIT funds, depending on your investment objectives.
Once again, these are private REITs available only through Fundrise. That has the advantage that you can purchase shares without needing to pay commissions to a broker.
Related: REITs: Real Estate Investment Trusts
Fundrise offers several different investment packages that function much like robo-advisors in that each is comprised of various allocations in several of the eREITs listed above.
Starter Portfolio: This is a portfolio designed specifically for new investors. It requires an upfront investment of just $500. You can make your investment, and if at any time during the first 90 days you’re not satisfied, Fundrise will buy back your investment. This will give you an opportunity to “test drive” Fundrise investing. The portfolio includes investments in the Income eREIT 2019, Growth eREIT and Growth eREIT.
Once your investment reaches $1,000, you’ll have an opportunity to upgrade to one of Fundrise’s three Core plans. Those include:
Supplemental Income: This plan seeks to provide a consistent income stream through investing in cash flow generating real estate. Though it does generate a certain amount of capital appreciation, the primary emphasis is on dividends. The fund emphasizes income-related investments. It’s invested in the East Coast eREIT, Heartland eREIT, Income eREIT 2019 and Income eREIT.
Balanced Investing: Invests in a mix of properties that generate cash flow and capital appreciation. The investment mix includes 81% debt and 19% equity. It includes a mix of six of the seven eREITs Fundrise offers, excluding only the Growth eREIT 2019.
Long-Term Growth: This plan is oriented fully in favor of capital appreciation. It includes a mix of 40% debt investments and 60% equity. The plan includes allocations in the East Coast eREIT, Heartland eREIT, Growth eREIT and Growth eREIT V.
Fundrise offers a “Plus” plan for those who can invest at least $10,000. The investment packages are the Supplemental Income, Balanced Investing and Long-term Growth plans listed above, but also add eFunds to the mix.
eFunds aren’t REITs, but partnerships, in which you’ll receive IRS Form K-1 indicating your investment results at the end of the year. Each eFund invests in residential property, including attached homes and condominiums in Washington, DC and Los Angeles, as well as nationally.
The funds invest in moderately-priced homes, often those that need renovation. There is generally a seven- to-ten-year payout on the properties held in the funds. And while each has an emphasis on capital appreciation, there is the potential for dividends through positive cash flows on the properties held.
Much like Fundrise, RealtyMogul is a real estate crowdfunding platform, with REITs as its primary investment offering. But it also functions like a peer-to-peer investment platform in that it brings investors and property sponsors together for the purpose of investing in commercial real estate. That is, sponsors bring the deals to the platform, and investors put up funds to invest in them.
The company evaluates and analyzes each property offered for investment through the platform. They claim that only one out of every 1,000 projects submitted are accepted for investing purposes.
Depending on the type of investment you make, you’ll receive dividends on either a monthly or quarterly basis. Your investment principal, plus any capital appreciation accumulated, will be returned at the end of the specified holding period of that investment.
They make REITs available for most investors, but they also offer private placement investments in specific properties. Those investments require accredited investor status.
Private Placements: If you invest in private placements, the minimum investment required will be between $15,000 and $50,000. You should also expect to remain invested for between three years and seven years for each investment. Private placements can be invested either in a single property or a small group of properties. Potential investments include multifamily properties, office buildings, industrial space, mixed-use properties, and flex-space. Properties are available throughout the U.S.
RealtyMogul REITs are available to all investors, and require a minimum investment of $5,000. These are private REITs, available only through RealtyMogul and not on public financial exchanges. Once again, you do not need to be an accredited investor to invest in RealtyMogul REITs.
They currently offer two REIT investments:
MogulREIT I: This fund has an emphasis on cash distributions as well as capital appreciation. The fund holds 15 properties with an asset value of $272 million. Distributions take place monthly, and the fund has an annual distribution rate of 7.81%. The minimum investment is $5,000.
The fund has an orientation toward both debt and equity investments, with principal repayment occurring in between one and 10 years. It invests in a mix of commercial properties across the U.S. Specific investment types include senior secured loans, mezzanine debt, preferred equity and equity structures. The investment mix consists of roughly equal shares of multifamily, retail, and office properties.
The fund comes with an asset management fee of 1%. But there may be an upfront fee of 3%, as well as a distribution fee of up to 2% on equity assets, or servicing fee of between 0.50% and 1% on debt/fixed income investments.
MogulREIT II: This fund focuses on capital appreciation, but there is potential income derived from positive cash flows from rental income. The fund invests in multifamily properties in regions with strong economic fundamentals, including high income and rental occupancy levels. The fund attempts to purchase properties at less than fair market value, and perform certain renovations to increase both rent levels and future capital appreciation.
It has a current annualized distribution rate of 4.50%, with distributions occurring on a quarterly basis. Seven properties are held in the fund, with a total value of $128 million.
The fund has an asset management fee of 1.25%. But there is also an upfront fee of as much as 3%, as well as a disposition fee of as much as 2%.
RealtyMogul REIT repurchase plan. This is a unique feature within the entire real estate crowdfunding universe. Even though RealtyMogul’s REITs are private REITs, they do offer you the ability to redeem your shares after a certain holding period.
The redemption schedule is as follows:
- If your investment is held less than one year, there is no repurchase option available.
- For investments held between one and two years, 98% of your investment can be repurchased.
- For investments held between two and three years, 99% of your investment can be repurchased.
- If you hold your investment for three or more years, 100% of your investment is eligible for repurchase.
This means that while you will need to plan on holding your RealtyMogul REIT investment for a minimum of one year, it really qualifies more as an intermediate-term investment than a true long-term investment.
Both real estate crowdfunding platforms have their respective virtues. But if we have to declare a winner between the two, it’s Fundrise. They have a much lower initial investment requirements, which is as low as $500 for the Starter Portfolio, and just $1,000 for one of three Core Portfolios. By contrast, RealtyMogul REITs each require a minimum initial investment of $5,000.
Fundrise also has the advantage that each of its portfolios includes a mix of up to six eREITs, each with its own specialization of income, equity, or both. This makes it work almost like a robo-advisor.
Both platforms also enable you to invest in higher-risk, higher-reward investments. Fundrise allows you to add specialized eFunds to your portfolio with a minimum account balance of $10,000. RealtyMogul allows you to invest in specialized private placement investments, with a minimum of between $15,000 and $50,000.
However, the main difference is that you can invest in Fundrise eFunds without needing to be an accredited investor. But you must be an accredited investor to participate in RealtyMogul’s private placements.
Then there’s the fee structure. While both seem to range between 1% and 3%, RealtyMogul has contingency expenses, such as upfront costs and even disposition fees, as well as an annual management fee.
We also like the Fundrise Starter Portfolio, that allows you to get a refund on your investment any time during the first 90 days of opening your account.
However, RealtyMogul does offer a repurchase plan that can enable you to sell your shares for most or all of your initial investment in as little as one year. RealtyMogul might be the most liquid of all real estate crowdfunding platforms.
For most investors, and particularly those who are inexperienced with either real estate crowdfunding or investing in commercial real estate, Fundrise wins this head-to-head challenge pretty easily.