CrowdStreet is a real estate investing platform that’s designed for wealthy, sophisticated investors who want to diversify their portfolios by participating directly in real estate deals, as well as funds and other structured vehicles.
CrowdStreet specializes in commercial real estate and though it’s similar to other crowdfunding platforms, it is only open to accredited investors and has a minimum investment of $25,000.
How CrowdStreet works
CrowdStreet finds, vets, and structures (“sponsors” in industry parlance) investment deals, and markets them to investors who want to participate. CrowdStreet also administers these deals to ensure that investors receive distributions when appropriate.
In order to invest through CrowdStreet, investors first sign up on the platform—this involves going through an accreditation process to show that you qualify to invest. Then, once you’re registered, you can review individual deals available through CrowdStreet, as well as funds and other vehicles available for investment.
To date, CrowdStreet has raised more than $1.25 billion in funding for more than 464 different real estate deals. The platform has also provided investors an estimated lifetime internal rate of return (IRR) of over 23% since launching.
How is CrowdStreet different from most crowdfunding platforms
CrowdStreet stands out for several reasons. First, their specialty is commercial real estate—whereas many platforms are focused more on multi-family housing.
Second, CrowdStreet offers a great deal of transparency about each of its direct participation deals—much more so than many other platforms.
Lastly, CrowdStreet is only available for SEC-accredited investors and has significantly higher investment minimums than most other real estate investing platforms.
What are accredited investors?
Accredited investors are those that meet special criteria set by the SEC. Investors who meet these criteria are expected to have a higher degree of understanding about the risk of various investments, as well as greater resources that allow them to tolerate higher levels of risk that are inherent in private deals.
The following are accredited investors, according to the SEC:
- A person who 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
- A person who has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)
- Any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, the purchase of which is directed by a sophisticated person
- Any registered investment advisor or securities broker-dealer
- Any entity in which all of the equity owners are accredited investors
Investors who sign up for CrowdStreet’s platform gain access to several different commercial real estate investments. The first is the option for direct participation in various real estate deals. While this is relatively unusual for crowdfunding platforms, it’s commonplace for the accredited investors who are actually qualified to use CrowdStreet.
In addition to these private placements, CrowdStreet also offers a few options for structured investments, including several funds and custom portfolios.
The one other big feature available from CrowdStreet isn’t actually on the investor side of the business—it’s a portal that real estate companies can use to raise capital from CrowdStreet investors.
Another way in which CrowdStreet is unique is that the platform does not charge fees to investors—at least not for any direct investments in sponsored real estate deals. Instead, fees are charged to companies that structure deals through CrowdStreet to raise money for their projects.
While CrowdStreet doesn’t charge fees for direct participation deals, there are fees for funds and other vehicles. You have to register to see exactly what they are, but fees reportedly range from 0.5% to 2.5% per year. For example, CrowdStreet’s Blended Portfolio charges a management fee of 1% per year, while REITs (which are reportedly open to non-accredited investors) charge 1.75% per year, plus a 1% financing fee.
Pros & cons
- No investor fees for direct investments
- Tremendous transparency
- Portals for real estate companies to raise capital
- A few funds also available
- Only for accredited investors
- High investment minimums
- Virtually no liquidity
Who should use CrowdStreet?
CrowdStreet is a great real estate investing platform, but it should only really be considered as a tool for diversification by wealthy, sophisticated investors. Investors who already have established portfolios, as well as experience investing in real estate—including private deals—can find a lot of value in the high number of deals available through CrowdSteet. What’s more, these deals are offered with a higher degree of transparency than investors can expect to find with other platforms.
Using CrowdStreet, investors who qualify and are willing to make large investments in individual deals can diversify their holdings through passive investments. This enables them to earn a return with no personal involvement beyond contributing capital.
Before considering CrowdStreet, be sure you can meet at least some of these criteria:
- An annual income of at least $200,000 to $300,000
- A net worth of at least $1 million
- Years of experience investing in various types of securities
- Previous experience investing in private real estate deals
- Knowledge to review and understand offering documents
- High tolerance for risk
- A willingness to forego access to cash for two to five years or more
- The ability to invest $25,000 or more in a single deal
If you think CrowdStreet may be for you, be sure to check it out here. If you aren’t so sure, we’ve got lots of other resources for you to check out about investing in real estate.
Not sure where to start? Here are two we highly recommend:
- Real Estate Crowdfunding – This one talks all about how crowdfunding works. It also details typical features of platforms and lists some of the best platforms available.
- How to Invest in Real Estate – This article talks all about investing in real estate—different ways to do it, strategies, tax benefits, etc. If you’re trying to decide between crowdfunding and, say, buying rentals, this is a great one to check out.
Originally posted at https://thinksaveretire.com/crowdstreet-review/