Our Real Estate Crowdfunding Investment Performance
Today, I’ll share how we’re doing with our real estate crowdfunding investment.
Investing in real estate is a proven way to build wealth. I got started by renting out our old home when we moved. IMO, this is the easiest way to start investing in real estate. I knew the quirks and flaws of our old home. When something broke, I usually could fix it myself. After that, we invested in a duplex, a 4-plex, and a condo. This worked well when we didn’t have a kid. I had time and I could drop by when the tenant had a problem.
However, I’m a bit older and less motivated now. Also, the city passed many rules and regulations recently. It’s getting harder to be a DIY landlord. That’s why I plan to consolidate down to just one property very soon. Fortunately, there are other ways to invest in real estate without dealing with tenants. I started investing in real estate crowdfunding in 2017 and it’s been a learning experience. Some projects went well and some struggled. Today, I’ll go over all our investments so you can see how we’re doing with this alternative asset class.
Real estate crowdfunding basics
First, let’s go over the basics of real estate crowdfunding. This is a relatively new way to invest and many investors are not familiar with how it works.
Or you can just skip to the next section to see the performance.
It takes a lot of money to invest in a property. When I purchased our duplex, I had to come up with the 25% down payment and got a mortgage for the rest. It’s usually more difficult to get the best mortgage term for an investment property. I collect rent and pay the bank every month. The bank makes money by collecting interest on the amount they lend out. In real estate crowdfunding, investors lend money to developers so they can acquire a property. They’ll fix it up and sell it.
There are 2 main ways to invest in real estate crowdfunding.
- Equity – A big commercial project cost millions of dollars to acquire. The real estate developer usually can’t come up with all of the down payment so they borrow from investors. Once they have enough for a down payment, they’ll borrow the rest from a bank (like a mortgage.) Investors receive an equity stake for this. Then, the developer improves the property and raises the rent to increase its value. After several years, they’ll put the property on market and sell it with a big markup. Investors receive a portion of the rental income during the active phase and a big payout after the property is sold. CrowdStreet is the leading platform in this space. They connect investors with seasoned companies who know what they’re doing. The commercial properties on their marketplace are big multimillion dollars projects.
- Debt – Another way to invest is to lend out the mortgage directly. These projects are usually smaller, under a million dollars. Most of these debt investments fund single-family home flips or small apartments. The investors receive a fixed interest payment every month.
I tried both ways and I like investing in equity projects much more. If the project works out well, the return is way higher. Another reason, I like equity projects more is because the companies usually have more experience. At CrowdStreet, many developers have been in business for over 10 years. The smaller debt loans are usually for small companies without a lot of history. The interest rate is also relatively low now so the ROI isn’t as attractive.
*Real estate crowdfunding is a relatively new way to invest. I plan to limit my investment to 10% of our net worth. As we all know, the real estate market could crash and we could lose some money (like any investment.) The good thing about real estate investing is the underlying properties still have value. Even if a project fails, we’ll recoup some money.
Performance up to April 2022
First, I’ll quickly show the performance of completed projects.
These projects worked out quite well. The PeerStreet investments (debt) had good annualized ROI, but many of them were completed early. That meant I had to reinvest which was too much work for me. I like equity investments more.
It isn’t all good news, though. We lost money on one project. You can read about it and all the other active projects below.
My RE crowdfunding investment
Here is the spreadsheet of the projects we invested in. (Updated April 2022.) You can see the latest RE crowdfunding passive income report here.
There are 3 categories here.
- Active – These projects are ongoing. Usually, the ROI is lower at this point of the project.
- Completed (paid off)– These projects are done. The ROI looks pretty good after the properties are sold and the developers paid us.
- Problem – This is an example of when something went wrong.
We’ll take a closer look next.
These are our active equity investments.
- CrowdStreet WA apartment – This one is going well. The developer is fixing up the apartment and increasing the rent to the market rate. They are paying out regularly.
- CrowdStreet Chicago office – This one is not going too well. The developer is still remodeling the office. Construction cost has gone up so that probably will eat into the profit. Also, we don’t know if office buildings will perform well as we come out of the pandemic. We’ll have to wait and see.
- CrowdStreet Senior Living Fund – The fund acquired some properties, but I haven’t seen any payout yet.
- RS Apartment in AZ – This project is doing well. They refinanced and returned 75% of the capital. The project still sends us payout as they collect rent. We should get a good payout when they sell the apartment.
- CrowdStreet Texas apartment – This project just finished. Wow, the ROI is great. It was our best investment so far.
- Apartment in NC – Good project.
- Apartment in TX – Good project.
- A strip mall in AZ – Good project.
- PeerStreet loans – ROI was low, but a bit better when you annualized it. The annualized ROI was 8.6%. Many projects were completed early.
- Fast food in FL – Bad project. The developer ran out of money and went out of business. We lost 58.8%, almost $3,000.
As you can see, the total ROI was 35%. That’s quite good. On an annualized basis, that’s about 13%. There was one failure, but we were lucky we didn’t invest a lot in that project. That’s the risk of investing in real estate.
Real estate crowdfunding so far
I’m generally happy with our real estate crowdfunding investment so far. The following are what I like about this class of investment.
- Asset class diversity – A vast majority of our investment is in stocks and bonds. They are great, but I want to add some diversity by investing in real estate properties. I did this by being a DIY landlord when I was young. Now, I can achieve similar diversification with real estate crowdfunding.
- Location diversity – We live in Portland and our properties are local. I think the real estate market here is overpriced. That’s why I want to invest in Texas, Arizona, and other more affordable locations.
- Passive income – I don’t have to go up on the roof or fix the toilet with this class of investment. At some point, I want to travel more and our investments need to be 100% passive by then. The only work I had to do was to screen the projects. Actually, CrowdStreet has region or class specific funds you can invest in. They’ll screen the projects for you if you’d like.
- Returns – The ROI is impressive when everything worked out. We had one project that failed. Even when the developer went bankrupt, we still got some of our investment back. Fortunately, most of our projects are doing well.
I’ll update this post every year so you can see how we doing with real estate crowdfunding. Let me know if you have any questions.
Sign up to invest
If you’re interested in real estate crowdfunding, signup with CrowdStreet to see the projects on their marketplace. There are quite a few impressive apartment complexes and hotels on offer right now.
Other real estate crowdfunding platforms that I work with.
- RealtyMogul– All investors can invest in their REIT. In addition, accredited investors can invest in private projects and do a 1031 exchange.
- Fundrise– Non-accredited investors can invest in iREIT here.
- PeerStreet– PeerStreet has a good reputation, but I’m not a huge fan. It’s a lot of work to find new loans and many of the borrowers are not experienced.
*Accredited investor needs to have over $200,000 of income over the last 2 years or has a net worth of over $1,000,000.
*Disclosure. We may receive a referral fee if you signup with the websites above.
Image credit – Hohyeong Lee
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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