CrowdStreet Review – Is Real Estate Crowdfunding Legit?

With all of the volatility within the stock market nowadays, chances are you’ll be wondering what other options are on the market for you to take a position your hard-earned money in.

Real estate is the third-largest asset class in the US (after stocks and bonds).

Previously, it has been difficult for investors to realize access to real estate without physically owning property.

But platforms akin to CrowdStreet are letting investors get into the actual estate game without ever touching a shovel!

This CrowdStreet review will introduce you to the platform, inform you what securities CrowdStreet offers, and walk you thru their past performance.

What Is CrowdStreet?

CrowdStreet was founded in 2012 by Tore Steen and Darren Powderly.

After the financial crisis that began in 2008, the co-founders thought that folks were relying an excessive amount of on the stock market (and getting burned for doing so).

They desired to create access to asset classes outside of public equities, which frequently don’t get enough attention.

Nevertheless, industrial real estate got here with a reasonably significant barrier to entry on the time: most individuals don’t have billions of dollars sitting around to make use of to fund the development of a brand new office constructing.

But with the emergence of crowdfunding as an investment method, Steen and Powderly saw a possibility to assist investors get right into a previously closed-off asset class using partial investments.

There are literally thousands of investors on CrowdStreet which have invested in at the least one project.

These investors have invested over $3.49 billion to fund greater than 661 projects.

Now, onto the CrowdStreet review!

What Can I Invest In On CrowdStreet?

There are many different securities you possibly can spend money on on CrowdStreet, all of which involve investing in industrial real estate.

You possibly can spend money on a person project, akin to the development of a senior living facility.

You may also spend money on a fund that funds multiple industrial real estate projects.

You may also spend money on real estate investment trusts (REITs), multifamily buildings, apartments, hotels, and retail spaces.

The projects open for investment on CrowdStreet are passive investments.

Which means you don’t take an energetic part in the development / rehabilitation of the properties you’re investing in.

You just select which projects you need to help crowdfund, invest your money, and (hopefully) collect your gains!

Just like the CrowdStreet website says, “you’re a passive investor, not the owner.”

CrowdStreet doesn’t currently have a mobile app.

For now, you possibly can only invest on and interact with the platform out of your computer.

Why Invest In Business Real Estate?

In case you’ve read our article on The First Stock Everyone Should Buy, you recognize that investing in numerous securities which might be uncorrelated (or negatively correlated) can make it easier to mitigate a few of your investment risk.

That way, when one security performs poorly, one other uncorrelated security may perform well (or not as poorly), and also you won’t experience as big of a loss.

Real estate is comparatively uncorrelated with the stock market, meaning that it could be used to assist mitigate the risks of investing in stocks.

CrowdStreet Fees

The price of investing on CrowdStreet will depend on which projects and funds you spend money on.

CrowdStreet doesn’t charge its investors any fees. As a substitute, it charges sponsors fees to open up their projects to investors on the platform.

The sponsors, nonetheless, may charge CrowdStreet investors fees to take a position of their projects.

So while it is feasible to make use of CrowdStreet totally free, chances are you’ll find yourself paying fees for individual projects.

Only accredited investors can invest on CrowdStreet.

Accredited investors are those individuals who’ve a net income of $200,000 or more ($300,000 or more for married couples), or a net price of $1 million or more.

Business entities could be accredited investors as well, provided they’ve enough assets.

Accreditation is required to take a position in securities that aren’t regulated by the Securities and Exchange Commission (SEC).

The SEC requires accreditation for some of these investments with a view to protect investors who aren’t as financially sophisticated from suffering big losses on dangerous investments.

There are some investment minimums you’ll must have in mind when investing on CrowdStreet.

For instance, you should invest at the least $25,000 in any given project.

Some projects and funds have a minimum investment of $100,000.

It’s vital to know that the cash you invest on CrowdStreet will likely not be liquid for several years.

Business real estate projects are inclined to be large undertakings that take years to finish, and the cash you spend money on these projects can be inaccessible throughout the projects.

Please note that this investment style differs from investing in stocks through a brokerage account.

While you invest through a daily, taxable brokerage account, you possibly can (often) unload your stocks at any time.

Crowdfunding real estate projects is a longer-term commitment.

As noted above, the common hold period for CrowdStreet projects is 2.9 years.

CrowdStreet Performance

On this section of the CrowdStreet review, we’ll go over how CrowdStreet has performed within the time it’s been in business.

As you possibly can see, the CrowdStreet platform boasts some pretty promising performance metrics.

The inner rate of return (IRR) of 17.5% signifies that CrowdStreet investors earn a 17.5% annualized return on the projects they spend money on.

The equity multiple of 1.5 signifies that CrowdStreet investors get better about one and a half times the money that they spend money on projects.

This chart shows where CrowdStreet’s calculations for its historical performance got here from.

You’ll see that the IRRs do indeed cluster across the 17% range.

You’ll also notice that about 11 of CrowdStreet’s projects have produced a negative IRR, meaning that investors received a negative return on the projects and didn’t get better all of their invested capital.

In truth, six of those 11 projects produced an IRR of -100% and an equity multiple of 0%, meaning that investors lost all of their invested money.

While this is just a minority of the deals that CrowdStreet has done, it’s vital to keep in mind that returns are never guaranteed whenever you tackle risk along with your money.

Final Thoughts

At the top of the day, one of the best investment for you is the one that most closely fits your risk profile and makes you comfortable with what you’re doing along with your money.

We hope you’ve found this CrowdStreet review helpful and that you recognize that there are other asset classes available to you besides stocks and bonds, should you’d like to offer them a shot.

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