Investors interested in commercial properties previously had limited options: they either had to pay for the property in full or secure financing to purchase a new building.
Most investors don’t have the capital to buy commercial buildings outright, so they often partner with private investors in exchange for equity.
That all changed in 2012 when the Jumpstart Our Business Startups (JOBS) Act created new opportunities.
The legislation opened the door for crowdfunding in real estate and allowed more people — including non-accredited investors — to invest in commercial property projects (including multifamily real estate) through online platforms.
Commercial real estate crowdfunding gives individuals a chance to invest in income-generating assets without taking on the responsibilities and stress of ownership or property management.
Because of advancements in technology and updated regulations, access to crowd-funded real estate has expanded beyond institutions and high-net-worth individuals — anyone can now own a piece of CRE, whether it’s a small multifamily commercial real estate building or a major development in a Tier 1 city.
Interested? This guide breaks down how crowdfunding for real estate works and explores its potential benefits and risks. We hope that by the end, you’ll have a clearer idea of whether this method of CRE investing fits your financial goals.
What is commercial real estate crowdfunding?
Commercial real estate deals traditionally involved a small group of investors pooling funds for a single project.
Crowdfunding changes that model by opening investment opportunities to a broader audience instead of relying on a handful of contributors.
Crowd funded real estate essentially allows dozens (or even thousands) of individuals to invest smaller amounts in a single CRE deal.
Just as limited partners do in a syndication, each investor contributes capital in exchange for equity.
Everything is done online — fundraising platforms connect investors with commercial real estate crowdfunding opportunities, and then collect and manage their contributions to the projects they choose to back.
CRE crowdfunding platforms feature all kinds of properties, including:
- Office buildings
- Apartment complexes / multifamily commercial real estate
- Retail centers
- Industrial properties
- Mixed-use developments
There are two main approaches to crowdfunding for commercial real estate:
- Equity crowdfunding is when investors purchase a share in the property and earn returns from rental income or profits when the property is sold.
- Debt crowdfunding is when investors loan money to property owners or developers and receive interest payments over time without gaining ownership in the asset.
Each method carries different risk and reward profiles, which we’ll explore further in the next section of the guide.
How CRE crowdfunding works
To invest in commercial real estate online, you (as an investor) need to first create an account on a crowdfunding platform. From there, you can start looking at investment opportunities across different property types and locations.
Since these CRE crowdfunding platforms list multiple active deals at once, you have to be prepared to spend time reviewing the details to find those that match your financial goals and risk tolerance.
Once you’ve narrowed down their choices, you can decide how much capital to commit to one or more deals.
Here’s a closer look at how a deal is done:
- Sponsorship and deal sourcing – A real estate developer or sponsor partners with a crowdfunding platform to raise capital.
- Platform due diligence – Before listing the project, the platform evaluates the sponsor and deal to ensure that they are viable and compliant with regulations.
- Offering launch – The investment opportunity is made available online. Potential investors can now review the property details and legal documents, as well as the financial projections.
- Investment and funding – Investors interested in crowd funded real estate commit funds, usually with minimum investments starting from as little as $1,000 and going up to $50,000 or more, depending on the platform and project.
- Management and reporting – The sponsor manages the property while the platform provides ongoing performance updates and income distributions through an investor dashboard.
- Exit event – When the property is sold or refinanced, investors receive their original capital along with any applicable profits or returns.
Benefits of CRE crowdfunding
- Crowdfunding in real estate gives individual investors the opportunity to participate in commercial properties that were once limited to institutions or ultra-wealthy individuals. Over time, investors may benefit from rising property values and rental income from professionally managed assets.
- Crowdfunding platforms allow people to start with smaller amounts (unlike traditional property purchases that require large down payments). Investors can get started with as little as $10 in some cases.
- Commercial real estate crowdfunding makes it easier to spread capital across different properties or asset classes.
- Developers/sponsors often handle all property management and share rental income on a scheduled basis, similar to how dividends work in publicly traded REITs. This means that investors receive regular rental distributions without the day-to-day responsibilities of being a landlord.
- Most CRE crowdfunding platforms offer detailed dashboards that allow investors to view documents and track their performance. This keeps you informed while you invest in commercial real estate online. Backed by experienced property managers, these platforms allow individuals to invest alongside professionals who have long-standing experience in commercial real estate.
Risks and considerations
While commercial real estate crowdfunding can offer attractive returns, investors should also understand the potential risks involved:
- These investments usually require a holding period of three to ten years—you may not have the option to withdraw your funds during this time. This isn’t a problem for those with long-term goals, but if you need quick access to your capital, proceed with caution and make sure that you agree with the lock-in terms.
- Like all real estate, commercial properties are affected by broader economic conditions. Economic downturns or changes in market demand can reduce property values and rental income.
- Not all crowdfunding platforms have the same level of financial stability or operational oversight. It might be difficult to recover your funds if a platform shuts down unexpectedly.
- Crowdfunding platforms and sponsors usually charge management and acquisition fees, which can reduce your net returns on your investment over time. Carefully review the fee structure and how it affects projected earnings before committing funds.
- Some investment opportunities are only available to accredited investors (individuals with a net worth over $1 million or annual income exceeding $200,000). Check the platform’s eligibility requirements before registering.
How to choose the right platform
Due diligence is even more important these days because there are hundreds of commercial real estate crowdfunding platforms to vet and compare. Here’s what to remember when evaluating CRE crowdfunding platforms:
- Look into how long the platform has been operating and how many successful exits it has completed. A consistent performance history suggests stronger underwriting standards and operational stability.
- Choose platforms that clearly disclose sponsor credentials and fee structures. Avoid platforms that make vague claims or provide limited information about crowdfunding in real estate.
- Make sure the platform’s minimum investment meets your budget. Some platforms accept contributions as low as $10 while others require $5,000 or more per deal.
- A good platform will offer easy access to reports and a responsive support team. Clear communication and a smooth user interface are absolutely essential especially if this is your first time trying crowdfunding for real estate.
Familiarize yourself with how things work by visiting established platforms to see how they work.
Here’s a list of some trusted portals specializing in crowdfunding in real estate that you can check out:
- Fundrise allows everyday investors to participate in CRE and venture capital projects through low-minimum investments.
- CrowdStreet is for accredited investors only. It provides access to institutional-quality offerings and private-market real estate deals.
- RealtyMogul uses technology to simplify CRE investing, making a wide range of commercial deals available to its members.
- Yieldstreet specializes in alternative investments and private market deals from experienced managers.
Getting started as a CRE crowdfunding investor
Once you’ve chosen a platform:
- Create an account and complete verification.
- Take the time to understand the property characteristics and the sponsor’s track record before investing.
- Begin with smaller contributions to gain experience and evaluate how the platform works.
- Review investment timelines and risk factors in full.
If you plan to invest a substantial portion of your portfolio, get professional advice. Your financial advisor can determine if real estate crowdfunding fits into your long-term investment strategy.
Conclusion
Commercial real estate crowdfunding makes it possible for individual investors — including those whose do not fall into the ‘high net worth’ category — to participate in professionally managed CRE deals.
That said, remember that each investment has some level of risk, so make sure to only use trusted CRE crowdfunding platforms and evaluate your financial goals before you agree to participate.
Interested in funding or investing in your next commercial real estate project? Contact our expert team of stated income commercial lenders at Private Capital Investors to learn about our crowdfunding loans and investment opportunities. Call 972-865-6206 or email info@privatecapitalinvestors.com.
