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Is Real Estate Crowdfunding a Good Investment?

As with any investment strategy, there are pros and cons to real estate crowdfunding.

[Updated: Jun 21, 2021 ] Sep 03, 2019 by Ruth Lyons

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  Crowdfunded Real Estate Deals Traditional Real Estate Investing (Owning Cash-Flowing Rentals) REITs (Real Estate Investment Trusts)
Stock market correlation Some Very little Some
Cash flow frequency Quarterly distributions Monthly rental income Payout varies; REITS must payout 90% of profits to shareholders
Investment costs 1–3% transaction cost plus annual management fee No annual broker fee  Varies on the type of REIT
Ability to take advantage of market anomalies Limited High Low
Access to deals Due to low minimum investments, you can invest in many types of deals in many different markets The number of deals you can invest in is limited by the amount of capital you have to invest Investor has no control over deal selection or accessibility
Investment complexity Easy to invest in (set up account, fund it, and choose deals)  "Know-how" required. Lots of moving parts that need to be skillfully managed Easy to invest in (trade on stock exchanges)
Minimum investment As low as $1,000, typically $5,000–$10,000 $15,000–$25,000; depends on locality. Typically need 20% down payment Single share prices can be low ( less than$10), but brokerage fees means you should buy several shares at once.
Entry knowledge needed Deals are often pre-vetted, but due diligence is important and not easy Self-directed; investor must do extensive due diligence Very little; due diligence done for you by fund managers
Liquidity Mostly illiquid Very illiquid Very liquid 
Diversification  Can be very diversified with limited funds Limited; need substantial capital to diversify widely Already diversified
Control of investment Investor has no control over profitability Investor has control over many aspects and can steer project toward profitability Investor has no control over profitability
Risks    Poor management, local market risk, industry/concept of crowdfunding is untested  Management and market risks are more easily managed and mitigated Poor management, local market risk
Capital needed to invest Affordable minimums Requires significant capital or leverage Affordable minimums
Ability to leverage or scale investment New deals across platforms readily available  Tremendous. With systems in place, you can scale efficiently using debt leverage You can invest more, but you can't scale your investments

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