In addition, you receive a check for $70,000 at the end of five years when the property sells. In all, you've received a total of $87,500, which translates to an equity multiple of 1.75 times your original investment. During the holding period, the deal produced an average cash yield of 7%. And using an IRR calculator shows that you achieved a 12.6% internal rate of return on your investment.
Of course, this is a simplified example -- your actual returns aren't likely to be such round, even numbers, and your holding period likely won't be an exact number of years, but you can still use the same basic method to calculate your returns.
Real-world results: What kind of returns are people actually seeing?
The crowdfunded real estate investment industry is still very young, and because of this, most deals that have been funded are still active. However, the early results are certainly promising.
Popular crowdfunding platform CrowdStreet publishes the results of all the deals realized through its site (as of July 2019, there have been 17). Here's a rundown of the numbers:
- The average IRR achieved by investors on the 17 completed investments was 23%, although there have been a few outliers.
- Four of the 17 investments generated IRR of more than 40%, although all four finished far earlier than expected.
- 10 of the 17 investments achieved an IRR of 18% or higher, and 13 of the 17 achieved an IRR of 14% or higher.
- Only one deal that has been realized through CrowdStreet so far has resulted in a loss for investors, and the deal lost about 70% of investors' money.
That last statistic highlights the increased risk involved with crowdfunded real estate, but even considering that, these results have been impressive. It's still very early and actual results are limited, but it's clear that there's money to be made in crowdfunding if you have the appetite for risk.