If you ask random people off the street about their options for investing in real estate, you’ll hear answers like “rental properties,” “flipping houses,” and perhaps “REITs.”
There’s nothing wrong with any of those answers. But they barely scratch the surface of the options available for investing in real estate.
Most people don’t realize they can invest in real estate with $5,000, or $500, or even $50. They think they have to save up tens of thousands for a down payment if they bother to give it any thought at all.
I used to buy rental properties directly, putting down tens of thousands on each. Now I only invest in real estate passively, with just $500–$5,000 per investment. I avoid landlording headaches, but I still get all the benefits of real estate investments from cash flow to appreciation to tax advantages.
I’ve invested in most of these options personally, so as you explore new ways to invest in real estate, keep the following in mind. All allow non-accredited investors, except where noted.
I’ve had nothing but good experiences with Concreit.
Historically, Concreit has offered only one investment option: a pooled fund owning both short-term secured debts and medium-term real estate equity investments. This fund comes with great liquidity: you can withdraw your cash at any time.
That liquidity comes at a cost, however — the fund pays relatively modest interest, currently 6.5%. And if you withdraw money within a year of investing, they ding your interest by a fifth (but don’t penalize your principal).
In late 2023, Concreit also launched fractional shares in rental properties, similar to Arrived and Ark7 (more on them shortly). You can buy ownership in a rental property for $100 a share, and get full ownership benefits including cash flow and appreciation. But the program remains new, and there’s currently a waitlist for participating.
Another option offering instant diversification for just a few dollars, you get access to dozens of properties and funds when you invest with Fundrise. Those include both equity and secured debt investments.
Fundrise Pro members can pick and choose which funds and “eREITs” they want to invest in. Some — such as the Flagship Fund, the Income Fund, and the Innovation Fund — don’t charge a penalty for early withdrawals.
Or you can just invest in the entire portfolio of funds and assets for maximum diversification.
A more recent platform, Ark7 lets you buy fractional shares of rental properties for just $20 apiece. Properties include single-family long-term rentals, short-term vacation rentals, and multifamily rentals.
Unlike Concreit and Arrived, however, Ark7 features a secondary market for selling and buying shares at any time. Well, almost any time — Ark7 does require a one-year minimum holding period to prevent people from flipping shares.
But that secondary market adds liquidity, letting you sell your rental property investments in just one year. They don’t charge closing costs or transaction fees, either.
While you own the property, you earn cash flow and appreciation and get full tax benefits.
So what’s the downside? Ark7 remains a young company and has only bought a few dozen properties in total. At any given moment, you won’t have many options available for investing.
The original fractional rental property platform, Arrived has bought hundreds of properties. Investors can buy shares for $100 apiece, to spread money across many properties.
The greatest downside to Arrived is the lack of liquidity. Once you buy shares, you can’t sell them. You get your money back when the property sells, typically after five to seven years.
Granted, that puts it in the same time frame as many real estate syndications. But in my experience, single-family rental properties don’t pay the same returns as syndications. I expect 5%–10% total returns on single-family homes, versus 15%–25% on my syndication investments.
Groundfloor remains one of my favorite real estate crowdfunding investments.
They operate as a hard money lender and offer two ways for you to invest. You can either lend them working capital as a fixed-term note with a fixed interest rate, or you can put money toward individual hard money loans (“LROs”).
The notes currently pay interest between 7.25% and 10%, for terms ranging from three months to two years. The LROs pay 8%–15% interest, with terms ranging from three to twelve months, but they repay whenever the borrower repays the loan. Which isn’t always on time, as you can imagine.
Since launching in 2013, Groundfloor LROs have averaged remarkably consistent returns each year in the 9.5%–10% range. You just have to accept that it’s a numbers game, where a minority percentage of LROs lose money while most pay with full interest.
It’s been a difficult few years for commercial office buildings. But that doesn’t mean the workforce won’t return to the office over the next few years, for a rebound in this sector.
Streitwise owns several massive office buildings in Indianapolis and St. Louis, in a single private REIT. The buildings house tenants like New Balance, Wells Fargo, and Allied Solutions.
Shares dropped from $10 to around $7 in the aftermath of the pandemic. In the fourth quarter of 2023, share price growth finally turned positive again. Streitwise aims for dividend yield in the 5%–6% range.
If you believe office space sits poised for a comeback, Streitwise offers a relatively high-yield option for investing.
I love real estate syndications, but I’m the first to acknowledge they come with risk like any other investment.
Two of the greatest downsides of passive real estate investing in syndications include the high minimum investment (typically $50,000–$100,000) and the difficulty in finding syndications allowing non-accredited investors. Fortunately, you have some options to dodge both those difficulties.
Regarding the high investment minimums, you can go in on syndications with other investors. Options include friends or family members, or you could join a passive real estate investment club. For example, members in our group real estate investment club can invest $5,000 apiece in any deals we vet together as a club. We aim to vet one or two deals each month, presented by many different syndicators.
By joining communities of other passive real estate investors, you can discover new sponsors. And more importantly, vet them together as part of a club or community.
Investing relatively small amounts also lets you diversify across many different sponsors, regions, and property types. I could invest $60,000 in a single real estate syndication by myself — or I can spread that over 12 deals, knowing that the average returns will form a bell curve over time.
I can even practice dollar cost averaging this way, investing in one new deal a month to spread out market-related risk.
While most of RealtyMogul’s investment options are private placements in real estate syndications, they do offer two REITs for non-accredited investors.
Unlike all of the other options outlined above, I haven’t personally invested in these REITs. I’ve never been particularly impressed by their returns, to be frank. At the time of this writing, the RealtyMogul Income REIT pays a 6% dividend and has delivered an average annual return of 7.79%.
Meanwhile, the Growth REIT has performed worse despite the name. It pays a 4.5% dividend and has delivered a 6.4% total return. Both REITs require a long-term commitment.
But they remain options on the table that fall within the $5,000 limit we set, so here we are.
I put EquityMultiple last simply because they restrict access to accredited investors. But they have a solid reputation in the real estate investing industry.
EquityMultiple offers short-term notes at three-, six-, and nine-month terms. These pay interest ranging from 5.84%–7.16% currently, and you can invest as little as $5,000.
Their “Earn” offerings focus on higher income yields over a medium term, typically one to three years. For example, their current Ascent Income Fund targets a 12% return and requires a one-year lockup period. Unfortunately, it requires a $20,000 minimum investment.
Finally, their “Grow” offerings focus on long-term investments with high minimum investments and high projected returns. Read: private equity real estate syndications.
Real estate is expensive. For most of human history, that kept small investors out.
That barrier to entry no longer exists in an age where investors can buy fractional shares in large properties.
But when barriers to entry come crashing down, the sudden availability of investments can make them hard to vet. It can also lead to weaker operators trying to raise money from inexperienced investors.
No matter how you decide to invest, talk to experienced investors before committing money. That could mean reading unbiased online reviews, joining an investment club with like-minded investors, or meeting up with other investors in the real world. However you go about it, aim to speak with as many investors as possible before deciding where to put your hard-earned money.
About the Author:
Brian Davis is a real estate investor, personal finance writer, and co-founder of SparkRental with over two decades in the real estate and finance industries. He owns fractional shares in over 2,000 units and regularly contributes as a real estate and personal finance expert for Inman, BiggerPockets, R.E.tipster, and more.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.