Have you ever wanted to invest in commercial real estate projects like malls, hotels, and industrial warehouses?
Commercial real estate is the 3rd largest asset class in the country. However, in the past, most large development projects were something only ultra-wealthy individuals and institutions had access to.
CrowdStreet changed the game by allowing individual investors with smaller capital amounts to participate in crowdfunding rounds for commercial property deals. Instead of having to find and structure private deals directly, and on your own, you now get access to a marketplace of high-quality commercial real estate projects from developers actively seeking to raise capital.
CrowdStreet is different from a traditional brokerage firm in that they don’t act as a middleman. Instead, they act as a marketplace that connects investors with commercial real estate developers who need capital.
In this article, we’ll take a deep dive into CrowdStreet’s platform, the pros and cons, performance history, and who should and shouldn’t invest in their real estate deals.
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Co-Founders Jessica & Hussein’s Experience with CrowdStreet
If you’ve been following Money Minx Blog for more than a minute, you know that we are always looking for smart, strategic ways to invest our money. Real estate is a clear path towards that goal – with the added benefit of adding diversity to our portfolio.
But, living in San Diego, CA, the price tag on (even entry-level) real estate projects is enough to make you question your reality. The median home price for San Diego County hit a record $750,000 this June, up from the previous record of $725,000 in May (SD Union Tribune)!
As aspiring real estate investors, with hopes and dreams of getting into commercial real estate, turning toward an online crowdfunding investment platform seemed like an alternative worth checking out.
The short story is that we had a great first experience with CrowdStreet.
The overall user experience was excellent. The CrowdStreet site is well designed and it’s easy to find all the information necessary to make informed decisions. There was a good amount of deal flow and plenty of variety to choose from.
Once we made our investment, the investor dashboard was easy to navigate too.
As the project moved along we were able to view monthly updates that included project plans and photos of the progress. It was a confidence booster to see how the investment was playing out in the real world. This distinguishes the experience from the “set and forget” style of other investments we’ve made in the past.
When testing new investment opportunities, we generally expect our money to be tied up for the longer term. So we were pleasantly surprised when CrowdStreet informed us that our project was developed and sold ahead of schedule – and for 3x the original investment.
All in all, our experience with CrowdStreet was all positive and exceeded our expectations.
If you have any questions about our experience with CrowdStreet, feel free to reach out to us via email (jessica@moneyminx.com) or check out their investment opportunity for yourself: CrowdStreet.
What is CrowdStreet?
Founded in 2013, CrowdStreet is one of the largest online real estate investing platforms that makes it easy for individuals to invest in commercial real estate projects across the nation.
Accredited investors can use their marketplace to get access to commercial real estate projects like malls, hotels, industrial warehouses, multifamily apartments, and office buildings.
Instead of having to spend millions to finance an entire development project on your own, CrowdStreet allows you to invest as little as $25,000. Instead of having to spend months finding deals yourself and doing your own due diligence, you can get access to vetted developers instantly, with all the research done for you.
Since its inception, CrowdStreet has helped over 500 development projects raise $2.1 billion in capital from their user base of 100,000+ investors. In 2020 alone, CrowdStreet’s platform helped 90 commercial projects raise $640 million.
CrowdStreet Pros: What We Like
- Easy access to commercial real estate deals
- Potential for high returns
- Free to join
- Categorization of different risk profiles
- Options to invest yourself or invest in one of their managed funds
- User-friendly website
CrowdStreet Cons: What We Don’t Like
- Steep initial investment of $25,000 minimum
- Only available to accredited investors
- Real estate investments are highly illiquid
Who is CrowdStreet for?
1. Accredited Investors
If you want to use their full platform as an investor, you must be an accredited investor.
An accredited investor is a person or entity that is allowed to invest in securities that are not registered with the Securities and Exchange Commission (SEC).
If you meet any one of the following requirements, you are automatically an accredited investor in the US.
- Have a net worth of at least $1 million (excluding your primary residence value)
- Make an annual income of at least $200,000 for the past two years.
- For couples, the combined income must be at least $300,000 for the past two years.
Accredited investors get more access to investment opportunities that non-accredited investors do not, like deals on CrowdStreet.
Non-accredited investors can still join CrowdStreet, but they will have to become accredited if they want to start investing.
2. Single-Family Real Estate Investors Who Want To Transition to Commercial Properties
CrowdStreet is one of the easiest ways to jump from single-family to multi-family or commercial real estate investing. Without CrowdStreet, getting into commercial real estate investing normally requires meticulous research and learning new investing strategies.
With CrowdStreet, you’re able to just jump into highly-vetted deals on their platform and can commit much lower amounts than you would need to if they invested on your own.
3. Long-Term Investors Comfortable With Steeper Investment Amounts
Investors who use CrowdStreet should be comfortable with letting their money be locked up for years at a time.
Real estate is highly illiquid, and you’ll need at least $25,000 minimum to invest in projects on CrowdStreet. While minimum investment sizes vary by project, the average deal starts at $25,000.
Real estate projects, especially commercial developments, can take years to complete. If you aren’t willing to wait at least 2 to 3 years for a return on investment, CrowdStreet may not be for you.
How Does CrowdStreet Work?
Signing up for an account on CrowdStreet is free and takes only about 30 seconds for a basic profile.
Once you’re signed up, you can view all of their investment opportunities and dive into all the research for each project.
To be able to start investing, you’ll need to provide extra documentation such as proof of income or net worth. And as mentioned earlier, you’ll also need to have at least $25,000 to participate in upcoming projects.
Investors who do not have $25,000 to invest, should consider looking at other platforms with lower account minimums like Fundrise.
Accredited investors can feel safe knowing that only the highest quality investment deals make it through to be listed in the marketplace and that sufficient due diligence has been done beforehand.
CrowdStreet thoroughly vets each developer and each and every investment before they’re listed on the platform. They also have a very strict screening process, only accepting up to 5% of proposed funding projects. On their website, they claim they get around 400 proposals each month.
New deals get launched frequently, and you’ll usually see around 5 to 15 investments live on their marketplace at any one time.
How Much Does CrowdStreet Cost?
It’s important to note again that CrowdStreet is not a middleman or special purpose vehicle (SPV). They don’t charge anything for investors to use their platform or to participate in deals. Your investment goes directly to the property sponsor.
Does that mean there are no fees to invest? No, each sponsor will list their own fees, which are incorporated into each deal. All the fees are made public for every individual to review before they choose to invest.
The typical fee that sponsors charge ranges between 0.50% to 2.5%. You can read more about the sponsor fees here.
Types of Investments
There are several different ways to invest on CrowdStreet. Let’s take a look at each of them below.
1. Individual Deals
The most common investment type on CrowdStreet is the Individual Deal. This is just like picking your own stocks to invest in. You have full control over which projects you invest in, and how much you put in.
This is an essential option for seasoned real estate investors who are able to do their own research. Yes, CrowdStreet offers its own research publicly for investors, but it’s still important that you do your own due diligence before picking which projects to invest your money into.
Each development project has different terms, projections, and fees. They’ll also have varying minimum investment amounts. While the typical minimum investment is $25,000 some require larger capital commitments up to $100,000.
2. Diversified Funds and Vehicles
Want more exposure and diversified risk? If you don’t feel comfortable investing in individual projects on your own, you can choose to invest in CrowdStreet’s Diversified Funds And Vehicles option, similar to ETFs or mutual funds.
Instead of putting $25,000 into a single development, your investment will go towards multiple projects through a professionally managed fund. This significantly reduces your average investment (and risk) per property investment.
If you choose to invest in a fund through CrowdStreet, there are three different options to choose from:
1. Single-sponsor funds: These are funds led by a single real estate sponsor, and usually will focus on one particular specialty. The benefit of using a single-sponsor fund is that they’re more specialized than a generalized fund. You can invest in particular target markets, geographic areas, or industries that you feel are more primed for growth than others.
2. CrowdStreet funds: The other option is to invest in a fund created and managed by a team of CrowdStreet real estate professionals. The benefit of investing in CrowdStreet funds is that you essentially have the team behind the scenes of the product you’re using investing in what they feel are the best assets and developers on their network.
3. Tailored portfolios: If you can invest a minimum of $250,000 then you’ll qualify for CrowdStreet’s Tailored Portfolios, where a CrowdStreet advisor will custom build an investment portfolio just for you. The benefit of using a Tailored Portfolio is that you’ll be able to design your portfolio based on your specific financial goals. Some of the variables taken into consideration for building your portfolio are your personal risk tolerance, what percentage returns you’re expecting, and how long you wish to hold your investments.
Fund Management Fees
Single-Sponsor Funds and CrowdStreet Funds usually consist of 30 to 50 different properties and will require an additional 1% of the assets management fee to the fund manager.
Tailored Portfolios have fees of 2% to 2.5% of assets in the first year. This drops to 0.25% in subsequent years.
How Much Can You Make with CrowdStreet? Depends on the Risk Profile
Like any investment class, how much you make from real estate investments on CrowdStreet will depend on the risk profiles of the properties you invest in.
Overall performance: As of July 2021, there were 521 successfully funded deals on CrowdStreet. 54 of them have realized (been sold), with an average IRR of 17.10%, average equity multiple of 1.39x, and an average holding period for fully-realized deals of 2.3 years.
CrowdStreet does a good job categorizing each investment opportunity into four different profiles.
- Core
- Core-Plus
- Value-Add
- Opportunistic
Core Deals are the least risky investments you can make through CrowdStreet. These are properties with already stable, predictable cash flows. They’re in major markets, don’t require any drastic improvements, and are usually fully occupied.
Since 2014, CrowdStreet investors have had the opportunity to invest in 11 core deals and 0 have fully realized.
Core-Plus Deals are still considered less risky, but with more room for growth than Core Deals. These are high-quality properties that are mostly occupied but have some monthly income set aside for future upgrades.
Since 2014, CrowdStreet investors have invested in 84 Core-Plus deals and 6 have fully realized.
Value-Add Deals are one of the most common risk profiles on CrowdStreet. These are properties that aim to significantly increase their value through improvements and upgrades.
Since 2014, CrowdStreet investors have invested in 247 value-add deals to date. 35 have fully realized.
Opportunistic Deals target the highest returns for investors on CrowdStreet. These are considered the riskiest profile type as they don’t have much (if any) cash flow at the time of investment, and have the most complicated business plans. Many Opportunistic Deals on CrowdStreet are ground-up developments.
Since 2014, CrowdStreet investors have invested in 154 opportunistic deals and 10 have fully realized.
The Different Ways to Earn Money From CrowdStreet
With CrowdStreet, you can earn money from your investments through cash flow, appreciation of your asset, and equity build.
Cash flow is the money left over after sponsors pay off their debt and property expenses.
The sponsor may also seek financing from banks. After they repay the principal balance of the loan, the equity value of the asset will also increase over time.
And finally, when the property is sold, investors will earn money from the appreciation of the asset.
Should You Invest with CrowdStreet?
Investors who have at least $25,000 to invest and want to diversify into commercial real estate investment, should definitely look into signing up to CrowdStreet, even if it’s just to browse around and take a look at their deals.
Signing up is free, and you can take a look at all of their investment opportunities in their marketplace without committing anything. You’ll only need to pay fees when you decide to invest in a deal.
Like any investment class, real estate comes with its own share of risk. $25,000 is not a small sum of money to most people, and keep in mind that it’ll be nearly impossible to take the full investment out before the property you invested in is sold. Investors should be prepared to have their funds locked for at least 2 to 3 years. Some projects can take much longer to complete.
That being said, $25,000 is considerably less than what it would normally cost to invest in commercial properties on your own. With several different investment types and risk profiles to choose from, you can pick and choose which properties to invest in on your own. Or you can choose to invest in a managed fund and let professionals build a portfolio for you.
If you’re an accredited investor looking to diversify your portfolio and have the time to do your own due diligence on listed projects, CrowdStreet gives you a convenient path to get started in commercial real estate investing.
