Multifamily real estate is an excellent way to diversify your investment portfolio, and a crowdfunding platform allows you to invest in this asset at a level you’re comfortable with.
Multifamily real estate can make money for you in two ways: 1) Rent payments provide an income stream that may be returned to investors as distributions, and 2) the value of the apartment asset itself may rise, leading to a gain when it is sold.
Crowdfunding allows investment in multifamily real estate in much smaller increments than previously possible. This opens up opportunities for smaller investors and those who want to spread their funds across a variety of multifamily assets to further diversify their investments.
What is a multifamily real estate crowdfunding investment?
Crowdfunding is done through online platforms designed to aggregate dozens or even hundreds of smaller investments. It allows groups of individuals to invest in real estate projects that are too large for them to invest in alone.
A real estate developer may post a planned development for crowdfunding; an investment team or owner may post existing properties for investment; or, a real estate fund may post its parameters and other information for potential investors. The entity advertising the investment is often known as a “sponsor.”
The investors’ money is pooled together and goes to the developer or fund, or is invested directly into the property.
How does multifamily real estate investing via crowdfunding work?
Real estate crowdfunding platforms post available deals on their websites. Anyone can browse basic information about each property, investment or fund, but only investors who are fully qualified and registered with the platform can see details for each investment – essentially, the prospectus.
A potential investor can browse the crowdfunding platform for multifamily investments that catch their eye, or they can search the platform for other investments based on specific criteria.
To make an investment, the user securely submits an offer for the number of project shares they wish to buy. The funding platform will then review the offer and documents, approve the offer, and notify the investor. The investor pays via wire, ACH, check or other approved methods.
Who can invest in crowdfunded multifamily real estate?
Requirements vary from site to site. Some sites may only allow accredited investors – those with a joint or individual net worth of at least $1 million, excluding their primary residence, and annual income of at least $200,000 (or $300,000 for married couples) for the past two years.
Is there a minimum amount that someone can invest when crowdfunding multifamily real estate?
Some sites divide project shares into smaller increments, lowering the threshold for investing, while others may require minimum investments of $1,000, $5,000, $25,000 or even higher. The minimum to invest in a specific multifamily project may also vary across a single platform, depending on the unique details of each offering.
How do investors monitor their crowdfunded multifamily real estate?
The investment sponsor generally keeps investors updated through the crowdfunding platform. This includes financial and other reports, tax documentation, choices about distributions and more.