Yes, you read that correctly. There are ways to invest in real estate today for as little as $5. We have talked about real estate investment before on this blog. Many people are hesitant to explore this because of the expense upfront, despite the traditional high return on investment. Micro-investing offers a unique approach to this, while trying to mitigate this concern.
As social media and digital platforms continue to evolve and find opportunities to monetize the internet, no niche is left untouched. Which brings us to micro-investing in real estate.
Investment portfolios are encouraged to be diversified, and real estate is a segment that should be included due to its lack of volatility and valuation growth unrelated to the stock market.
A model that has been used for a long time is something known as a real estate investment trusts, or a REIT. REIT’s are more like stocks than they are rentals, because the return from REIT’s are associated with performance.
Crowdfunding has found its way into real estate. Crowdfunding, is the means to generate small amounts of capital from a large group of individuals,typically achieved through digital engagement.
Let’s look at some of the positives of real estate crowdfunding?
- High dividends: Most crowdfunding of real estate operate through REIT’s, which are legally required to pay 90% of their taxable income to investors.
- Diversification: Adding another method to invest, provides greater security and longevity to your portfolio.
- Low investment minimums: Depending on the platform used, you can begin investing for well below traditional buy-in costs. Typically, initial investment in REITs begin with thousands.
- An easy investing experience: Crowdfunding companies want to attract new clients, the best way to do this is keep it very simple. Allowing customers to download an app and begin investing in moments is very alluring.
What are the pitfalls?
- Fees: There are no free lunches, and there certainly are no free investments. Most companies are going to charge a minimum of 1% annually. This may not sound like much, but you need to ensure you understand the fine print.
- Illiquid assets: Unlike most stocks, you cannot quickly turn investment into cash. As with most real estate investment, there is a longer window to see a return on the initial investment.
- Newness: This is a relatively new investment strategy. This leads to several concerns for investors and financial advisers. Many of these companies have only been around for 5-6 years. Some have not survived.
- Accreditation: Real estate investment, historically, as required the investor to be accredited, meaning having a net worth over $1 million. Some platforms will require investors to be accredited.
What are some of the options out the for those interested in this investment path?
- Compound is a startup working towards raising $10 billion a year to purchase properties. The focus of Compound is to offer investors a means to invest in high-end properties in populated cities. A share purchase with Compound can begin as low as $5.
- Fundrise got off the ground in 2012 and has seen solid success in this niche market. Through Fundrise, investors can put in a certain amount of money and the company than spreads that money across investments to create immediate diversification. Fundrise investment can begin as low as $500.
- Crowdstreet launched in 2014 with a focus on commercial properties. Crowdstreet offers investors three approaches based on the level of control they are seeking. Minimum investment with Crowdstreet is often $25,000 or more.
So is micro-investing or crowdfunding real estate right for you? That is a question you have to answer, obviously. It is certainly atypical from real estate investing, whether it be REITs or working locally with rentals or flips.