Why and How We Created the Rankings / Ratings
Stumped trying to choose from the 100+ real estate crowdfunding sites? So were we, at first!
Unlike other types of crowdfunding, there's no one dominant site, where you can quickly invest in every type of real estate investment you need to diversify a portfolio. The average site only has a few open investments. And no one site covers all the investment types (equity, debt, commercial, residential, specialty, core, core plus, value-added, opportunistic). So you have to use several sites to fully fund your portfolio.
But which ones?
Due diligence required
Picking randomly is a bad idea. There are a few top sites, some alright sites, and a much larger number of poor sites. Without looking at all your choices, you can end up making a very expensive mistake.
However, most sites won't reveal their warts without a lot of prodding. So my assistant and I did the only thing we could do. We spent months doing in-depth reviews of every site. We signed up on every one, reviewed site documentation, interviewed account reps, support staff and principals. We pored through reams of legal documents, and investment contracts. And we interviewed actual investors.
Some sites were very helpful. Others were indifferent. Several were irresponsibly evasive, and a few were outright hostile. All of the important information we found (warts and all) is disclosed in the rankings, reviews and/or the feature comparison matrix. Click here to view the final result.
Methodology
To qualify as a top site, a site had to meet the following requirements:
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Functional site: site is live and operational for business (versus in beta). Site cannot look homemade or unprofessional.
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Functional sign-up: site requires password and verifies email address. Can create a user account without any errors.
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Focuses just on real estate crowdfunding, and isn't a "jack of all trades" site that attempts to do all types of crowdfunding in the same way (meaning that it does real estate poorly).
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Real online crowdfunding versus broker. "Real" means that the site posts all available investments online, and provides all information on them necessary to invest online (including all due diligence documents, such as leases, appraisals etc.). Broker sites are missing some or all of the above things. They often require interacting with a salesperson, who will attempt to steer you to their preferred investments.
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Location: all investments must be U.S.-based. (Foreign real estate is more volatile, risky, and difficult for US-based investors to assess. It is significantly less likely to follow historical U.S. returns, and more difficult to determine proper diversification, etc.).
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Availability: available to investors in all U.S. states.
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Not a zombie: has at least one real/open investment, and no investments with detectably fake/sample data.
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Transparency: allows investors to fully share and critique information on investments with others. Does not "lawyer up" to prevent information on investments being shared.
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Minimal selection: at least three available investments in a month.
Extra Credit:
The following features moved a site up in the rankings. Lack of the feature moved it down.
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Volume: A site can be fantastic in every way but if it doesn't have enough volume, it doesn't have any practical use to an investor. So this is an important factor.
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Bankruptcy protection: predefined investor protection if the site goes bankrupt. Click here to see the full definition.
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Positive investor feedback. Negative feedback counted against a site.
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Strong customer service and administration: how the company handles investors after the sale is made such as overseeing investments and doing tax returns, etc.
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Competitive investor fees: the lower the fee, the more headroom the investment has if something goes wrong. And of course, lower the fee, the more the investor keeps for themselves.
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Average to low investor minimums: As discussed in this article on portfolio diversification, high minimums put proper diversification out of the reach of most investors. No site in the industry does a sufficient job of this, however even among all the poor performers, there is a range. If investment minimums climb above the average of $10,000 for some or all investments, then the site was docked.
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True skin in the game: not just participating in success, but will take a financial loss if investor loss occurs.
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Pre-funding: Pre-funded sites may have some advantages over non-pre-funded sites. Click here to see the full definition.
Going further
Since I'm an investor, the ratings are based on which sites I think are best for other investors like me. If you disagree with my methodology or definitions, you can access the raw data in the feature by feature comparison matrix, and determine which sites work best for you. If you're a sponsor (looking to raise money for real estate), you can also use that same matrix to view sponsor fees, etc., and find the best site for your purposes too.
Definitions
Pre-funding:
Most sites don't give the money to the sponsor until all the investors fill the offering (and may never give the money if too few investors are interested). Sites that pre-fund give the money to the sponsor right away, and then offer it to the investors. This forces the site to be extra sure about the investment, because if it's not bought by enough investors, they will own part or all of it. So the marketplace has more "skin in the game".
Pre-funding is also good because your money goes to work as soon as you deposit it. On non-pre-funding sites, you have to wait until the deal is successfully sold to every investor.This reduces your return, and in the worst case (where the marketplace can't sell enough investors), means that after waiting, you won't even be able to invest. Pre-funding sites avoid all of these problems.
Finally, sponsors also love the convenience of pre-funding because it gives them their money sooner and with more certainty. This also helps investors, by giving them access to a larger more competitive pool of investments.
Bankruptcy protection:
There's so much competition in the industry that some sites are bound to go belly up. If you buy an investment, and the site goes bankrupt, you might become very uncomfortable. Without an administrator, the investment can't performance basic functions and at the very least prevent you from getting back your money when you expected. Further, a bankruptcy court could rule that the funds need to be tied up for additional months or years while they unwind the company. And in the most extreme case, the court could rule that your funds should be confiscated and used to pay the debts of the company. Obviously, all of these are horrible outcomes.
Thankfully, many sites deal with this by setting things up to protect investors in case of a bankruptcy (although only a few do it fully). Most sites separate the investment's legal entity from the investment marketplace, so that a bankruptcy court would not link them together to pay the debts of the parent marketplace. This involves not only how the entity is set up, but how it is managed (for instance, not sharing financial accounts between them, etc.).
While this is a good first step, it's still not enough. If a bankruptcy happens, there needs to be some way to allow the investment to continue running. The best sites have rules in the contract that enable this to happen.
Currently, a few sites have rules that allow investors to vote on a new administrator if the site goes bankrupt. While this is far superior to letting the investment hang in limbo for potentially forever, both of these require time to execute. So you could expect the status to be unknown for several months or more.
The very best protected sites go one step further and set up the backup administrator in advance. With this scenario, the transition for your investment should be smooth.
Accredited investor versus non-accredited investor:
Some sites require an investor to be accredited to participate. Others allow virtually any investor (nonaccredited). An accredited investor is an investor who:
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Made $200,000 or more in the last 2 years if single, or $300,000 if married.
OR
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Has a net worth of at least $1 million, excluding primary home.
Here are the reviews and rankings for:
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How to pick? (non-accredited)
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All data is believed to be correct, but may have mistakes. Please contact us if you notice one. All non-data (including rankings, investor comment summaries, etc.) are my opinion only. I'm just an investor and not an attorney, accountant, or certified financial advisor. To maintain neutrality: I do not own a portion of any of the companies reviewed.