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Real Estate Investing

6 easy ways to start investing in commercial real estate now


Commercial real estate investing, or CREI for short, is the act of buying and selling properties that are used for commercial purposes. To be considered commercial the property must have 5 or more units. Here are the different types of commercial properties:

  • Offices
  • Retail
  • Warehouses
  • Industrial buildings
  • Apartment buildings

You can invest in a CREI by either purchasing property directly, by taking out a loan to purchase a property with the intent to sell it later at a higher price, or by purchasing shares of an investment partnership. All these options take careful consideration before committing to them as they require capital.

We all like to consider our investments as a crucial part of building our financial future. However, the investment market can be rather difficult to navigate. To help you find your way through the process, we’ve put together this guide to some of the best commercial real estate investments out there. First, let’s take a look at why you might consider commercial real estate as an investment.

Why Invest in Commercial Real Estate?

While stocks and bonds might seem like they are better investments in terms of risk-reward, they’re not necessarily as profitable over time. That’s why investing in commercial real estate, either through property purchase or rental, is such an attractive option for investors looking for more stability and long-term earning potential.

One of the most important things you should remember when investing in commercial real estate is that not every property is right for you. There are many variables that go into a property’s suitability for an investor. If you can’t imagine any of your potential investments fitting into your portfolio, then that opportunity might not be right for you.

You can be an active or passive commercial real estate investor. Commercial real estate has the potential for higher income because you’ll typically have more tenants or a larger property with higher rent.

Something else to consider is the tax advantages that come along with commercial real estate. The following are just a few of the ways commercial real estate can benefit from the tax code:

  • Operating loss. If your property is used in your business and you have a loss from operations, you may be able to carry that loss forward up to three years. This can apply to all commercial properties whether they would be considered office space, retail space, industrial space, or retail condominiums. Once an expense of $5,000 has been incurred during the year, a statement must be filed describing how this expense was related to income generated or otherwise connected with your business. The IRS considers the maintenance and use of your property as part of an operating loss if you choose to do so. However, if you were in a temporary bumpy situation or just not able to maintain the property properly, a general deduction can be taken for any expenses that exceed $1,000 for personal living space.
  • Deduction for interest paid. Interest paid on a loan or mortgage can be deductible. You will have to attach documentation and amend your investment account to show that you are making payments instead of interest. You must be able to see through the current use of money to your loan or mortgage when they make this deduction as the IRS needs you to prove where the additional money not being used in mortgage principal comes from. 
  • Deductions for allowable depreciation. Depreciation on commercial properties is a big factor that investors need to consider when buying an investment property as a means of making sure that they’re not overpaying for the property or building up a huge amount of debt that will take years to pay off with the rent they are bringing in. The IRS allows for a depreciation schedule based on the age of the property and the condition it is in. For example, for structures built before 1977, straight-line depreciation is allowed. This means that you can depreciate your building by deducting 1/27 of its assessed value over 27 years.
  • Tax credits. There are several tax credits that can be applied to your tax return that pertain to commercial properties including a new markets tax credit and other local tax credits.

Now that you understand some of the reasons why someone might want to get into commercial real estate investing, let’s dive into how.

How to Invest in Commercial Real Estate

Check out 6 different ways to get into the commercial real estate market.

1. Commercial REITs

A commercial real estate investment trust (or REIT) is a company that owns, or finances income-producing commercial properties. They are similar to mutual funds in that they represent an investment for the general public, but unlike funds, they trade on an exchange like stocks do. They also have no limitations on who can purchase them which means anyone can participate in them.

A REIT can be a good investment for passive income investors or even investors that want to have more control over their investments. This is because many of them pay large dividends and distributions each year. They’re also relatively safe for the average investor and have little risk other than defaulting on the loan or properties they own. However, they do have some risks associated with them from their high leverage which can lead to huge losses if the market turns against them. Some people also like REITs because of their tax benefits and the ability to receive dividends in form of an exempt-interest distribution.

Like mutual funds, REITs are a collection of assets that are professionally managed by a team of experts. They are a favorite way for people to invest in real estate because of the ease of investment, and it removes the need for ownership of individual properties. This also makes them less liquid than individual properties or mutual funds because the investor must hold onto them until they can be sold again (just like a stock). REITs are relatively simple to understand and easy to purchase and sell.

Commercial REITs have many advantages over traditional stocks because they offer more substantial dividends and distributions. These are usually distributed quarterly or even monthly.

2. Commercial Property Crowdfunding

Crowdfunding has become a popular way to fund new and creative ideas, products, or services. Commercial real estate crowdfunding is especially exciting because it has emerged as a new and viable option for both investors and entrepreneurs eager to launch their business.

Commercial real estate crowdfunding is similar to traditional crowdfunding in that it enables people with ideas for property development or other commercial uses of properties to raise funds from others over the internet in order to finance the idea’s start-up costs (such as residential space start-up mortgages).

But unlike traditional crowdfunding, commercial real estate allows investors who have a lot of capital but not a lot of time to participate by leveraging their money into other people’s ongoing projects with minimum risk.

Unlike Kickstarter, for example, where the entrepreneur provides the finished product to the consumer within a specified time frame (i.e. if they don’t deliver on time, the consumer gets nothing), commercial real estate crowdfunding investors are simply buying into a particular project’s expenses as they are incurred. This lowers the risk involved for these investors because there will be no out-of-pocket expenses associated with their investment in typical commercial real estate projects.

Commercial real estate crowdfunding could also change how markets are done between property owners and potential buyers in terms of marketing and pricing. Property owners, for instance, may be able to use this new method of crowdfunding to create an advanced marketing campaign that will help them sell their properties faster and for a higher price. In the past, commercial real estate owners would have to spend thousands of dollars on advertising in order to find a buyer. These costs are not always necessary now thanks to the internet, where instead of one ad placed in one newspaper or magazine, property owners can place their ad on several different websites with thousands of potential buyers who can access those websites from the comfort of their own homes.

Property developers planning to use crowdfunded money may want to include a provision that allows them to buy back shares in the investment at different prices throughout the life of the project.

3. Become a Hard Money Lender

If you have a bit of money saved up, this might be an opportunity for you. A hard money loan is a short-term loan, typically one to two years, issued with less flexible terms than traditional loans. Hard money lenders make it their business to lend in situations where the borrower lacks access to traditional financing.

If you have the capital and the flexibility you could partner with someone knowledgeable in the commercial real estate space. Using the industry knowledge paired with your upfront capital, you could work up a contract that earns you interest on the loan and a percentage of the income from the commercial investment.

4. Owner-Occupied

This one is pretty straightforward and is for business owners or entrepreneurs. Move your small business into a commercial property and work to own it outright. If you use a loan for the property you have the option to sublease to help pay it down. You’ll likely need to put 20 – 30 percent down depending on the property, so this option does require a bit of capital.

The advantages of occupying a commercial property are numerous (see tax advantages above). Real estate fluctuates but it’s a relatively safe and not a volatile market. You can own the property for as long as you’re in business and then sell for a profit when the time is right.

5. Commercial Real Estate Mutual Funds

A commercial real estate mutual fund is a portfolio of investments in commercial real estate. It may consist of buildings, land and other property. The fund pools the collective assets of investors to purchase properties for long-term use or sale. Mutual funds are managed by professionals and offer participants an opportunity to spread their investment risk while maintaining control over their investments.

You can choose one of two types: closed or open end. A closed-end fund issues shares at a fixed price, which means that the price for an individual share remains constant over time. An open-end fund issues new shares at a variable price based on supply and demand while trying to maintain a constant share price over time. They can also be subclassified as public or private funds.

6. Buy an Office Building

In today’s digital world, the office is no longer just about where you go when you want to get some work done. Now, offices are long-term investments for many companies. The office space that a company uses is an excellent investment, and it might pay for itself many times over through rising rental rates. You might want to consider investing in a shared workspace like WeWork, or build your own version. WeWork designs and builds physical and virtual shared spaces or offices for individuals and companies.

If you’re interested in this area, there are many cities that have experienced high demand for office space in the past, like London and San Francisco. Once you find the perfect location for your investment, you can buy or build a property that will offer excellent returns during both good and bad economic times.

Bonus: Become an Accredited Investor

Many companies or projects may require you to be an accredited investor in order to invest. What’s an accredited investor? In order to become accredited your earned income must exceed $200,000 individually or $300,000 jointly annually for the past 2 years. You also must have a net worth of over $1,000,000 (individual or joint) not including your primary residence as an asset. The last thing you must have is a Series 7, 65 or 82 license. You can read more about those licenses here.

Some crowdfunding platforms like RealtyMogul and Fundrise have accredited investor-only deals. These exclusive investments often have more opportunity and income potential than if you were not accredited.

Steps to Evaluate Commercial Real Estate

Before making any investment, you should evaluate and estimate potential gains and losses based on a set of criteria. Follow these steps before committing to a commercial real estate deal.

Step 1: Observe and understand the current state of the property and area.

Observing and understanding the current state of the property is vital for proper evaluation because investors must know what property improvements are needed in order to make it more attractive. Some initial questions to ask yourself:

  • What are some things to consider when observing and understanding commercial real estate property?
  • How can you evaluate whether or not your building has good access? 
  • How do you evaluate traffic flow within a building? 
  • What impact does access have on overall commercial real estate investment performance? (ex. improve access to parking)
  • What is your property’s physical appearance? What do you see when you look at the front of a building? How does the facade of a building affect its value?
  • What type of zoning is in effect for what area? How will zoning affect current or future value?
  • What are some common problems facing the building, and what would make it more successful in your eyes? For example, plumbing issues may be a problem. Some buildings may need cosmetic changes such as painting, landscaping, or upgrading pipes.
  • What services are available in the area? Which are lacking?

Step 2: Evaluate the potential future state of the property.

What do you envision for the property if it were to be improved? According to commercial real estate appraisers, your vision must be realistic. Be careful not to overstate your case. You can, however, use a general vision and adjust it as you learn more about the property and its surrounding area.

Once you’ve evaluated the current state of the property, determine what would be ideal or possible improvements that would make this property more valuable. Think about how you see this type of commercial real estate investment performing in comparison to other investments you’ve made in the past. (Example: Can this be a retirement investment? Can you get a higher return than your local bank account? Would this be a good stable investment?)

Figure out the ideal tenant profile for the property. For instance, the building may require office activity during the day and have parking available after hours.

Future-focused questions will help you weed out the potential bad investments.

Step 3: Analyze demand, location, and access to capital.

Because most real estate investments are considered long-term, commercial real estate investors must think about factors such as demand, location and access to capital. Demand is the number of people who need what you are offering compared to how much supply is available. Does the property you are evaluating have enough demand for reasonable rental and/or investment income?

Location is another important factor. Where are the local offices? What kind of buildings and divisions are nearby? What type of commercial real estate would be appropriate in this location?

Access to capital is necessary to consider because it can help you select better tenants, buy larger buildings, or make other investments.

Step 4: Evaluate return on investment (ROI).

Once you evaluate your property’s potential future state, you need to execute a plan that will help you determine how well the property is performing financially. Estimate economic feasibility based on how much income you can generate and the expenses that you’ll incur. Look at things like operating expenses, debt service, and taxes. Quantifying financial performance is an important part of evaluating commercial real estate. You will need to create a financial statement that estimates cash flow (income minus expenses), profit or loss, working capital, investments and other financial information. This will provide future estimates for the project’s earnings and assets while helping you determine which investment strategy is best.

Step 5: Develop a commercial real estate business plan.

A business plan is helpful when you’re exploring real estate investment possibilities. As a commercial real estate investor, you should develop as much of a business plan as possible based on private and personal financial information. This is also helpful for investors who want to get financed and get the attention of lending institutions by setting out your goals and keeping them abreast of changes in your investment strategy. Read more about how to make a business plan.

Step 6: Determine economic feasibility, property value, and financial performance.

Once you have gone through all these steps, you are ready to review your results with other real estate appraisers in order to decide whether or not this property is worth investing in. Economic feasibility is the first evaluation criterion. How much income can be generated? What expenses will be incurred?

Commercial real estate property value is the second evaluation criterion. What do you see as the property’s potential value to a buyer?

Financial performance is the next evaluation criterion. How much income and profit are generated? What level of expenses? How much will be used to pay off debt? How much is left after you’ve invested your own money?

Once you have evaluated the property’s potential future state, you can decide if this investment will benefit your goals. This is another reason why it is important to develop a business plan before making any real estate investment decisions.

Is Commercial Real Estate Investing Right for You?

After you have invested in a commercial real estate project, it’s important to monitor the improvement of its performance on a monthly and annual basis. From there you can make adjustments to your strategy and continue to invest in other properties.

Commercial real estate investment strategies are like a marathon race: Marathon training allows you to be in top condition when the race begins and then it is up to you to work hard during the race.

Frequently Asked Questions

Q: How much money do you need to invest in commercial real estate?

A: Commercial real estate deals often involve large sums of investment capital but investments are never one-size-fits-all. How much money you need initially depends on a few different factors. One of the most important things you’ll want to consider is your current financial situation and the amount of risk you’re comfortable with taking on.

A general rule for assessing your financial stability is that if you’re not willing to risk at least 25% of your total assets, then it’s probably best to not enter into a commercial property deal. One of the most common types of financing used in commercial real estate deals is a hard money loan. A hard money loan is a type of loan that’s provided by private investors or institutions that are not as regulated as traditional lending institutions. The purpose of these loans is to help a borrower meet immediate funding needs after they’ve exhausted other sources.

If you’re planning on purchasing a commercial income property, such as an apartment complex, you’ll want to ensure that your down payment is enough to cover the costs for both closing costs and property maintenance.

Q: What are the best commercial real estate investments?

A: When you buy a property as an investment, you plan to get your money back through either ownership of the property or rent that you collect from tenants. The best commercial real estate investments are those that will offer the most stability and safety for your investment. Compared to investing in stocks and bonds, commercial real estate offers you the opportunity to earn a profit on your investment every year as long as there are no existing loans. Commercial real estate may not go up or down as much in value, but that doesn’t mean it can’t increase over time. This type of investment also allows for the possibility of keeping the property for years, which can be crucial during a recession or other economic downturns.

Q: How do commercial real estate investors make money?

A: Commercial real estate investors are the ones who actually invest in property for leasing to tenants. They’re looking for a return on their investment, either through an annual return or to sell the property if it has appreciated in value. The other kind of investor is a speculator: they buy properties hoping that they’ll be able to resell them for higher prices in the future, with little regard for its standing as an income-producing property.

When a commercial real estate investor buys a property, there’s not usually just one way they make money off it. Typically these investors will be trying to maximize revenue from renting out various parts of the building or flipping and selling it at some point down the line if it has gone up in value.

Roofstock – Invest in Occupied Rental Properties w Yields up to 12%


image credit: roofstock.com

The demand for real estate investment properties has skyrocketed over the past year. With extremely low mortgage rates and a hit-or-miss stock market, real estate investments are being snatched up in a matter of days — or in some cases, before they even hit the market — in cities and destination areas across the nation.

This drive for more real estate purchases has led to a shortage of housing in many markets. Add to it the ongoing demand for short-term rentals via AirBnb or VRBO and it can be tough to get your hands on a property to invest in, even if you offer more than the asking price. So, without a ton of inventory to choose from, what’s a would-be real estate investor to do?

Enter Roofstock, a real estate buying and selling platform that caters to investors who are interested in buying single-family rental properties in order to earn rental income. This platform differs quite a bit from some of the other popular real estate investing platforms like CrowdStreet or DiversyFund.

Here’s all the insight you need into how the Roofstock platform works and what it can offer you if you’re in the market for new rental investment properties.

What is Roofstock and Who is Behind It

Compared to some of the other real estate investment platforms, Roofstock is a relatively new online marketplace. Founded as an Oakland, California-based fintech startup in 2015 by Gary Beasley, Gregor Watson, and Rich Ford, this real estate platform serves as an online marketplace for investors who are interested in purchasing leased single-family rental homes. 

Roofstock primarily specializes in helping investors find the right real estate rental investments in the right areas, but it can be utilized by both buyers or sellers who are interested in purchasing or offloading rental properties. Available rental investment properties are posted on the marketplace, which only features single-family houses available for purchase — there are no multifamily units available on this site. 

While that may seem similar to your typical online real estate market, this platform is anything but. Unlike the properties listed on other online marketplaces, the majority of the properties listed on Roofstock are already occupied with tenants.

Roofstock marketplace snapshot. Yields ranging from 7.0% to 12.0%.

That focus on occupied real estate is due to the fact that this site caters to buyers who are only interested in purchasing rental investment properties — not traditional buyers who are looking for a new home to occupy. Having a property occupied with tenants is a major plus for real estate investors, who want to jump into rental homeownership with a steady stream of income in place.

This platform not only gives buyers and sellers a place to connect, but also offers multiple investment options that cater to a wide range of buyers. Buyers on this platform have the option of purchasing individual single-family properties, multiple property portfolios, property shares, and also have the option to bring their own property to the platform. We’ll go into more detail on these options below.

In addition to offering a marketplace and a way for buyers and sellers to connect over rental housing purchases, this platform helps to facilitate full service real estate transactions from start to finish. You’ll get access to everything from underwriting to lending partners and insurance providers, right on the platform. 

All steps of the rental investment buying process, from the purchase price to the down payment and the fees you pay for your purchase, are handled right on the platform. This fully-online process not only helps buyers and sellers close transactions quickly, but helps to cut out the expensive middlemen involved in traditional real estate sales. 

These unique informational features, along with a range of investment options and a slew of other benefits, are what helps Roofstock stand out from the competition in this niche. 

Features and Benefits

One of the main benefits of using Roofstock is that it offers a wide range of buying options for investors. 

To start, Roofstock offers buyers the option to purchase individual single-family rental homes for sale. These single-family options are posted on the marketplace and are available for potential buyers to virtually tour to find the right property for their needs.

Investors who are interested in purchasing multiple properties have the option to purchase real estate portfolios in bulk from the same seller on this platform. Using the portfolio option can increase your chances of getting the best deal from the seller, though it will obviously increase the purchase price since you’re purchasing multiple rental properties in one swoop.

Below is an example of a portfolio of 12 homes for sale in the Chicago area:

This Roofstock portfolio investment provides a gross yield 10.3%.

Taking the portfolio purchase route can also increase your chances of getting the best lending rates during the financing process. Because Roofstock’s lenders are well-versed in real estate investment funding, they won’t be scared off by multiple investment property purchases the way some traditional lenders might be.

The platform also gives buyers access to Lennar Homes’ newly-constructed homes across the nation for investment. These homes offer upscale features backed by Lennar Home Warranty, which can be purchased as vacation rentals or investment rental properties. 

As with the other homes on the marketplace, you can sort through the available new construction homes from this builder, learn the nuances of these properties as they pertain to the rental market, and purchase a Lennar home through the platform.

And, there are other buying options to note as well. Aside from single and portfolio purchases, Roofstock also offers buyers a “bring your own property” option. If there is a rental property you’re interested in purchasing, you simply submit the address on the platform as a rental property investment not currently listed in the Roofstock marketplace.

The property you “bring” to the platform will then be screened by Roofstock’s underwriting technology. If approved, the platform will connect you with a vetted Roofstock local real estate agent who will email a private link that gives you access to the underwriting details and pro forma return projections — which is exactly what you’d get with other properties in the marketplace.

Investors who prefer to buy into real estate property shares will also have that option through this platform. In 2019, Roofstock launched a property shares option called Roofstock One, which allows investors to buy shares of an individual rental home for as little as $5,000.  

This option allows buyers to generate passive income without the operating responsibilities, and also allows buyers to diversify investments across multiple homes and locations. The properties are managed through Roofstock, and if you need to sell your shares, you can. This option is available to owners who need to offload their property shares at any time.

Buyers using Roofstock will start the process of vetting new rental investment properties by using custom filters to tailor the search by list price, desired return, location, or other important metrics. This makes it simple to find the right types of properties in the right areas.

You can also sign up for alerts on new property listings that match your search parameters. Doing this will allow you to be notified when a property that matches your needs becomes available — and gives you a leg up on the buyer competition.

Once you’ve found a property that matches your needs, you can virtually “tour” the property via pictures, floor plans, 3-D tour, 3-D model, and a curb view, all of which are available on the Roofstock platform. These features help to give you a clear idea of what the home looks like, both inside and out.

Buyers who use Roofstock are also offered lots of other insight into each home listed on the platform. This information is available via research, analytics, and in-house certification, all of which help to ensure that the homes listed on this site are good investment opportunities.  

You also get access to a wide range of useful tools on this platform, which can help you make the right decision when it comes to your rental investment purchases.

These tools include:

  • Neighborhood ratings — Roofstock offers buyers a system of neighborhood ratings that ranks important factors like home values, average rent, income levels, employment rates, education levels, crime data, percentage of owner-occupied homes and school district ratings. This system ranks neighborhoods on a scale of 1 to 5, with 1 being the most risky and 5 being the least risky.
  • Property inspection and valuation — Properties listed on the Roofstock platform must meet the company’s strict certification parameters and must pass a property inspection, which are conducted by a Roofstock-approved vendor within four months of the purchase date.
  • Title report and insurance quote — Roofstock also offers buyers title reports and insurance quotes as part of the buying process. 
  • A unique 30-day guarantee — Buying a home online can be tricky, which is why Roofstock offers a 30-day guarantee on purchases. If you’re not happy with your property purchase, Roofstock will re-list the property for free on our marketplace or any other channels. When the property sells, the company will refund the original purchase price at closing regardless, whether it sells for more or less than you paid for it. If the home doesn’t sell within 180 days, Roofstock will buy back the property and you will receive your refund when the property closes. 
  • Interactive cost tools — These tools help you visualize return and cost estimates so you have a clear understanding of what your costs will be, and what your potential returns will be, on each property.
  • Current lease, tenant details, and payment history — This information gives you a clear idea of the type of tenants and the type of rental history the properties have. If a tenant is late on payments or if a property has been unoccupied for long stretches of time, you’ll know from the report.
  • Built-in financing and insurance on Roofstock One — Roofstock One, Roofstock’s property shares service, also offers buyers built-in financing and insurance to help expedite the investment process.

If you find that a property matches your specifications and you want to make an offer, you do that right from the platform. If you’re financing your purchase, you can also use the platform to get pre-approved by a lender before submitting an offer. Just as it does with traditional real estate purchases, a pre-approval will strengthen your offer and set you ahead of buyers who make offers without any proof of funds.

If your offer is accepted by the seller, Roofstock’s platform allows you to complete the rental property home purchase online. The company’s service and transaction team will help to guide you from escrow through the closing process. 

Once you officially own the property, you can opt to use Roofstock’s concierge services to manage your properties. This optional service gives you access to property managers who are vetted by the platform who can handle the day-to-day management duties of your rental properties. This includes repairs and maintenance and tenant communications. These property managers make it much easier for investors to focus on the other aspects of property rental investments.

Average Return to Investors

There are multiple purchase options available to investors on this platform, which makes it tough to estimate exactly how much investors earn as returns on their property investments. How much income you earn will depend heavily on the type of investment you buy into, the rental market in the area, and other factors unique to your purchase.

That said, you aren’t expected to invest in properties on this platform without any information on the return on your investment. As noted above, Roofstock offers insight into each property on its platform.

In general, the single-family properties listed for sale on this platform typically have a cap rate of between 5% and 8%. The gross return on most properties listed on the Roofstock site is generally estimated to be between 11% and 12%, though it’s important to note that the estimate is before expenses.

You can also find the expected appreciation on each property right on the site, which gives you more data to work with when calculating the potential return on your investment. All of these factors: the cap rate, the gross return, and the potential appreciation, will play into what your return on investment is.

And, it’s important to remember that the type of property you purchase will also play a significant role in your ROI. If you’re buying a portfolio of properties from a single investor and are able to get a significant discount for your purchase, you may see returns much higher than the average. 

On the other hand, if you’re buying into property shares, you’ll have a different way of calculating the ROI on that type of investment. Ultimately, what you earn on your investment is not cut and dry with this platform because of the number of options you have for investing with Roofstock. You can learn more about calculating your return on Roofstock investments here.

Potential Drawbacks

While there are plenty of potential perks to using this platform, there are also potential drawbacks. These include:

  • Accreditation requirements for Roofstock One — If you want to invest in property shares with Roofstock One, you’ll need to be an accredited investor who is able to meet the SEC guidelines. This can be tough for smaller investors because the SEC requires accredited investors to meet one of the following requirements:
    • An individual income of more than $200,000 per year in each of the last two years and expectations to exceed the threshold in the current year
    • A joint income between spouses of more than $300,000 per year in each of the last two years and expectations to exceed the threshold in the current year
    • A net worth exceeding $1M, excluding your primary residence, either individually or jointly with your spouse
    • An investment on behalf of an entity with at least $5M in assets or an entity in which all the equity owners are accredited investors
  • A higher cost for most investors — While you do have the option to invest in property shares via this platform, the primary purpose of Roostock is to allow you to buy individual investment rental properties from sellers. Investing in these properties can be more costly than taking the REIT route, so it generally requires a larger investment from buyers for the down payment and ongoing maintenance or repair costs.
  • Longer-term investment — Unlike many other types of investments, you own the property you invest in on this platform. That requires a longer investment than buying stocks or shares of an REIT.
  • No multi-family investment options — Roofstock does not offer multifamily properties at this time. The only options for investors are single-family homes or shares of single-family homes, not apartment buildings, duplexes, or other multi-family units.

Cost Associated with Roofstock

It’s free to create an account on Roofstock. Where this platform makes its money is through buying, selling, and property management fees and associated costs.

For example, as a seller, you list your property without paying anything upfront. If your property is sold, you’ll pay a fee of either 3.0% of the sale price or $2,500, whichever is greater. That may seem pricey, but it’s typically just a fraction of the traditional 6% broker fee that is charged by most real estate agents.

It is also free for buyers to make offers on properties when using this platform. The costs trickle in when an offer is accepted. Still, it’s much less costly for buyers than sellers to use this platform. When an offer is accepted, Roofstock charges buyers a marketplace fee equal to 0.5% of the contract price or $500, whichever is higher.

You will also pay fees for the optional property management services listed on this site. These fees will vary based on the property manager you choose, but according to Roofstock, you can expect to pay a setup fee, or on boarding fee, of about $300 or less at the start of the contract. 

This fee covers the cost of setting up your account with a property management company. It may also cover an initial inspection upon closing to assess the current condition of the property. You may also pay a one-time leasing fee of between 25% to 75%, or a flat fee, whichever your property management company prefers.

Property management also includes ongoing monthly fees each month. What you pay for these fees will depend on the property management rates, which are determined by the company you choose. You may also be responsible for lease renewal fees and maintenance costs, though it will depend on the property management company you choose.

How are Roofstock’s Investments Sourced

The investments on this site are sourced primarily by sellers posting their property listings on the site. 

Sellers create a free account and then enter the property information by answering a series of questions and uploading photos of the property. They receive a free price estimate based on the information submitted to the platform.

Once Roofstock has the information it needs, the company performs up-front due diligence before it’s listed for sale, which includes securing a property inspection, ordering a preliminary title report, and gathering key documents for potential buyers.

If everything checks out, the listing is posted to the site in the marketplace to be showcased to buyers. 

The process of sourcing investments for Roofstock One is similar. Unlike REITs, which generally include several properties, Roofstock One offers investors shares of individual properties, and investors choose the properties to invest in. Sellers offer these properties for sale to Roofstock, and the company performs the same due diligence, including inspections, title reports, and key documents.

Who is this Platform For

It depends which part of Roofstock you want to utilize. If you want to use Roofstock to purchase individual properties for sale to investors, you don’t need to be accredited to do so. All you need is a desire to buy an individual single-family rental investment property, a down payment or cash for the purchase, and/or the ability to secure funding for your purchase. This opens the platform up to a wide range of investors — both large and small.

If you want to invest in property shares via Roofstock One, you’ll need to be an accredited investor. The SEC accreditation requirements can severely limit who is able to invest via this part of the platform. If you aren’t accredited and don’t meet the requirements to be accredited, you’ll need to invest in property shares on a different platform.

Is Roofstock Safe

As with any type of investment, there is risk to investing with Roofstock. That said, this platform does its due diligence with the properties it offers for sale, and you should, too. The tools are available on-site for you to vet properties thoroughly and make the best decision for your needs.

If you carefully survey the rental and tenant history as well as the other information made available to you, this platform is about as safe as any other investment. Plus, the 30-day guarantee offered by Roofstock adds some added protection to the mix. You have a full month to learn whether or not you are happy with your purchase, and if you decide it wasn’t the right move, this protection offers you a way out of your investment without significant losses.

How Roofstock Differs from the Competition

The main difference between Roofstock and the competition is that this platform offers full-service single-family rental investment purchases from start to finish. It connects you with lenders, offers underwriting in-house, does the background work for you, and walks you through the closing process, from escrow to ownership.

Having access to information like rental histories or tenant payment histories is also a unique feature. Roofstock gives you this information up front, which allows you to see a clear picture of what the history of the rental property truly is. That’s a huge plus for investors, who will know exactly what to expect from the tenant, and what to expect in the rental market, before making any purchases.

It also allows non-accredited investors to buy into property investments via the single-family investment options. You don’t have that option with most REITs, so this platform is more accessible than much of the competition. 

The fees differ from other competitors, too. Roofstock is upfront about the fees it charges to buyers and sellers, and they’re much lower than you’d get with other similar platforms. Sellers pay about half of what you’d expect to pay when selling a house, and buyers pay even less for their portion of the translation.

The 30-day guarantee is also a feature worth noting. There aren’t many investment opportunities that offer similar protections to investors, even in the real estate space. This alone sets Roofstock apart from the competition.

Final Thoughts

The only real downsides to using this platform are that the Roofstock One platform is limited to accredited investors, which severely limits who can buy into property shares via this site, and that the returns on your investment vary significantly from property to property. You also can’t purchase multi-family units on this site, which may put off buyers looking for these types of properties.

That said, this platform shouldn’t be overlooked simply because of the accreditation requirements or other limitations. The Roofstock marketplace offers a surprising amount of tools to real estate investors interested in single-family rental purchases. Those tools, coupled with the low costs and streamlined transaction process, far outweigh any potential negatives with the platform. 

As long as you do your homework, vet the properties, and use the information provided to you, Roofstock can be as safe — and potentially as lucrative — as most other types of investments.

8 ways to invest in real estate with little to no money


Investing in real estate can be done with less money than you might think.

Are you eager to try something new but barriers to entry are getting in your way? It’s natural to question how you can invest without cash upfront or collateral. A common misconception with real estate investing is about how much money is needed to get started. Another thing you might not realize is that you can invest in real estate without even stepping foot on the property, let alone owning it.

Let’s start with some basic principles:

Determine your needs and wants. You need to figure out how much you want to invest and what you hope to gain from your investment.

Do some research. The best way to find out what your options are is to know where to look. As a new investor, you can do a quick search on Google for real estate investing. However, you may be better off doing more extensive research to find the best options for yourself.

Look for the right investment type. Real estate isn’t just residential. You can invest in commercial properties, land or REITs. We’ll get into more of that later.

Investing in real estate isn’t black and white. There are a number of ways you can invest whether it be owning property outright or by owning shares of real estate investment trusts. Let’s get into the ways you can invest in real estate.

Primary Residence

Most states offer a grant incentive for people who have never owned a home before. These grants work by reducing the amount of money you need to spend on your initial down payment. For example, a first-time home buyer in the state of New Jersey could receive up to $6,000 toward the down payment on their house. This means that if you are looking to buy a $200,000 house and are required to put $40,000 down, you’d need $34,000 instead. That makes the monthly payments more manageable for first-time home buyers.

Seek out the programs available in your state. There are other incentives and loans available. Another example is MSHDA, which requires just 1% down of the purchase price, up to $7,500. The good news is, once you pay off the mortgage you can keep your property and turn it into a rental to generate passive income.

Real Estate Crowdfunding

Real estate crowdfunding is a relatively new concept that is quickly taking the world by storm. It’s about giving more people access to real estate investment opportunities and breaking down those barriers that we mentioned before. Real estate crowdfunding is a way for investors of all types to take advantage of pools of real estate deals. Instead of having to jump through hoops, answer lots of questions, and endure long waits just so you can invest in one or two deals, with crowdfunding you get to make as many investments as you would like. The result is that more people are able to participate in lucrative real estate opportunities.

A crowdfunding platform like RealtyMogul is a great way to make investments in real estate, but it does require some money. The general rule is that you need $7,500 to start investing (but there are many exceptions).

With RealtyMogul crowdfunding, it’s not the amount of money you invest in your project that determines how successful the project will be — it’s the number of people who invest in your campaign. If only one person funds your project, you might never receive your investment back. If, on the other hand, 10 individuals fund you, you will probably get your money back.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a type of company in which shares are publicly traded. The company invests in properties, such as office buildings, shopping malls, and hotels. These properties are typically rented out for a period of time to an operating partner with expertise in the industry – like office space to a law firm or a hotel room to guests.

As a shareholder, the investors benefit when the business generates gains from its property assets and recognizes that income through dividends. When you invest in REITs, you do not have to worry about finding and maintaining the properties, since the company takes this on as its job. The company does not collect rent from tenants but instead collects a share of the income generated by the property it owns. When a REIT has an agreement with the individual investors, they oversee and manage their portfolio of investments for which they are rewarded with dividends for their contributions to that management project.

REITs are a great investment if you want to diversify your portfolio with income-producing assets without having any risk involved directly in owning properties or collecting rents and managing them yourself.

Buy, Remodel, Rent, Refinance, Repeat

The BRRR strategy is pretty straightforward and works if you’re trying to stretch your cash flow. There is one caveat to this strategy: you have to buy low. Purchase the property as your primary residence when you find a deal. Take your time remodeling if you need to. Once it’s ready, rent it out and refinance as often as you can and when it makes sense to lower your payments. Make sure your tenant is covering the mortgage, insurance, utilities and a little extra on top so you can save for further investments.

Once you pay off your first mortgage you can repeat this process with more and more rental properties until you’re satisfied with your portfolio.

Microloans

If you have ever wanted to buy a property and may be having trouble getting that loan from a bank, or if you want to make a real estate investment but can’t come up with all of the money upfront, then here’s some good news: microloans for real estate investing may be the solution. But before we get into what they are and how they work, here’s a quick definition first.

A microloan is a small loan (under $10,000) that is specifically geared toward small business owners who traditionally have not been able to access traditional loans due to their lack of assets such as collateral or personal credit history. The reason why this process works so well is because the lender offers money to individuals who have a proven business idea, as long as they can demonstrate that they are capable of providing regular monthly repayments. So even if you don’t have a lot to put down, you can still get a loan for real estate investing if you have sufficient income coming in. However, there is one small catch: microloans are really only available to those who qualify for them; although not the severe requirements of traditional lenders, some requirements must be met before applying.

Microloans don’t require any collateral or down payment because the lender takes your ability to repay the loan into account and not your credit history. You could take this microloan and put it into your real estate idea – maybe a BnB or fixer-upper.

Find an Investment Partner

If you’re looking to buy your first commercial property or invest in real estate but don’t have the capital, then a partnership with a private lender or funding partner might be an ideal solution for you. Partnerships are also excellent ways of diversifying risk and lowering your overall investment costs as well. As long as both parties are willing to commit to the agreement, there is no limit as to what could be accomplished.

To get started, know how and where to find a private lender or funding partner. This can be accomplished by calling the bank that you are setting up your account with (or a real estate agent), asking around or doing some online research. Alternatively, if you know someone personally who is willing to partner on an investment with you, this is a great way to start as well. All of the information needed for setting up your account with a private lender or funding partner should be available on their website or on the internet in general.

After finding your private lender or funding partner, contact them for more information about their rates as well as the terms of their investment program.

Multi-Family Units aka “House Hacking”

House hacking refers to a method of buying real estate that many people are taking advantage of in order to buy their first rental property. It’s not unlike the process you may use when you’re hunting for your first job, only instead of looking online for a company, house hackers start with searching for multi-unit homes, or duplexes.

When you own a multi-unit home you can charge your tenants what you’d like. One way is to take your mortgage payment and divide it by the number of units in your property minus one (the one you’ll live in). In order to pull this off with little or no money down, it’ll have to be your primary residence. Once you pay off the mortgage you can list it as an investment property and sit back and collect passive income.

HELOC

This one works if you already own property. A HELOC (Home Equity Line of Credit) is a loan issued by a bank to an individual or family to provide funds to improve or maintain their home. It can be taken out in the form of a mortgage, HELOC, or other commercial loans.

This line of credit requires an application from either the mortgage holder, head-of-household, or as a co-applicant with any number of people. It provides borrowing about $200,000 on any single property you own back at better interest rates than those offered on credit cards. And unlike credit cards which charge interest rates as high as 30%, your APR with this type of loan generally stays below 3%.

A HELOC is much like a credit card in your ability to spend money, it is one of the most accessible forms of borrowing available to homeowners. What draws people to this type of loan is that they are able to spend all the money on whatever they want, such as a REIT or investment property, and the interest rates are relatively low compared to other types of loans.

Best Online Real Estate Investing Platforms

There are a number of different real estate investing platforms that you can work with to get started. We’ve gone through quite a few of them and have found a handful of favorites that we’d like to share with you below.

Roofstock

Roofstock is an online real estate marketplace that lets you fund a purchase and become an owner of a rental property without any money down or upfront costs. This is an investment opportunity designed to help first-time real estate investors with no previous experience or cash to get started.

You can earn 8% annualized performance, potential tax savings, and a portfolio of properties in your account. This is a unique property investment option that will work well for people who are new to the game but are still eager to start investing in real estate.

Fundrise

Fundrise allows investors to invest their money in real estate with no minimum investment and no risk.

Known as crowdfunding, this is an alternative financial system where the crowd invests their money from many people to achieve good returns. If you have always been fascinated by this type of investing but felt that it was too risky or too difficult to get started, then Fundrise might be the solution for you! The Fundrise platform uses blockchain technology and smart contracts to allow investors to put their money into real estate without requiring a financial history or any institutional credit. They also allow individual investors and accredited investors to invest in real estate with no minimum investment, trust score management, and no due diligence.

RealtyMogul

RealtyMogul is a real estate crowdfunding platform that allows users to invest in real estate projects without having to go through lengthy processes. This platform makes it possible for people with small amounts of money to access lucrative investment opportunities by allowing them to pool their money together and get better returns. They offer investments in the range of $2,000 to $50,000 and are open to both accredited investors and non-accredited investors. This platform has been in operation since 2013 and has successfully distributed $100 million in returns.

Types of Real Estate

Before you start investing, determine what type of real estate you want to put stake in.

Land

Land real estate is normally vacant land that you can buy directly from the owner. As leverage for securing a home mortgage, most banks will require that you have a certain amount of money saved up before they’ll give you a loan. If there isn’t enough money in your savings account to cover your down payment and closing costs for the land real estate, then it’s tough to secure a loan. There are many ways to get the funds legally to build on vacant land (the best way is through an FHA home mortgage).

Commercial 

Commercial property is usually owned by a landlord who manages the building for the tenant. It can be an office space or a store and can include multiple tenants under one roof (as is the case with a retail center). The rent usually goes to the landlord, but that doesn’t mean you’re not responsible for your portion of the rent as well. Plus, in the case of commercial properties, you also have to pay taxes on the income (such as sales tax, property tax, and business tax). You may be able to rent a commercial property and run a business out of it or sub-lease it.

Residential

Residential property is exactly what you think it is: the house you live in. Many people have an HOA fee, but not all. And taxes are often cheaper than commercial real estate taxes. Residential properties vary from condos to townhomes or single-family homes and even mobile homes.

Passive vs Active Real Estate Investing

Active real estate investing is where you buy properties, improve them through your own efforts, and then gain income from the property. This includes renovating, renting out units, collecting rent payments from tenants or buyers, or even leasing the property out on Airbnb for extra revenue.

Passive real estate investing only involves buying a rental home in a specific location with investment in mind but not personal ownership. This means you don’t do any maintenance or upkeep on the property yourself. Instead, you can hire a property manager who will go take care of that for you.

The ideal investment strategy often depends on your personal situation and potential for risk tolerance. For many people, buying a passive rental home without doing any work at all might be an unrealistic goal. It’s just easier and more convenient to buy an active rental property that requires renovations or attention from time to time and also includes direct marketing efforts.

The two strategies are often used by the same person. In rare cases, an investor will have one or both properties at different stages – an active property that needs renovation or a passive property that’s a rental without any maintenance and upkeep. Crowdfunding is a type of passive real estate investing.

More Tips for Investing in Real Estate

When investing in real estate, the most important thing is to know your market and know what you’re doing. This sounds complicated but it isn’t. If you just want some extra cash flow then buying a house from someone that is thinking about selling or cash-flowing properties could work for you. Here are some more tips and scenarios you should be aware of:

Cash in on the Hot Spot – Invest in the area that you want to live in. If it is a metropolis or a city, then you can make some money investing in the property there. It’s possible to make money on rental properties no matter where you are.

Cash Flowing Properties – Buying good cash flowing properties can lead to huge profits. Choose the right area and don’t be afraid to put up money for remodeling or large down payments. Go out and spend on quality items instead of cheap items but, avoid purchasing high-end expensive goods that could lead you to bankruptcy and foreclosure later down the line.

Get a Mortgage – A fixed-rate mortgage means that the interest rate remains the same for the entire length of your loan. Most fixed-rate loans are for 10 or 15 years, but there are also some for as long as 30 years. The lower the interest rate, the more you save over time. However, a lower interest rate also means that your monthly payments will be higher than with a higher rate because they have to account for all of those additional savings throughout your loan.

A variable-rate mortgage means that your interest rates and monthly payments can change periodically throughout your loan period. These are usually set to coincide with current interest rates and, as a general rule, will rise and fall when interest rates naturally increase or decrease. The fluctuation in the rate of this loan will allow you to save money over time because your interest rate will be below the nationwide average. There is also no guarantee that interest rates won’t go up in the future which could put you at a higher rate and cause you to have higher monthly payments throughout your loan.

Ready to Invest?

We’ve covered a lot in this article and we hope it helps generate ideas and figure out what the best approach is for your investment style. There is one fundamental approach you should take with any investment: do your research. With little to no money down, you can still break down those barriers and enter the market you’ve always wanted.

Frequently Asked Questions

Q: How do beginners invest in real estate?

A: Beginners can start in one of the hottest real estate markets today by purchasing commercial real estate. Commercial real estate is usually owned by a company and can be leased to tenants. These properties can grow quickly if the demand of a specific market increases. As a beginner, you could also consider crowdfunding.

Q: What are different types of real estate investments?

A: Real estate investments can be as small or large as you want them to be. You can choose to buy many properties to build your portfolio and begin earning rental income or you could purchase one or two residential properties to get started in investing property. You should always research the type of property you are interested in buying before deciding which type you want to invest in.

Q: Are places that allow the purchase of homes with bad credit safe?

A: Yes, places that allow the purchase of homes with bad credit are safe. Many investors have bought homes with no money down and even paid for closing costs, which saved them thousands of dollars. You don’t want to buy anything you cannot afford or cannot afford to lose because if you do, you won’t make any more money than if you had simply financed it.

Groundfloor – Averaging 10.5% APY for Investors!


This infographic shows the flow of funds with a Groundfloor investment. Image credit: groundfloor.us

The real estate market has seen a huge boom over the last year, thanks to historically low mortgage rates and a rise in long-term remote work in a wide range of fields. This is especially true for owner-occupied and investment properties, which in hot markets can be rented to tourists on a short-term basis for high returns.

And, real estate purchases aren’t the only property-related transactions that are booming. Real estate crowdfunding, which lets investors pool their collective funds together and lend companies the money for real estate transactions via private REITs. This type of alt-investing can be a great way for companies to crowdsource funds for large real estate purchases, as traditional lenders aren’t always open to offering this type of funding.

Real estate crowdfunding can also be great for investors, who stand to make a high rate of returns on this type of investment. But, while real estate crowdfunding can be lucrative, it isn’t generally offered by your traditional brokerages. If you want to get into real estate crowdfunding, your best bet is to take advantage of what a real estate investing platform like Groundfloor can offer you. Groundfloor offers easy access to short-term, high-yield real estate debt investments to the general public — and you can start investing on this platform with as little as $10.

The Groundfloor platform offers a number of other user perks as well, and may even offer what you’re looking for if you’ve been considering adding real estate to your portfolio. Read on to find out how this real estate investing platform can help you conquer the world of real estate investing without the laborious accreditation requirements or large financial commitments you’ll face with other platforms.

What is Groundfloor and who is behind it?

Groundfloor is a real estate investing platform aimed at both borrowers and investors. This platform specializes in offering short-term residential property loans that individual investors can fractionally invest in to real estate developers and independent home builders. Borrowers can use the money from these loans for new construction or renovation projects. Once the projects are complete, the borrowers either sell the property to repay the loan or refinance the loan money and keep the property to be leased out to tenants, while investors in the projects receive a return on their investment.

This company was first established in 2013 and is headquartered in Atlanta, Georgia. This platform is used by both borrowers who are in need of funding for real estate projects and by novice and high-volume investors alike to make short-term, high-yield, short-term real estate DEBT investments.

The minds behind this business are some of the best in the business, starting with CEO Brian Dally, a Harvard MBA and law grad, who has worked for startups in Silicon Valley, Boston, and London prior to helping co-found Groundfloor alongside Nick Bhargava, who has a financial services background.

While Groundfloor is hardly the only real estate investing platform available to investors, it does offer some unique perks to both investors and borrowers. For starters, Groundfloor was the first company to be qualified by the U.S. Securities & Exchange Commission to offer direct real estate debt investments for both non-accredited and accredited investors alike.

The investments on Groundfloor also have shorter terms than the competition. Most real estate investment platforms that allow investors to own an equity stake in real estate property via eREITS or other types of funds tend to have long investment terms. In general, it takes about three to five years to see returns or repayments from competitors.

That’s not the case with Groundfloor. The investment options on this platform are based on secured, collateralized real estate debt, and all have shorter terms. The average investment time from investment to return and repayment on Groundfloor is generally about 12-18 months. That short turnaround time is a huge perk for investors, who may not be able to tie up their money for years on end.

That’s not the only upside to a shorter investment term, either. In general, shorter investments tend to carry less risk for both the company and the investor, and that pays off in spades. According to Groundfloor, the platform has been able to generate consistent 10% returns for its investors for at least the past six years, and investor repayments are generally received in six to nine months on average.

All of these unique perks have led to a steady investment by users interested in helping to fund real estate projects. Since 2018, a total of 5,000 shareholders have invested over $16 million in the platform to help fund real estate projects.

Some of that popularity may be due to the low buy-in that Groundfloor offers. While other REIT or real estate crowdfunding platforms require at least a few hundred dollars minimum to invest, Groundfloor cuts that buy-in price to just $10.

That, coupled with a high rate of return and easy-to-navigate investments, have kept the investor money flowing for borrowers on this platform.

Features and benefits 

The main benefit of Groundfloor is that the platform offers the chance for real estate entrepreneurs and investors to invest in the residential fix-and-flip and new construction markets. This is done investing in the loans that Groundfloor offers to real estate developers. The draw of these loans is the option for borrower-friendly terms, like deferred payment options, which can give developers more control over their cash flow.

When borrowers fund a construction project through Groundfloor, they’ll get a hard-money loan for each project. The money is fronted by Groundfloor initially to the borrower, who receives the funds after their application is approved.

Once the loan is originated and the money is distributed to the borrower, the loan is transformed into a security known as a limited recourse obligation (LRO). Then, the loan is placed on the platform and made available for investment.

After the loan is available on the platform, investors can choose to invest in the projects that fit their specific parameters, $10 at a time. When an investor invests in an LRO, they are essentially “sold” a piece of the loan that was made to the borrower to finance their project.

Here are some of Groundfloor’s recent repaid investments (above).

These types of loans tend to be safer than offering money for personal loans or other types of loans because the real estate loan is backed by the tangible property that the loan is funding. Plus, the projects that these loans are funding are all projected to produce a profit, which will be used to repay the loan quickly. That makes the risk much less great than it would be with many other types of investments, including stocks or alt-coins.

As mentioned, the average time to recoup both the initial investment made with Groundfloor and the return on the investment averages between 12 and 18 months. That’s a much shorter term than you’d get with a competing platform like DiversyFund, which requires investors to tie up their money for five years, with no dividends or interest paid out during that time.

Plus, there are other benefits to using Groundfloor to invest in real estate. These include:

  • A $10 initial investment: At minimum, other real estate investment platforms require at least a few hundred dollars to get started. Groundfloor, on the other hand, lets you start investing with as little as $10. Not only is that attainable for most investors, it’s much, much lower than the $1,000 to $25,000 minimum that is required by most private REITs. It’s important to note that the minimum investment with Groundfloor is also a lot lower than the price on most reliable stock shares. 
  • Choices and control: Rather than using investor funds to invest in projects that Groundfloor deems a fit, the investors on the platform have choices of what to invest in. They can choose the LRO that fits their requirements and choose how much to invest in each project. That gives investors total control of what their money is funding.
  • Monthly interest payments: The borrowers on the platform pay a monthly interest fee, which is of benefit to the investors, who stand to make at least some return on their money while waiting for repayment of the loan.
  • A fractional system for investors: The main reason why the investment requirements are so low with this platform is because Groundfloor allows for fractional investments. As touched on above, the loans are basically divided up and funded by the totality of the investments, so there is no need for investors to come up with a large sum of money to solely fund a project.
  • Open to both accredited and non-accredited investors: Unlike most traditional REITs, Groundfloor does not require investors to be accredited before they can invest. This can be an extremely useful feature for lower-volume investors, who may have trouble meeting the accreditation requirement set by the SEC for individual investors. 

    The SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual for at least two years to become accredited. What that means for the average Joe is that it is extremely hard, if not impossible, to become accredited. That can limit investment options, but luckily, there’s no need to worry about that with this platform.  
  • A culture of transparency: Transparency is the name of the game with Groundfloor. The company regularly publishes detailed information regarding their portfolio performance, along with monthly overviews of loan repayments and asset management activities. All of this information is available right on its blog, which means it’s easy for both potential and current investors to access.
  • Diligent and thorough asset management: GROUNDFLOOR employs proactive asset management processes to help ensure that projects stay on track. Their team carefully monitors each and every loan from start to finish, measuring project progress against the stated plan and budget to help identify and catch any potential or anticipated problems, and they remain in close communication with borrowers to ensure timely follow up and completion of deadlines. GROUNDFLOOR is clear that their goal is not to never have a loan default; in fact, they often proactively place loans in default to encourage the borrower to get the project back on track.
  • Automatic investment options: One of the best perks of this platform is the automatic investing feature, which allows you to set the options for how much you want to invest in each loan — and how much you want to invest in each loan grade. Once you’ve set the parameters, Groundfloor’s system will automatically make investments for you based on your criteria once new loans become available.

    Even better? This feature can be used with automatic transfers and to reinvest the principal and interest payments you receive on your investments.

Average return to investors

As with most real estate crowdfunding investments, the returns made on Groundfloor investments can be extremely lucrative. According to Groundfloor, the platform has been able to generate consistent 10% to 10.5% returns for its investors. That figure has remained consistent over the past six years.

Plus, Groundfloor originates 60 to 70 loans a month, which means there are numerous opportunities each month to invest in the LROs that fit your needs. In total, over $12,600,000 in interest has been paid out to investors on this platform since its inception.

The return on this platform is based heavily on the grade of loan you invest in. Grade A loans, for example, offer returns of about 6% on average — as they’re the most safe bets you can make.

Grade G loans, on the other hand, are more risky. With that risk can come reward. With Grade G loans, you’ll generally be offered returns of up to 25%.

The typical rate of return for each loan grade is as follows:

  • Grade A: 6%
  • Grade B: 8%
  • Grade C: 11%
  • Grade D: 14%
  • Grade E: 18%
  • Grade F: 21%
  • Grade G: 25%

Potential drawbacks

While there are opportunities for a healthy return on your investment with this platform, there are also potential drawbacks. These include:

A higher rate of default: The general nature of hard-money lending — which is what Groundfloor does with borrowers — means that there is a higher rate of default than you’d see with your typical residential loans. That isn’t unique to Groundfloor; it’s a drawback of hard-money lending across the board.

That said, about 2% of the properties Groundfloor has funded through its portfolio have gone through foreclosure in the past. That is much higher than the national foreclosure rate during that time, which was about 0.6%. So, there is some risk with this type of investment, whether you’re using Groundfloor or another platform or REIT.

Groundfloor returns the pro rata net proceeds of such recoveries to investors. This has been necessary in only approximately 1% of the loans they’ve originated, and because of their lien on the underlying property, this has translated into a loss ratio of just 0.62% of total invested principal.

They also stress diversification and this is one reasons they have that $10 minimum – it allows for the ability to vastly diversify across multiple projects.

No mobile app: There is currently no mobile app associated with Groundfloor. They have one slated to launch this year, but for now you’re stuck with their mobile web presence if you want to manage your account on the go.

The potential for a long foreclosure process: If the borrower stops paying on their loan, Groundfloor attempts to negotiate with them before jumping into the foreclosure process. If the negotiation fails, the foreclosure process has to happen, which is expensive — and long. It can take months to make its way through court. After the property is foreclosed on, Groundfloor will then oversee the rehab and sale of the property.

The risk for high LTVs on properties: While the return on these investments can be lucrative, the reality is that there are properties with higher loan-to-value ratios on the platform. These types of loans can be risky, as investors may not recoup the money expected in the sale of the property.

Cost associated with Groundfloor

There are no costs for investors on the platform. Groundfloor makes its money by charging the borrower fees instead. The fees are based on the loan grade — the riskier the loan, the higher the fees — and the costs range between 2% and 4.5% of the loan’s principal.

Anyone with at least $10 in their pockets and interested in loaning money for real estate fix-and-flip deals can take part in this type of investment, which means that there’s a significant draw to investing on this platform.

Other than the initial investment requirement of $10 and any additional money you invest, the only costs are on the borrower end of this equation. You won’t have to foot the bill for management costs or other hidden fees, either — but the borrowers who use this platform will.

How are Groundfloor’s investments sourced?

As with most traditional lenders, Groundfloor’s borrowers find them — not the other way around. Groundfloor is a direct lender offering crowdsourced capital for short-term residential real estate loans, and the borrowers who want to obtain financing through this lender simply need to apply and be approved.

Groundfloor currently offers 6, 9, and 12 month loans to real estate investors for 1-4 Unit properties. Borrowers and properties must currently be located in the following 31 states or territories to qualify:

  • Alabama
  • Arkansas
  • Arizona
  • Colorado
  • Connecticut
  • Washington, DC
  • Florida
  • Georgia
  • Illinois
  • Kansas
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • North Carolina
  • Nevada
  • New Hampshire
  • New Jersey
  • Ohio
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • Texas
  • Utah
  • Virginia
  • Washington
  • Wisconsin

Groundfloor is attractive to borrowers because it offers up to 100% loan-to-cost borrowing, depending on experience and true deferred payments. The closing turnaround is short, too. It can take as little as three weeks to close on a loan through this lender — which is another perk that keeps borrowers flocking to this source of funding.

Who is this platform for?

In general, the Groundfloor platform is a great option for all types of investors — especially those who are interested in real estate crowdfunding and the perks it offers to investors. It’s also great for borrowers, who may have an easier time obtaining funding when compared to traditional lending options.

This platform isn’t a traditional REIT, so it’s also great for investors who want to invest in real estate but can’t meet the accreditation parameters set by the SEC. The number of platforms that allow non-accredited investors to buy into REITs or real estate crowdfunding are limited.

It’s also a smart move for investors who don’t have much to gamble with. The minimum investment of $10 is attainable to nearly everyone, which is part of what sets Groundfloor apart from the other investment opportunities.

Investors may also find this platform useful if they’re new to real estate investing and want to dip their toes in before making any major moves. With such a low requirement, this platform can help novice investors feel secure in this type of investing before taking a dive into a much more costly venture.

Is Groundfloor safe?

All investments can be risky. While Groundfloor can offer 10% returns on your investment, it can also cost you. If a borrower defaults, or if a property is sold for less than expected, your return may not be as high as expected. Or, in cases of foreclosure, it can take much longer to see your initial investment money returned to you.

That said, Groundfloor is a generally safe way to invest in real estate. You’ll need to hedge your bets on smart investments, but you have full control over where your money goes on this platform, and there’s ample opportunity to diversify with their low minimum of just $10. You’ll be given the information on the loan grade, and you can choose what you’re comfortable with — and what return you’re aiming for.

That grading system and the control of your investments is, more than anything, what determines how “safe” this platform is for you. You’ll have to decide whether your money is safe with a high-grade loan, or whether you’re willing to bet it all on more risky loans to reap the potential benefits.

How Groundfloor differs from the competition

The main difference between Groundfloor and the competition is that Groundfloor allows non-accredited investors to put money into real estate transactions. There aren’t many options out there that allow for this — not in the real estate investment capacity anyway, and certainly not when it comes to private REITs.

The other noteworthy difference is the low minimum investment required by this platform. For just $10, anyone interested in real estate investing can become a part of this platform. That’s a unique feature, one that could help level the playing field between novice or low-volume investors and the big guys.

Couple that with the high rate of return, the lack of fees, and the control you get over your investment strategy, and you may find that this platform is a real standout against the competition. Where else can you start out with a $10 investment with no additional fees tacked on?

Final thoughts

In a sea of crowdfunding platforms, Groundfloor is a real standout. This real estate investing platform offers a high rate of return and total transparency, which is certainly not standard in this industry. Plus, the shorter investment terms of 12 to 18 months, along with monthly interest payments to investors, can mean a quick turnaround between investment and payoff. If you’re willing to take on more risk for the higher returns, this platform could be the right move for you.

On the other hand, if you’re going to need access to your money in a shorter time frame, or if you’re worried about the risk of defaults, you may want to think twice about using this platform. While it can be a great move for some, it can prove too risky or too long-term for others.

Either way, just make sure you do your homework and understand the risks and benefits of this, or any other real estate crowdfunding platform, before investing.

DiversyFund – Earn 10-20% APY in their Growth REIT!


image credit: diversyfund.com

The investing atmosphere has changed significantly over the last decade or so thanks to advances in technology, which have made it possible to diversify investments well outside of the traditional options. Gone are the days of being limited to the stock market, bonds, or other well-known assets. These days, you can invest in just about anything.

Putting money into “alt” investments — things like cryptocurrency, altcoin, or even startups — can be just as lucrative as those traditional investments, and in some cases, even more so.

Take real estate crowdfunding, for example. This type of investing lets investors pool funds together to help fund real estate transactions through private REITs, which traditional brokerages don’t offer. Not only does this type of crowdfunding make it possible to source the cash for risky or high-cost real estate purchases, but in many cases, it offers significantly higher returns for investors.

While this type of investing was once limited to those with significant amounts of cash, the introduction of real estate crowdfunding platforms like DiversyFund have lowered the barrier for entry. DiversyFund makes it easy — and cheap — to start investing in real estate. Unlike other real estate crowdfunding platforms, this company owns and manages properties directly — and you can get started with as little as $500.

Ready to learn more about what DiversyFund offers investors? Let’s take a look at how this real estate crowdfunding platform can help you quickly and easily get started with investing in real estate without a huge financial commitment. 

What is DiversifyFund and Who is Behind it?

DiversyFund is a San Diego, California-based REIT platform that has been in business since late 2016. It was started by founders Alan Lewis and Craig Cecilio, who raised $13.8 million through a Series A to help fund the venture.

As a company, DiversyFund markets itself as a good alternative to investing in stocks or other traditional investment assets. It only offers one product, which is a public REIT, via a real estate crowdfunding platform with a low buy-in for investors. In other words, using DiversyFund gives investors access to real estate via its private REIT, which invests in real estate.

That said, DiversyFund differs quite a bit from the competition. There are plenty of REIT crowdfunding platforms available to choose from, but in most cases, the platforms simply act as brokers to help pair you with specific projects that need funding. That is not the case with DiversyFund, which owns and manages its own properties.

The REIT offered by DiversyFund generally focuses on purchasing large-scale apartment complexes in need of updates and improvements. The goal is to make improvements and resell the properties purchases with the crowdsourced funds within five years. That helps cut down on costs associated with these types of investments, including management fees, which aren’t part of DiversyFund’s fee structure for investors.

And, there are more features that set this crowdfunding platform apart. While many real estate crowdfunding platforms require you to be accredited to invest, DiversyFund welcomes nonaccredited investors. This makes the barrier for entry much lower — and much easier to meet as a novice investor.

The buy-in is low for investors, too. In May 2019, DiversyFund dropped its minimum investment from $2,500 to $500, making it easier for investors of all types to dip their toes into the DiversyFund REIT pool.

Features and Benefits

Shown above are DiversyFund’s featured growth REIT investments. IRR = Annual Yield.

The main draw of DiversyFund is that it allows investors to easily buy into its Growth REIT (featured properties shown above), a public, non-traded fund that invests in cash-flowing apartment buildings. The apartment buildings DiversyFund invests in are value-add investments that are at least 100 units in size.

Once DiversyFund obtains these cash-flowing apartment buildings, it renovates the properties and then re-positions them — marketing to a new clientele with upgraded amenities and features in hopes of attracting higher rents. The renovated, repositioned properties are later sold for a profit, which is when investors receive their principal investment back, along with a cut of the profits.

In general, it takes about five years for investors to make back their principal and reap the benefits of any profits when investing in this REIT. The soonest DiversyFund plans to sell off its current projects is 2023, which means that investors are in for a wait if they want to take advantage of what this REIT offers.

That said, if done correctly, this repositioning done by DiversyFund will pay off significantly for both the company and the investors, both of whom stand to make serious gains within a few years time. We’ll talk more about that below.

Profits aside, there are a number of other unique features and benefits of investing with DiversyFund, including:

  • A much lower minimum investment compared to the competition: DiversyFund only requires investors to shell out a minimum of $500 to invest in the REIT it owns. That is significantly lower than the $1,000 to $25,000 minimum required by other private REITs.
  • No accreditation requirement: There are quite a few real estate investment platforms that require investors to be accredited. The SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual (or $300,000 per couple) for at least two years to become accredited. That makes it tough for smaller investors to buy in.

    DiversyFund, on the other hand, doesn’t require investor accreditation, so investing on this platform is open to all U.S. resident investors who can meet the $500 minimum.
  • An invested company: DiversyFund owns and runs its own investment properties, which means that the company has a vested interest in maximizing profits. That isn’t the case for other platforms, which act as matchmakers between projects and investors. 
  • No expensive management fees: It’s common for crowdfunding real estate sites to charge management fees. These fees are meant to cover the costs associated with the platform as well as the costs incurred to pair investors with projects. These types of fees start at about 1% on average, though they vary from platform to platform.

    These fees don’t exist with DiversyFund. This platform owns and operates all of the real estate projects investors buy into, which means that there aren’t the extra management costs to cover by investors.
  • Easy investment tracking: DiversyFund currently invests in properties in three areas — California, Texas, and North Carolina — though its website notes that it makes investments nationwide. Any property that DiversyFund invests in is included in the same REIT. Investors can keep tabs on the property performance through the website, which makes it easy to keep track of where your money is going and how the investment is performing over time.

Average Return to Investors

When DiversyFund sells the properties it invests in, the investors will get their principal back and a 7% preferred return before the company receives any profits. This guarantees investors a 7% return on the money they invested in the Growth REIT. That said, the profits aren’t limited to just 7%.

If the assets are sold at a profit above 7%, subsequent profits of up to 12% will be shared between the company and the investors. Investors stand to earn 65% of the profit above 7%, while the other 35% goes to the company. Any remaining profits over 12% are split 50/50 between the investors and the company.

That means the profits can vary greatly with this REIT, and what you stand to make will depend heavily on the projects that DiversyFund has invested in. On average, though, most investors make a return of between 10% and 20% with the Growth REIT, according to the company.

Potential drawbacks

As with any type of investment, there are also potential drawbacks to investing with DiversyFund. These include:

A long investment period: Investing in the Growth REIT requires you to part with your money for a long period of time. It takes about five years for investors to receive their principal and profits from DiversyFund, which means this longer-term investment may not work for people looking for quick profits.

No dividends: Unlike other types of investments, you won’t receive cash flows or dividends from DiversyFund. Any dividends are reinvested into the fund, so you’ll have to wait until the properties are sold at the close of the project to receive any profits at all from your investment.

No option to sell your interest: Many types of investments will allow you to sell your interest to recoup your money at any point. That is not the case with DiversyFund, as there is no secondary market that allows you to sell your interest in the fund. Once you’ve invested, your money is tied up until DiversyFund sells the properties and pays out your principal and profits.

Limited control over investments: DiversyFund is in control of what they invest in from start to finish, which means you don’t have a choice in what projects you’re lending your money to. If you’re uncomfortable with the idea of a company having complete control over the projects that your money funds, you may want to choose another real estate crowdfunding platform that allows you to pick and choose by project. 

Cost Associated with DiversyFund

Unlike other real estate crowdfunding platforms, DiversyFund is fee-free because it owns the properties you are investing in. That eliminates the high cost of management fees that can come with other REITs.

When you sign up for DiversyFund, every dollar of your investment goes toward your shares. Each share is $10, and the minimum amount you can invest is $500, which gives you 50 shares in the Growth Fund.

You can choose from three different types of investor options: Starter Investor, Auto Investor, or High Growth Investor. The minimum investment for Starter or Auto is $500; the High Growth Investor minimum is $15,000. The difference between the Starter and Auto Investor options is that the Auto Investor requires you to set up monthly automatic deposits following your initial $500 deposit.

Other than that initial investment requirement (and any additional money you invest), you won’t be required to cover any other costs when investing in the Growth REIT.

How are DiversyFund’s Investments Sourced?

DiversyFund has a lot of skin in the game when sourcing investments for its real estate crowdfunding platform. It only invests in multifamily real estate — otherwise known as apartment buildings — and the properties have to meet the strict criteria set by DiversyFund’s real estate experts.

According to DiversyFund, the investments have to offer strong potential for increased value at the time of resale. The properties they acquire also have to have 100 units or more.

The downside to DiversyFund owning the properties you’re investing in is that details about the vetting process or other proprietary information hasn’t been made readily available. Aside from the primary parameters spelled out on the website, it’s unclear how DiversyFund is choosing the properties it purchases and repositions.

There are only three investment properties listed on DiversyFund’s website currently; it’s unclear whether there are more that will be sourced in the future.

Who is this Platform For?

The DiversyFund platform is a great option for investors who can’t meet the accreditation parameters set by the SEC but want to invest in real estate crowdfunding. It can be difficult to find platforms that allow non-accredited investors to buy into these types of REITs, and that’s what makes DiversyFund stand out.

Investing with DiversyFund can also lead to a solid return on your investment, but you’ll need to be certain that you can part with your money for at least five years before investing in this fund. If you can afford to invest the capital without receiving dividends or cash flow for a few years, DiversyFund is a great way to earn a high rate of return on your money.

It’s also a smart way to gain some experience in this type of investment before trying to tackle other types of real estate crowdfunding investments. If you’re a novice investor who can meet the accreditation requirements but aren’t sure about investing in REITs, DiversyFund can offer you a safe way to try it out.

Is DiversyFund Safe?

No investment is without risk. That said, it appears — at least on the surface — that DiversyFund is a relatively safe investment. There are downsides, like the lack of dividends or the long investment period, but there aren’t any red flags in regards to safety with your money.

That said, there are some red flags to note about Craig Cecilio and Alan Lewis, the founders of this REIT.

Both Cecilio and Lewis have been defendants in three different real estate-related lawsuits. It’s important to note that none of these lawsuits were related to DiversyFund transactions, so it’s wise to take the information with a grain of salt.

An SEC filing spells out more about the issues Cecilio and Lewis have faced over other real estate ventures:

“In 2015, before the Sponsor or the Company was formed, Mr. Cecilio raised capital for a project involving ground-up construction located in La Jolla, California. When the project ran into financial difficulty, with the lender threatening to foreclose, Mr. Cecilio and Mr. Lewis both personally guaranteed a loan from a new lender to protect the interests of the equity investors, although they were not obligated to do so. Although the project was completed, it was financially unsuccessful and unable to repay all the guaranteed debt. The lender has brought suit against Mr. Cecilio and Mr. Lewis for the deficient loan balance of approximately $1.9 million.

Mr. Cecilio and Mr. Lewis have asserted counterclaims against the lender. Among other things, they allege that the general contractor hired at the insistence of the lender was responsible for the failure of the project by causing significant delays and budget overruns, and that the lender and the contractor should be viewed as joint-venturers.

In the same project, an individual loaned money to the borrower entity, secured by a second lien and personal guarantees by Mr. Cecilio and Mr. Lewis. When the project ran into financial difficulty it was discovered that the second lien had not been properly recorded, resulting in a significant loss to the lender. The lender sued her lawyer for legal malpractice and the lawyer has made a cross-claim against Mr. Cecilio and Mr. Lewis relating to their personal guaranty. The amount of the cross-claim is approximately $1 million.

An equity investor in the same project has filed a lawsuit alleging that the Sponsor, Mr. Cecilio, and Mr. Lewis failed to provide adequate disclosure, were professionally negligent, and breached their fiduciary duty on several projects, all funded before the Sponsor or the Company were formed. The investor is claiming damages of approximately $774,000 in the aggregate. On a separate project, the same investor is suing on a personal guaranty of approximately $55,000.”

The California Department of Real Estate also investigated Cecilio for the following:

“The company stands accused of secret profit or undisclosed compensation, use of false or Fictitious Business Names, failing to submit independent audit report, failing to file with the BRE the Quarterly Threshold Reports, failing to supervise the real estate activities of the company, inaccurate and incomplete trust fund records, inaccurate and incomplete recording of separate record for each beneficiary or transaction, and failing to maintain the monthly reconciliation of all the separate records or transactions to the balance of the record of all trust funds received and disbursed.“

The settlement in that case included a fine paid by Cecilio, who also had his license suspended for 30 days. You can learn more information on this settlement by looking at the files for case H04876SD on the California Department of Real Estate website.

That said, none of this means there are issues with DiversyFund. It is something to weigh before investing in this REIT, though.

How DiversyFund Differs from the Competition

As noted above, the main difference between DiversyFund and the competition is that this company owns and manages properties directly. Most real estate crowdfunding platforms act as a middleman for investors and projects, but DiversyFund is all in from start to finish.

The other main difference is that it allows non-accredited investors to invest in REITs. That is not the case for most other crowdfunding real estate platforms. Most require you to meet the laborious accreditation standards set by the SEC. With DiversyFund, you only have to have $500 to invest.

DiversyFund’s lack of fees is another unusual feature. Many of the similar platforms require investors to pay a management fee starting at 1%, while DiversyFund is fee-free. 

Final Thoughts

If you’re looking for a high rate of return and can part with your money for at least five years, DiversyFund makes it possible to earn significant gains on your investment capital without having to be accredited. There are some downsides to this type of investment, of course, but there is also a lot to gain for the right investor. 

With an average return of 10% to 20%, novice investors, long-haul investors, and those who are new to real estate investing may appreciate the no-hassle, fee-free structure of this type of investment. Those looking for a quick return, or those who like to pick and choose the real estate transactions they help fund, may not find what DiversyFund offers to be nearly as appealing.