With all the volatility in the stock market these days, you might be wondering what other options are there to invest your hard-earned money.
Real estate is the third largest asset class in the United States (after stocks and bonds).
Previously, it was difficult for investors to access real estate without physically owning property.
But platforms like CrowdStreet allow investors to get into the real estate game without ever touching a shovel!
This CrowdStreet review will introduce you to the platform, tell you what values CrowdStreet offers and walk you through its past performance.
What is CrowdStreet?
CrowdStreet was founded in 2012 by Tore Steen and Darren Powderly.
After the financial crisis that started in 2008, the co-founders thought that people were trusting the stock market too much (and getting burned for it).
They wanted to create access to asset classes outside of public stocks, which often don’t get enough attention.
However, commercial real estate had a pretty significant barrier to entry at the time: Most people don’t have billions of dollars sitting around to finance the construction of a new office building.
But with the emergence of crowdfunding as an investment method, Steen and Powderly saw an opportunity to help investors enter a previously closed asset class through partial investments.
There are thousands of investors on CrowdStreet who have invested in at least one project.
These investors have invested more than $3.49 billion to finance more than 661 projects.
Now, on to the CrowdStreet review!
What can I invest in on CrowdStreet?
There are a ton of different securities you can invest in on CrowdStreet, all of which involve investing in commercial real estate.
You can invest in an individual project, such as building a facility for the elderly.
You can also invest in a fund that finances various commercial real estate projects.
You can also invest in real estate investment trusts (REITs), multi-family buildings, apartments, hotels and commercial spaces.
Projects open for investment on CrowdStreet are passive investments.
This means that you are not actively involved in the construction/rehabilitation of the properties you invest in.
Simply choose which projects you want to help fund, invest your money and (hopefully) collect your winnings!
As CrowdStreet’s website says, “You’re a passive investor, not the owner.”
CrowdStreet does not currently have a mobile app.
For now, you can only invest and interact with the platform from your computer.
Why invest in commercial real estate?
If you’ve read our article on The First Stocks Everyone Should Buy, you know that investing in different stocks that are uncorrelated (or negatively correlated) can help you mitigate some of your investment risk.
That way, when one security performs poorly, another uncorrelated security may perform well (or not as badly) and you won’t experience as big of a loss.
Real estate is relatively uncorrelated with the stock market, which means it can be used to help mitigate the risks of investing in stocks.
The cost of investing in CrowdStreet depends on the projects and funds you invest in.
CrowdStreet does not charge any commission to its investors. Instead, it charges sponsors commissions to open their projects to investors on the platform.
Sponsors, however, may charge CrowdStreet investors fees for investing in their projects.
So while it’s possible to use CrowdStreet for free, you may end up paying fees for individual projects.
Only accredited investors can invest on CrowdStreet.
Accredited investors are those individuals who have a net income of $200,000 or more ($300,000 or more for married couples) or a net worth of $1 million or more.
Business entities can also be accredited investors, provided they have sufficient assets.
Accreditation is required to invest in securities that are not regulated by the Securities and Exchange Commission (SEC).
The SEC requires accreditation for these types of investments in order to protect investors who are not as financially sophisticated from suffering large losses in risky investments.
There are some investment minimums that you will need to keep in mind when investing on CrowdStreet.
For example, you need to invest at least $25,000 in a given project.
Some projects and funds have a minimum investment of $100,000.
It is important to know that the money you invest in CrowdStreet will probably not be liquid for several years.
Commercial real estate projects are usually large undertakings that take years to complete, and the money you invest in these projects will be inaccessible for the duration of the projects.
Note that this style of investing is different from investing in stocks through a brokerage account.
When you invest through a regular, taxable brokerage account, you can (usually) sell your shares at any time.
Crowdfunding real estate projects is a long-term commitment.
As noted above, the average holding period for CrowdStreet projects is 2.9 years.
Performance by CrowdStreet
In this section of the CrowdStreet review, we’ll go over how CrowdStreet has performed over time.
As you can see, the CrowdStreet platform has some pretty promising performance metrics.
The 17.5% Internal Rate of Return (IRR) means that CrowdStreet investors earn an annual return of 17.5% on the projects they invest in.
The equity multiple of 1.5 means CrowdStreet investors get back about 1.5 times the cash they put into projects.
This chart shows where CrowdStreet’s calculations for its historical performance come from.
You’ll see that IRRs do cluster around the 17% range.
You’ll also notice that about 11 of CrowdStreet’s projects have produced a negative IRR, meaning investors received a negative return on the projects and didn’t get back all of their invested capital.
In fact, six of these 11 projects produced an IRR of -100% and an equity multiple of 0%, meaning investors lost all of their invested cash.
While this is only a minority of the deals CrowdStreet has made, it’s important to remember that returns are never guaranteed when you risk your money.
At the end of the day, the best investment for you is the one that best fits your risk profile and makes you feel comfortable with what you’re doing with your money.
We hope you found this CrowdStreet review helpful and that you know there are other asset classes available to you besides stocks and bonds if you want to try them out.