CrowdStreet is an investment platform that facilitates residential and commercial real estate exposure for accredited investors. This CrowdStreet review will explain how the platform works, its features, and pros and cons.
CrowdStreet is one of the oldest real estate investment platforms on the market for accredited investors. Most of the company's real estate deals have a minimum investment requirement of $25,000 and target holding periods of three to five years. CrowdStreet has an impressive historical annual return of over 18%, making it a solid choice for high net worth investors looking to add illiquid real estate assets to their portfolios. Due to the high risk associated with some of the platform's offerings, it is best for those who can adequately diversify into several different offerings.
- A long-standing company with solid historical performance.
- Opportunity to invest in personal property or real estate funds.
- Supports residential and commercial real estate opportunities.
- A professionally managed real estate portfolio option.
- You must be an accredited investor to use the platform.
- Prices can vary greatly between real estate projects.
- Highly illiquid assets with no accessible secondary market.
- Many opportunities have a minimum investment of $25,000.
- CrowdStreet itself doesn't look like a game in most of the offerings.
CrowdStreet At A Glance
CrowdStreet allows investors to diversify their portfolios across various real estate projects, including residential and commercial real estate. Offers self-managed and professionally managed accounts.
CrowdStreet stands out in the rapidly growing market of real estate investment platforms for several important reasons.
- Diversified offerings. Investment opportunities on CrowdStreet span many different aspects of the commercial real estate market, from hotels and medical offices to industrial buildings and commercial properties. CrowdStreet also offers residential investments such as apartment buildings.
- Due diligence checks. Each individual investment offered on CrowdStreet is sponsored by a sponsor. Before a sponsor can list your opportunity on the platform, they must complete a multi-step review process. CrowdStreet says it approves only 5% of the offers sponsors receive.
- Solid historical performance.CrowdStreet has an annual historical IRR of 18.3%. Of course, past performance is no guarantee of future returns, but this IRR implies that CrowdStreet has a good track record of return on investment.
CrowdStreet Features Explained
There are three ways to invest in CrowdStreet: Here's how the platform works.
Individual Real Estate Investments
CrowdStreet's core offering is its marketplace, where accredited investors can help finance individual real estate transactions. The image below shows an example of investment offers found in the market while researching for this review.
Each investment opportunity is accompanied by information about the proposed project, including the sponsor behind the deal, the payments it will pay, the target holding period and the sponsor's expected IRR.
- CrowdStreet ranks the offerings in their marketplace by risk profile on the following scale:
- Core:Investments that CrowdStreet considers relatively low risk. Most of these opportunities are located in large markets, do not need improvement, and have stable cash flows.
- Core-Plus: Similar to basic features, but with higher risk. These are typically high-quality properties that require some maintenance, so they have less stable cash flow.
- Value-Add: generally properties in need of major improvements. This can limit cash flow in the short term, but can also lead to higher returns overall.
- Opportunistic: high-risk ventures with very high reward potential. These investments usually have complex business plans and limited cash flow.
- Development: Considered a subset of the Opportunist, this is the most dangerous category on the platform. Development involves transactions that have “unknowns” associated with the project, including pre-development risk (inspections, permits, rights, etc.), vertical construction risk, permanent financing arrangement, leasing and property management agreement. Development deals do not pay revenue during the construction phase, but offer the highest earning potential on the platform.
CrowdStreet's marketplace is easy to use and makes it easy to find key information about each potential investment.
However, there are some disadvantages to using the marketplace, including:
- High minimum investment requirements.Most offers have a minimum investment requirement of between $25,000 and $100,000.
- Complex investment choices. Opportunities on the market have complicated business plans and confusing fee structures, so you should do your own due diligence before investing any money.
- Tedious investment process. Investing in a CrowdStreet opportunity is not like buying stock. There is a multi-step process for investors looking to transact. Even if you make an offer, there is a chance that you will be overfunded and your contribution will not be accepted.
CrowdStreet is an investing platform that makes it easier for accredited investors to get exposure to residential and commercial real estate. This CrowdStreet review will explain how the platform works, its features, and its
CrowdStreet categorizes the deals on its marketplace by risk profile, according to the following scale.
- Core: Investments that CrowdStreet deems relatively low risk. Most of these opportunities are in major markets, don’t need any improvements, and have a stable cash flow.
- Core-Plus: Similar to Core opportunities, but with more risk. They’re generally high-quality properties that need some maintenance, so they have less stable cash flow.
- Value-Add: Typically properties that need major improvements. This can limit cash flow in the short term but it can also lead to higher overall returns.
- Opportunistic: High-risk deals that have the potential for very high rewards. These investments normally have complicated business plans and limited cash flow.
- Development: Considered a subset of Opportunistic, this is the riskiest category on the platform. Development includes deals that have “unknowns” associated with the project, including pre-development risk (surveys, permitting, entitlement, etc.), vertical construction risk, arrangement of permanent financing, leasing, and hiring property management. Development deals don’t pay out income during the construction phase, but offer the chance for the highest returns on the platform.
CrowdStreet’s marketplace is user-friendly and makes it easy to find key information about each potential investment.
However, there are some downsides to using the marketplace, including:
- High minimum investment requirements. Most deals have a minimum investment requirement of $25,000 to $100,000.
- Complex investment choices. The opportunities on the marketplace have complex business plans and confusing fee structures, so you need to do your own due diligence before investing any money.
- Tedious investment process. Investing in a CrowdStreet opportunity isn’t like buying stock shares. There’s a multi-step process in place for investors who want to make offers on a deal. Even if you do make an offer, there’s a chance that a deal will be overfunded and your investment won’t be accepted.
Real Estate Funds
In addition to individual property, the CrowdStreet marketplace also lists a number of real estate investment trusts. CrowdStreet Advisors, a wholly owned subsidiary of CrowdStreet, sponsors the majority of these funds.
However, a few of them have external sponsors as well, such as the one shown below.
Account holders can invest in these funds to gain access to a diversified pool of properties without having to invest separately in each transaction.
There are a few potential advantages to these funds.
First of all, investing in one of these funds reduces the effort you have to invest in reviewing each asset in your portfolio.
Second, investing in a fund also means you don't have to go through the process of buying deals.
Finally, CrowdStreet funds have the same $25,000 minimum investment as individual property, so choosing to invest in the former over the latter gives you a degree of portfolio diversity at a lower entry point.
Funds from individual sponsors (i.e. not offered by CrowdStreet Advisors) have a more complex fee structure on the platform. Potential fees vary by project, but may include an annual management fee, plus acquisition fees, development and construction management fees, lease fees and property management fees.
CrowdStreet Custom Portfolios are professionally managed accounts that invest on your behalf in custom trades on the CrowdStreet marketplace.
When you sign up for a managed account, you'll work with CrowdStreet's team of advisors to build a portfolio that fits your goals, risk tolerance, and time horizon. Individual Portfolio account holders may also contact their advisors for investment advice.
Because these custom portfolios are professionally managed accounts, they are designed for people who prefer to take a hands-on approach to real estate investing.
CrowdStreet managed accounts have a minimum investment requirement of $250,000.
CrowdStreet Historical Returns
To date, CrowdStreet account holders have invested more than $3.16 billion and funded more than 620 deals. More than 100 of those deals were fully completed, meaning the underlying assets were sold and the funds were distributed back to investors.
The company reports an annual historical IRR of 18.3%, which is competitive for the industry. In comparison, Cadre has reported a historical rate of return of 18.2% (see our Cadre overview), while EquityMultiple has reported a historical rate of return of 17.4%.
CrowdStreet investors can monetize their holdings in several ways, including:
- Distributions. Some real estate companies that sponsor CrowdStreet deals distribute dividends from the profits they make on their properties.
- Interest payments. Some deal sponsors pay investors interest on their debt. You can find out if the sponsor pays interest in the summary of the Individual Accounts offer. This is often called Project Cash Flow.
- Debt repayments.Debt repayments are the primary source of returns for CrowdStreet investors. When the sponsor sells the investment property, the investors should receive the principal balance they invested plus their share of the profit generated by the property. But if the property sells at a loss, you may not get back the full amount you originally invested.
Remember that refunds are not guaranteed. While CrowdStreet's results to date are impressive, they may not reflect your experience on the platform.
Of the 103 trades executed, there are currently six that have returned -100% (as shown in the dot plot below).
In other words, in these six cases, the investors lost their entire investment.
That's why it's vital to have a diversification plan across the board, which, if not invested in a fund, can require significant assets because you have to meet a minimum investment amount in each operation.
It is also important to note that the 2012 Employment Law started the crowdsourcing trend.
2012 was the lowest point in the real estate market and has been one of the best years for investors in decades.
As with most real estate investment platforms, investments made through CrowdStreet are highly illiquid.
Real estate is one of the least liquid alternative asset classes because it can take years for a property to appreciate in value. Real estate can also be difficult to sell in certain markets, so real estate investors on CrowdStreet should be fine with their money locked up in an investment opportunity for years.
There is also no secondary market for your assets with CrowdStreet. This means you can't sell your assets when you need cash, like you do with investments in stocks or mutual funds (or other platforms).
Each sponsor determines the target period of holding certain real estate investments. Most platform assets have target shelf lives of three to five years, but can last up to 10 years.
However, note that these are objective waiting periods; they are not fossilized. The sponsor of the investment opportunity is responsible for the management of the property after the end of the financing round. If the sponsor wants to wait a few years after the end of the intended holding period to sell the property, they can.
This means that anyone using CrowdStreet must be prepared to have their money tied up for years with no control over when they can withdraw the funds. After all, most sponsors' business model is to enter and exit trades within a target waiting period.
This maximizes their own ROI as well as yours. However, keep in mind that economic conditions and many other variables can change the target shelf life.
If you want a little more liquidity in your investments, consider a platform with a secondary market like Cadre.
CrowdStreet Fees Explained
CrowdStreet's pricing is slightly different from what you might find on other online real estate investment platforms.
Unlike many other companies, CrowdStreet does not charge investors directly for their investment opportunities.
But that doesn't mean CrowdStreet is free to use.
Rather, real estate sponsors who list individual offers on CrowdStreet are responsible for setting their own rates. Sponsors may charge various types of fees, including property acquisition and management fees. These fees vary significantly by opportunity, so you should do your own due diligence when reviewing a potential deal.
Fees for investing in funds are simpler. Each fund charges a management fee, which typically ranges from 0.50% to 2.50%. But fees can vary from fund to fund based on investment structure, so always check potential charges before signing up.
Due to the nature of CrowdStreet's investment offerings, it's difficult to compare the platform's fees to what you might get from other companies. Ultimately, you can get low interest rates with some of CrowdStreet's features, but calculating what you'll pay over the life of your investment can be difficult.
CrowdStreet Vs. Fundrise
Fundrise is one of CrowdStreet's biggest competitors, so comparing these companies can help you better understand the pros and cons of each company.
Here is a quick overview of the differences between the two.
- Investor requirements: Fundrise is open to non-accredited investors, while CrowdStreet only works with accredited investors.
- Minimum investment: You can start investing on Fundrise for $10. CrowdStreet features have a minimum investment of $25,000 or more.
- Fee structure: Most fundraising opportunities have annual fees of around 1%. Prices on CrowdStreet vary greatly by arrangement.
- Investment offerings:Fundrise only allows you to invest in funds, not individual property. With CrowdStreet, you can invest in specific funds or properties.
- Returns on investment: Historically, the return on investment on the Fundrise platform is around 10%. CrowdStreet's historical returns hover around 18%.
There are notable benefits to using Fundrise, especially if you're working on a budget. But if you want to pick and choose the specific residential and commercial real estate opportunities you invest in, or if you want to maximize your long-term returns, CrowdStreet is an interesting option.
How does CrowdStreet make money?
CrowdStreet makes money by charging fees to sponsors who post deals on their platform. The company also licenses its investment management software to backers to make it easier for businesses to manage the administrative tasks that come with commercial real estate crowdfunding.
Can you lose money on CrowdStreet?
Yes, you can lose money on CrowdStreet. If the property you invested in the platform ends up depreciating over time, you cannot get your initial capital back. To date, CrowdStreet has had six deals yielding -100% IRR. Another five agreements had a negative IRR.
What’s the best way to predict the IRR of a CrowdStreet project?
There is no foolproof way to predict the IRR of a CrowdStreet project. Sponsors will list your target IRR in their advertised real estate deals, but there is no guarantee that you will see this return in real life. Rather than focusing too much on predicting the exact future performance of an opportunity, take a more holistic view of investing by looking at the potential risks and rewards of the opportunity to determine if it's right for you.
Closing Thoughts: When Is CrowdStreet Right For You?
CrowdStreet is an exciting option for potential real estate investors. The company's strong historical returns are attractive to investors looking to maximize their returns.
In addition, CrowdStreet's variety of high-quality offerings in its marketplace, from individual commercial real estate to managed real estate funds, gives investors great choice in the projects they choose to support.
But while there are a lot of things I like about CrowdStreet, there are some downsides to the platform. You can only use CrowdStreet if you are an accredited investor, and the company's high investment minimums make it impractical for many people. There is also no way to sell your CrowdStreet investment early, so your assets will be unavailable for years.
If you're a high net worth investor and don't expect to need to liquidate your assets in the next 5-10 years, CrowdStreet could be a worthwhile option. However, remember that past success is no guarantee of future performance, so always take the time to thoroughly research any real estate project on the platform before investing.