YoungInvestor2013, a lot changed after the great recession, and many people aren't comfortable with new ideas. As a result of Dodd-Frank, regulations on banks were tightened, creating a market for alternative lenders. Also, Congress passed the JOBS Act and the SEC continues to write new rules to regulate the new opportunities which arose. Most recently, Reg A+ and Title III of the JOBS Act has been enacted to open up new opportunities to everyday investors. Many of the previous opportunities were only available to "accredited investors" but new regulations have lowered the bar. Lastly, more people are renting than buying homes nowadays and this has brought new opportunities. Many billions of dollars have flowed into new real estate offerings in recent years and I guarantee you there are good offerings, good sponsors and good crowdfund sites out there. But it's new, many folks are wary of it, and it doesn't have a long track record.
There are many new players in the Crowd Funded Real Estate marketplace, not all of them equal. But with the power of the internet and focused SEC attention, it's really hard to hide any malfeasance for very long. I suggest you do your due diligence, not only on the property, but also on the sponsor, manager and portal (the CF site). Sometimes the portal (Fundrise, etc.) acts only as a middleman with no requirement to perform any due diligence of their own. You should also look at their fee structure.
I prefer direct investment instead of a REIT, because REITs aren't very tax friendly (they pay ordinary, unqualified dividends) and you don't get any deductions for mortgage interest deductions or depreciation. If you make an equity investment you would get a proportionate share of these deductions for yourself, but if you make a debt investment, you would not and you would be paid interest income. Debt investments are more secure than equity, but do not appreciate in value.
I invested with CrowdStreet and am pleased with their no-fee structure and the offerings available. I also like RealtyMogul, but you should look for a repeat sponsor and try to get background info on their track record and what the final IRR was. FundRise may be fine, but I have no experience with them and no opinion, except to note they have some attractive offerings available. You want the portal to perform their own due diligence, a sponsor with a track record and check into how they've done in the past. Needless to say, you need to closely review the current offering, any pro-formas, the private party memorandum (PPM) and must understand and accept all the risks. It's also good if each party has their own skin in the game, i.e: they invest alongside you, with the same fees, risks and rewards.
It's funny to me how many people think nothing of the risks with stock market investing, but find real estate to be especially risky. People lost 2-3% of their stock market portfolio in one day yesterday, but consider it normal. Everyone is expecting a 20%-30% correction in the market, since the bull has run so long, but that's normal. Meanwhile, I have about half my portfolio in 15 different commercial real estate investments, diversified as to sector, geography, market, operator, you name it. They primarily rely on corporate-guaranteed leases where the big A-rated companies would still be liable for the lease payments even f they close the facility. Beyond that, lease payments are considered an operating expense, so most bankruptcy courts require they be kept up, even in bankruptcy. These investments perform like bonds, with mailbox money to me paying anywhere from 5 - 10% annually. 13%, as you mention, is possible, but you must understand returns like that indicate higher risks than normal. The RE market is nearing a top so you should be especially careful where you invest now, seeking safety, and minimizing interest-rate risk and inflation risk. Mortgages are still really cheap though, so this is still a good time to lock up some intermediate term loans. The people who lost it all in 2008 were over-leveraged with adjustable rate loans, insecure tenants and not enough LTV.
The Fed has penalized savers with its zero interest rate policy, but it has rewarded investors capable of adjusting to new situations. My looming retirement wouldn't be possible without the true diversification and more generous returns offered by real estate and other crowdfunded alternatives, like P2P and P2B marketplace lending.
Good investing,
b.