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Updated on
3/29/2024

Real Estate Crowdfunding vs. REIT

Written by: 
Naman

Real Estate Crowdfunding vs. REITs

The allure of real estate as a prosperous investment avenue continues to beckon individuals towards its promising horizons. Yet, the traditional pathways to property investments can be riddled with hefty capital requirements and complex management concerns. However, modern financial landscapes have birthed innovative investment vehicles like Real Estate Investment Trusts (REITs) and Real Estate Crowdfunding platforms that have democratized access to real estate investment opportunities. Each of these channels presents a unique approach to real estate investment with its set of advantages, opportunities, and challenges. This article delves into a comparative analysis of REITs and Real Estate Crowdfunding to arm potential investors with the knowledge they need to make informed investment decisions.

Investment Structure

  • REITs

REITs serve as a bridge connecting investors to a plethora of real estate investment opportunities. By owning and managing income-generating properties or offering loans to property owners, REITs provide a diversified exposure to real estate markets. Investors can buy shares of publicly-traded REITs on stock exchanges or through mutual funds and ETFs. The law mandates REITs to distribute at least 90% of their taxable income back to shareholders as dividends, providing a regular income stream for investors​.

  • Real Estate Crowdfunding

This modern investment avenue connects real estate professionals or developers with individual investors on online platforms. These platforms showcase a variety of real estate projects, allowing investors to directly fund specific projects of their choice. In return, investors share in the profits generated from rents or property sales, with annual returns typically ranging from 2% to 20%​.

Liquidity

  • REITs

The tradable nature of REIT shares on public stock exchanges provides investors with high liquidity, enabling them to buy or sell shares at any time based on market conditions​3​.

  • Real Estate Crowdfunding

Conversely, investments in real estate crowdfunding projects are less liquid, often requiring investors to commit their funds for longer durations. However, some platforms might offer redemption programs, allowing investors to withdraw their money earlier than initially agreed​​.

Investment Choice and Transparency

  • REITs

REITs manage a diversified portfolio of properties, and investors have less control over where their money is invested​6​.

  • Real Estate Crowdfunding

Offering a higher degree of transparency and control, real estate crowdfunding allows investors to choose specific properties or projects to fund, aligning their investments with their preferences and risk tolerance​.

Investment Minimums

  • REITs

Typically entail higher investment minimums, thus might require a substantial financial commitment from investors​​.

  • Real Estate Crowdfunding

Known for lower investment minimums, some platforms allow investments as low as $500, making it more accessible for individuals with limited capital​​.

Investor Eligibility

  • REITs

Open to all types of investors irrespective of their financial status​.

  • Real Estate Crowdfunding

Many platforms require investors to be accredited as per the Securities and Exchange Commission (SEC) guidelines, which could limit participation from smaller investors​.

Market Volatility Exposure

  • REITs

Due to their tradable nature on public stock exchanges, REITs have higher exposure to market volatility​​.

  • Real Estate Crowdfunding

With less exposure to market volatility due to the long-term nature of investments, real estate crowdfunding can offer a more stable investment environment​​.

Income Guarantee

  • REITs

Provide a guaranteed income through dividends, offering a level of financial predictability for investors​.

  • Real Estate Crowdfunding

Lack a guaranteed income provision, posing a risk of potential total investment loss​.

Governance and Oversight

  • REITs

Governed by stringent regulatory frameworks, REITs offer robust governance and oversight mechanisms​

  • Real Estate Crowdfunding

Offering advanced knowledge of the individual property being purchased and aligning the financial incentives of the investor and sponsor, real estate crowdfunding fosters a sense of shared ownership and accountability​

Conclusion

The choice between REITs and Real Estate Crowdfunding hinges on an investor's financial capacity, risk tolerance, and investment goals. Both avenues offer unique advantages and the potential for lucrative returns. Platforms like Landa.app are pioneering the real estate crowdfunding landscape, offering a gateway to curated real estate investment opportunities. Explore the realm of real estate crowdfunding and embark on a tailored investment journey on Landa.app. Your venture into the enticing world of real estate investments begins now

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