Real estate crowdfunding has been coming up fast in recent years as an alternative way to buy into an alternative investment. Real estate offers a powerful diversification in an otherwise all-paper investment portfolio. It's a “hard asset,” rather than stocks and bonds, which represent either a fractional ownership in a company or part of the debt owed by the organization. What's more, real estate has the potential to perform well when paper assets are heading in the wrong direction.
From an investor's standpoint, the problems with real estate are both the size of the investment and the hands-on nature of managing it. Real estate crowdfunding enables you to invest in real estate without facing either of those limitations.
The question comes down to which real estate crowdfunding platform you'll invest with. That opens our debate of Modiv vs. Fundrise vs. PeerStreet.
Modiv was formerly known as Rich Uncles. One of the interesting things about this crowdfunding platform is that it actually does involve a couple of “rich uncles.” The two uncles are founding investor Ray Wirta and CEO Harold Hoffer. Each brings extensive commercial real estate investing experience to the platform, which is a clear benefit to investors.
When you invest with Modiv you invest in real estate investment trusts (REITs), each of which is a portfolio of properties. One of the advantages of a REIT is that by law 90% of the profits must be distributed to investors. And since real estate involves expenses like depreciation, some of those distributions come back on a tax-free basis.
One of the major advantages of investing with Modiv is that you're not required to be an accredited investor. You can also begin investing with as little as $500 and sometimes less, depending on the REIT you invest in.
About FundriseFundrise uses eREITs and eFunds as investment vehicles. They're proprietary investments, which is to say they don't trade on public exchanges. Each is invested in commercial real estate projects, and you have a choice of funds that provide supplemental income, long-term growth or a balance between the two. Funds can be set up as based on debt, equity or preferred equity. Fundrise investments are mostly in commercial property, but single-family residential is also available. eREIT investments focus on income, while eFunds center on growth. Where growth is concerned, it comes from capital appreciation, which is available only at the end of the investment term.
PeerStreet is a peer-to-peer (P2P) service for real estate financing. When you invest money through PeerStreet you're investing in loans made to real-estate entrepreneurs who use the service to get financing. But since these loans are secured by the underlying real estate, they're actually lower risk than the investments you might make on consumer loan P2P platforms.PeerStreet enables investors to invest directly in individual real estate loans. And since they're loans, rather than equity positions, they provide more predictable income. However, PeerStreet isn't a direct lender. Instead, it provides a secondary market for existing loans made by established lenders. This reduces the risk of the loans, since they're considered “seasoned” (as opposed to brand-new loans with no payment track record).
How Are They the Same?
All three services have some similar features.
|Limited Liquidity||Real estate crowdfunding investments are long term in nature and typically can't be liquidated until the deal pays out.|
|Potential to Lose Money||True with all three platforms.|
|IRA Accounts||Offered by all three.|
|Income Distributions||Modiv and PeerStreet each distribute income twice monthly, while Fundrise distributions are quarterly.|
How Are They Different?
Let's take a look at the areas where Modiv, Fundrise and PeerStreet differ.
|Platform Purpose||Modiv invests in commercial properties, PeerStreet invests in residential properties, and Fundrise invests in both.|
|Accredited Investor Requirement||No for Modiv and Fundrise, yes for PeerStreet.|
|Investments Offered||PeerStreet offers loan notes, while Modiv and Fundrise offer REITs (plus eFunds by Fundrise).|
|Fees||Modiv charges effectively 3% on its REITs, Fundrise charges 1% on its REITs and funds, and PeerStreet charges 0.25% to 1.00%.|
|Customer Service||Modiv and PeerStreet are available by phone during regular business hours; Fundrise is available by email only.|
|AvailabilityModiv||is available to investors in 24 states; Fundrise and PeerStreet are available in all 50 states.|
Features Unique to Modiv
One of the big advantages with Modiv is the quality of the properties the company invests in. It rents primarily to large companies, using what are known as triple net leases. These are leases in which the tenant pays the property taxes, insurance, and repairs and maintenance — in addition to the base rent. That removes major expenses from the Modiv's side of the ledger.
Modiv has three different REITs you can invest in, based on your preference for the types of properties they include.
Features Unique to Fundrise
Fundrise invests your money through its proprietary eREITs and eFunds. It offers options for income, growth or both. Unlike the other two platforms, it invests in both commercial and residential real estate. It's available in all 50 states.
Features Unique to PeerStreet
PeerStreet investments are in real estate debt, not equity. Unlike mortgages, they're short term in nature, running between six and 36 months. Rather than investing in large commercial projects, the loans are provided primarily to real estate investors, who purchase single-family homes for either rental income or fix-and-flip deals. That's the primary reason the loan terms are so short.
The investor doesn't buy the entire loan, but instead buys pieces of it, referred to as “notes,” for $1,000 each. And since PeerStreet has many potential loans, you can choose the ones you'll invest in and even set criteria for which kinds you want to buy. That will give you greater control than you'll have on most real estate crowdfunding platforms.
Modiv typically has a minimum investment of $500 for each of its REITs. However, you may be able to invest in the BRIX Student Housing REIT with as little as $5. It's a trust that invests in recently constructed properties on college and university campuses.
Fundrise and PeerStreet each require a minimum initial investment of $1,000 for a single investment.
There are no fees to invest with Modiv. While typical REITs pay 10% of their annual income for fees, such as property management, Modiv charges just 3%. That means 97% of the income from a REIT will come directly to you as the investor.
Fundrise charges 1% of your investment in either an eREIT or eFund.
There are no fees to invest with PeerStreet. But the platform charges between 0.25% and 1.00% on each loan investment. The exact amount you pay will be specific to the particular loan you're investing in.
Modiv distributes dividends to investors twice each month. It's an excellent crowdfunding platform for investors looking for regular income.
Fundrise enables you to invest in either commercial property or residential real estate, including single-family properties. You can invest for income, growth or both. Much like Modiv, your investment is done through a REIT or a fund.
PeerStreet also focuses on generating steady investment income. But it gets the job done by investing in existing real estate loans. This makes them more secure investments, because existing loans have a proven payment track record. Loans are also short term in nature, since they're made to small investors for rental properties and fix-and-flip transactions.
- Modiv' customer service is available by phone, email or online contact during regular business hours.
- Fundrise's customer service is through email, though you may have phone access if you join the service.
- PeerStreet's customer service is available by phone or by online messaging during regular business hours. However, online messaging replies don't usually arrive until the next business day.
Modiv maintains technology and information management systems designed to protect the confidentiality and security of your personal information. The company also restricts access to nonpublic personal information to only those who have a legitimate business need for it or where it's required by law.
Fundrise offers two-factor authentication as an optional security feature. It also uses bank level security by encrypting investor information with an AES symmetric key. All connections to the platform are encrypted over “https” with transport layer security (TLS).
PeerStreet online transactions are done over a secure and encrypted connection using SSL/TLS, which is used by all banks and financial firms. Personal data is stored using public key encryption technology in the company data center. Meanwhile, the web hosting service provider undergoes regular penetration testing in vulnerability assessments.
Who Are They Best For?
Modiv will work best for investors who are looking for steady income. Not only will you receive dividends twice each month, but you'll get 97% of the profits generated by the REIT you're invested in. It's also an excellent investment for new and small investors who want to get into commercial real estate. The $500 minimum investment and the lack of accredited investor status requirement open the platform to investors at all levels.
Fundrise is for investors who are looking for growth, either as a primary objective or along with income. This will require a higher risk tolerance, since real estate appreciation is never guaranteed and the investment must be held until the very end before the gain is realized.
PeerStreet is great for anyone who wants to invest in fix-and-flip real estate deals. It's just like you see on HGTV. You don't have to get your hands dirty or take on all the risks involved in that process. By making loans to the people who do, you can earn interest rates well above what's available in traditional sources.
Which Is the Best?
Overall, the winner seems to be Fundrise.
- First, you don't need to be an accredited investor to participate in the platform.
- Second, it requires a low minimum initial investment of just $1,000. Third, the annual fee of 1%, while not the lowest on this list, is certainly reasonable.
- And probably most importantly, Fundrise is the only one of the three platforms that offers growth potential.
Anyone who's ever invested in real estate knows that capital appreciation is the key. The other platforms may offer more secure income flows in the form of monthly distributions, but they can't match the overall gains provided by real estate price appreciation.