Real estate investment trusts (REITs) and crowdfunding platforms like CrowdStreet have both become popular options for those looking to invest in real estate. However, the two options have distinct differences in terms of investment structure, accessibility, and potential returns. In this article, we will break down the key differences between REITs and CrowdStreet, and help you determine which option may be the best fit for your investment goals.
Investment Structure
REITs are companies that own and operate income-producing real estate properties, such as apartment buildings, shopping centers, and office buildings. They are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, which makes them a popular choice for those looking for a steady stream of income from their investments. REITs are traded on major stock exchanges, making them easily accessible to the general public.
CrowdStreet, on the other hand, is a crowdfunding platform that connects accredited investors with real estate developers and sponsors looking to raise capital for their projects. Accredited investors are individuals who meet certain income and net worth requirements set by the Securities and Exchange Commission (SEC). These requirements are put in place to protect less sophisticated investors from the risks of investing in private real estate deals.
Accessibility
REITs are publicly traded, which means that anyone can purchase shares and become a shareholder in the company. This makes them accessible to a wide range of investors, regardless of their net worth or income level. Additionally, REITs can be purchased through a traditional brokerage account, making them easy to buy and sell.
CrowdStreet, on the other hand, is only available to accredited investors. This means that only individuals with a certain level of income or net worth are able to invest in the deals offered on the platform. Additionally, because CrowdStreet deals are private, they can only be purchased through the platform and cannot be bought or sold on a secondary market.
Potential Returns
REITs have the potential to provide a steady stream of income in the form of dividends, but the potential for capital appreciation is limited. This is because REITs are required to distribute most of their income to shareholders, which leaves less money for the company to reinvest in the properties and drive growth.
CrowdStreet deals, on the other hand, have the potential for higher returns but also come with a higher level of risk. Because CrowdStreet deals are private, they are not required to disclose financial information to the public, which makes it more difficult to assess the risk and potential returns of a particular deal. Additionally, private real estate deals are generally considered to be more risky than publicly traded REITs.
Diversification
Diversification is an important aspect of any investment strategy. It involves spreading your investments across different asset classes and sectors to minimize risk and maximize returns. Both REITs and CrowdStreet can offer diversification opportunities, but in different ways.
Investing in REITs allows you to own a piece of multiple real estate properties across different sectors, such as retail, office, and healthcare. This can provide diversification within the real estate asset class. However, REITs are still considered to be a single asset class investment and may not provide as much diversification as investing in a mix of asset classes.
CrowdStreet, on the other hand, allows you to invest in specific real estate projects, which can provide diversification across different property types, locations, and sponsors. This can provide a level of diversification that investing in REITs alone may not. However, it is important to note that diversification in real estate crowdfunding is still limited as you can only invest in a small number of deals in comparison to a mutual fund or ETF.
Liquidity
Liquidity refers to the ease and speed at which an investment can be bought and sold. REITs are publicly traded on major stock exchanges, which makes them highly liquid. This means that you can buy and sell shares of REITs at any time during market hours and at the current market price.
CrowdStreet, on the other hand, is less liquid. Because the deals on the platform are private and not traded on a public exchange, it can take longer to buy and sell shares. Additionally, the price at which you can sell your shares may be different from the price you paid, depending on the performance of the deal. This is something that should be taken into consideration when investing in private real estate deals through CrowdStreet.
Fees
Both REITs and CrowdStreet come with their own set of fees. REITs typically charge management fees and other expenses, which can eat into your returns. Additionally, because REITs are publicly traded, you may also be subject to brokerage fees when buying and selling shares.
CrowdStreet, on the other hand, typically charges an origination fee, which is a fee charged by the sponsor to raise capital for the project. Additionally, CrowdStreet also charges a platform fee, which is a fee for using the platform to access and invest in deals. It is important to understand the fees involved in any investment, and to compare them to the potential returns before making a decision.
Final Thoughts
In conclusion, both REITs and CrowdStreet can offer diversification, liquidity, and potential returns but in different ways. REITs are publicly traded, easily accessible and provide steady income but with limited potential for capital appreciation. CrowdStreet on the other hand is only available to accredited investors, and offers access to private real estate deals with potential for higher returns but also comes with a higher level of risk and less liquidity. Click here to try CrowdStreet today. It’s important to consider your investment goals, risk tolerance, and other factors when deciding which option may be the best fit for you.
