There’s a high barrier to buying, selling or managing properties, but physicians looking to diversify their portfolio can leverage crowdfunding platforms to invest in the real estate sector. Crowdfunding platforms offer an accessible real estate investment opportunity for doctors.

Fundrise, Realty Mogul, Yieldstreet are examples of real estate crowdfunding platforms. They allow you to invest in properties and developments otherwise not available to the public.

How Physicians Can Benefit from Real Estate Crowdfunding

Users can collectively buy individual properties, like a warehouse or apartment complex, that they couldn’t purchase on their own. This is similar to how you could fund a project you’re passionate about on Kickstarter. In short, real estate crowdfunding platforms grant smaller investors access to the private real estate market.

By picking stand-alone real estate ventures, you get more control over your property portfolio, but it will be less diverse if you don’t invest in numerous funding campaigns. Still, for projects that give investors fractional shares of equity, users own a slice of the property itself. This differentiates it from investing in REITs which does not allow individual investors choice over the specific property their funds are going towards.

Real Estate Investing Tax Considerations

Crowdfunding investment returns can incur ordinary income taxes (higher rate) or capital gain taxes (lower rate). But the specifics are determined by the project’s tax structure. And tax savings can be supercharged thanks to depreciation if the project qualifies as a 1031 exchange.

Beware of Real Estate Crowdfunding Fees

Beware: Real estate crowdfunding can have high fees. Platforms charge fees anywhere between 0.15% and 4.25%. Other fees are outlined within each project.

But the fees can be worth it based on a project’s rate of return. On average, five-year crowdfunding investments return 17% per year and projects with shorter turnarounds generate 10% to 12%, according to Benzinga.

Real Estate Investing Can Be Passive

If you subscribe to the “set it and forget it” school of investing, this tactic may be right for you. Fundrise, for example, recommends keeping your funds invested for at least five years because their method prioritizes long-term over short-term returns. Moreover, some projects impose early withdrawal penalties.

So is investing in crowdfunding worth it for you?

Benefits of Real Estate Crowdfunding Platforms

• Low investment minimum: allows opportunity for portfolio diversification into real estate
• “Set it and forget it” - requires little active management of investment or properties
• Opportunity to choose individual properties/projects to invest in, this allows for diversification
• Historically high returns (>10%)

Drawbacks of Real Estate Crowdfunding Platforms

• Time and effort choosing a project
• Illiquid with potential early withdrawal penalties
• Higher fees, especially compared to most REITs
• Filing your tax return can be complicated depending on how the project’s tax structure
• Risk of market downturns, project management complications, etc.

Join the Discussion

What questions do you have about real estate crowdfunding platforms? Have you invested through a crowdfunding platform? Share your thoughts on this tactic in the comments below.