Wealth Migrate

Blog

How you should invest in commercial real estate: Crowdfunding vs REITS

At Wealth Migrate we believe in our offering and helping our investors navigate the world of real estate assets. To this end, we’ve examined the fundamental differences between crowdfunded and real estate investment trusts (REITS) assets, as this is a commonly asked question of which investment vehicle is better.

With real estate being one of the biggest asset classes globally and a trusted method for profitable investment, most investors are keen to invest.[1] This becomes tricky when considering which route is best and how you should invest in real estate.

What crowdfunding and REITs entails

Whenever real estate investing is discussed, there are different investment options for investors, two of the most popular methods are crowdfunding and real estate investment trusts (REITS).[2] Although both are invested in real estate, there are some fundamental differences between the two that range from liquidity, to risks, tax consequences, and barriers to entry.[3]

The key differences for both investment methods:[4]

  • A REIT is a company that owns and operates income-producing real estate. 
  • Typically, REITS are spread out over a portfolio of properties in a single asset class. 
  • Crowdfunding real estate is when a group of investors are purchasing one property and pool together their money to purchase it.
  • For crowdfunding there are only one or a few properties that the investor is invested in, and usually only accredited investors are allowed to invest.

Liquid

REITS are highly liquid, meaning that they can be bought and sold easily, so if an investor needs money, this is a convenient method of investment.[5] The same cannot be said for an investor that has a share in crowdfunded real estate that wants to sell it off quickly. Shares in a crowdfunded real estate are not transferable and the money is only received at the sale of the project or during refinancing.[6]

Risks

REITS offer a steady income that comes with the costs of having lower returns.[7] In this regard, there are REITS costs for covering the operation of the REITS and other expenses that are incurred before the investor is paid. On the other hand, crowdfunded real estate has more inherited risks because it is a single project and the equity partners in a deal.[8] As a result, the income is not as predictable, and the returns can vary from the predicted figures.

Tax consequences

<