Crowdfunding vs Rental

[Awais Sheikh]

How does crowdfunding with IRR of say e.g. 15-20% 5-7 years compare to a rental property ?

Can you please comment

[Ian Ippolito]

@Awais Sheikh, I do both because both have their pros and cons and in my opinion neither is 100% superior to the other.

Rental properties are nice because you have direct control over them. Based on your risk tolerance, you can choose exactly how much leverage you're going to put into it, how risky or conservative of the neighborhood you're going to go into, whether you want to target price appreciation or income, etc. The downside is that you have to have enough knowledge and time, and the inclination to do all this work. You can outsource some of it, for example to property managers, but you still need to know what you're doing or you can be taken advantage of and/or lose lots of money by making rookie mistakes. There are some that go a step further and will outsource the acquisition of the rentals as well. (I'm personally not comfortable with doing that, but some are). But in my opinion, it's a very solid asset class (as long as you do it correctly and underwrite conservatively).

Crowdfunding is a passive investment, so the hardest part is choosing the investment and after that you don't have to do anything. And if you choose well, you should be getting much more professional management and experience in you personally could provide (although in exchange for a management fee). The biggest advantage is that the minimums are much lower, because you're pulling your money with others. On some platforms it might be as low as $500, which allows you to diversify into many more properties than most people could do on their own. You can also diversify by investment strategy (core, core plus, value-added, opportunistic), capital stack (equity versus debt) and asset type (residential versus commercial, multifamily, hotels, retail, you name it). The disadvantage is that you have to be able to feel comfortable vetting a sponsor and then turning over complete control to them, which not everyone can do.