Much of the crowdfunding is for a single property, allowing many investors to be a part of purchasing real estate. Sometimes, these are funds, which will have many assets, allowing you to diversify your investment. A REIT is similar to this, but often larger, and in many cases, more accessible to the public. It generally allows someone who may not qualify as an investor, or have a large sum of money, to take advantage of the same kind of real estate investing.
There are five types of real estate investment trusts (REITs):
- Retail — Stores, malls, commercial businesses, etc.
- Residential — Multi-family apartment buildings, manufactured mobile homes, single family rentals, etc.
- Healthcare — Hospitals, medical offices, nursing care, retirement homes, etc.
- Office — Office buildings, office parks, shared work spaces, etc.
- Mortgage — Fannie Mae, Freddie Mac, banks holding home mortgages, etc.
There are also some that are very specialized, focusing narrowly on just cell towers, self-storage businesses, data centers, cold storage warehouses, and more.
These can be both public and private. Private REITs, much like crowdfunded offerings, often require being a special type of investor, or have a large sum to invest. Public REITs are often and best found on almost any investing platform, and purchased much in the same way as stocks.
REITs may lack much or any tax protection, and also do not generally provide large returns when a property sells, both are common and popular reasons to take part in a crowdfunded offering. What they do offer is broad diversification, and a much safer (albeit more modest) return. With very large REITs—aside from intermittent losses in value/share due to market conditions and world events—you can expect not to lose your investment. Even when a price is depressed, you will still likely receive dividends.
If you find crowdfunding daunting, out of reach at the moment, or just too risky for such a large investment (with the potential to lose 100% of your money), consider a REIT. They will allow you to more safely engage in real estate investing. If you spend enough time researching them, following them over time, and really understanding and appreciating the value they can add to diversifying a portfolio, you may be more comfortable returning to crowdfunding as the next and bolder step in real estate investing.