Investing & Stocks › Learn › REITs vs Real Estate Crowdfunding
Investing & Stocks · Comparison
Shares in a property company or a direct stake in a crowdfunded building: here is how the two compare on cost, access, risk and how fast you can get your money back.
Sundas Tahir, Founder & CEO, FinWiser.
Owning property used to mean a down payment, a mortgage and a tenant who calls at midnight. Today you can own a slice of an apartment block from your phone, which is why so many readers ask us about the best way to invest in real estate without becoming a landlord.
Two routes dominate that conversation: real estate investment trusts (REITs) and direct real estate crowdfunding. A REIT is a company that owns many properties, and you buy its shares. Crowdfunding pools money from many investors into a specific property or project through an online platform.
They sound alike, but they behave very differently once your money is inside. Neither is the universally correct choice. The right pick depends on how much you have, how long you can leave it alone and whether interest-based income is a problem for you.
Our Wisers Say
Our first question is always the same: when will you need this money back? Anything you may need within five years belongs in something you can sell on a normal trading day. For most people, that makes a low-cost, publicly traded REIT fund the sensible core.
Treat direct crowdfunding as a side position. Fund it only with cash you can lock away for years, and only after you have read how the deal is financed.
Good News: You Don’t Have to Choose
These two are not rivals. Plenty of investors hold a REIT fund for flexibility and add one or two crowdfunded deals for a more hands-on stake. A split like that lets you learn both with small amounts before committing more.
One wrinkle is worth knowing early. Many crowdfunding apps actually sell non-traded REITs, which are property funds that do not trade on a stock exchange. So the line between the two is blurrier than the marketing suggests.
In this guide, “REITs” means the publicly traded kind. “Crowdfunding” means buying into specific properties or private funds through a platform.
The Best Way to Invest in Real Estate, at a Glance
Here is how the two routes compare on the points that matter most to a first-time property investor.
| Criteria | Publicly traded REITs | Direct crowdfunding |
|---|---|---|
| What you own | Shares in a company that owns many properties | A stake in one property, one loan or a private fund |
| Typical minimum | The price of one share, or less with fractional shares | $10 to $25,000 or more, depending on the platform |
| Getting money out | Sell on any trading day | Often locked for years; early exits limited |
| Diversification | High: dozens to hundreds of properties | Low per deal: you build it yourself |
| Ongoing fees | Often well under 0.5% a year for index funds | About 1% a year on large platforms, plus deal-level fees |
| Control | None over which buildings are bought | You choose the deal |
| Who can invest | Anyone with a brokerage account | Some platforms open to all; many deals for wealthier investors only |
| Price swings | Visible daily, tied to the stock market | Valued rarely, so it looks calmer than it is |
| Interest (riba) exposure | Most borrow at interest; mortgage REITs earn interest directly | Debt deals pay interest; equity deals often carry a mortgage |
Typical ranges only. Terms differ by fund and platform, and the best way to invest in real estate always starts with reading the offering documents.
REITs vs Crowdfunding, Criteria by Criteria
Minimum Investment
Publicly traded REITs are the cheapest way in. You need the price of a single share, and many brokers now sell fractional shares for a few dollars. A REIT index fund spreads that small amount across a large basket of property companies.
Crowdfunding minimums range widely. Fundrise starts at $10 and Arrived at $100, while RealtyMogul and EquityMultiple start around $5,000. CrowdStreet deals typically begin at $25,000 and are limited to wealthier investors.
Liquidity: Getting Your Money Back
Liquidity means how quickly you can turn an investment into cash without taking a big loss. This is the widest gap between the two, and it should weigh heavily when you decide on the best way to invest in real estate for your own timeline.
A publicly traded REIT can be sold on any day the stock market is open. A crowdfunded deal usually pays you back only when the property is sold or refinanced, which commonly takes years.
Platform funds may offer redemption windows. Still, the U.S. Securities and Exchange Commission (SEC) warns that non-traded property funds are illiquid, and that you may not be able to sell quickly if you need cash.
Diversification and Risk
One REIT can own hundreds of buildings, and a REIT fund owns many REITs. A single bad property barely registers. The trade-off is that REIT share prices move with the stock market, so you will see sharp drops on your screen during a sell-off.
A crowdfunded deal is the opposite. Your result rides on one building, one neighborhood and one sponsor, which is the company running the project. Prices are updated rarely, so the investment looks calm, but calm reporting is not the same as low risk.
Fees and Costs
Costs quietly shape the best way to invest in real estate over a decade, because every fee compounds against you. REIT index funds are cheap, often charging well under 0.5% of your balance each year. Most online brokers also let you trade them without commission.
Crowdfunding costs more and is harder to read. Fundrise charges about 1% a year across its advisory and management fees. Single-deal platforms layer on sponsor fees for buying, managing and selling the property, and those come out before you are paid.
A simple example shows the gap. On $10,000, a 0.15% fund fee costs $15 a year, while a 1% fee costs $100. Over ten years that difference adds up to a meaningful slice of your return.
Control and Transparency
With a REIT you are a passenger. Management decides what to buy and sell, and you receive the regular public reports that regulators require of listed companies.
Crowdfunding lets you choose the exact building, city and business plan. That is appealing if you enjoy research. It also means the homework is yours, and private deals disclose far less than a listed company does.
Income and Taxes
To keep its status, a REIT must pay out at least 90% of its taxable income to shareholders as dividends, according to the SEC. That payout rule is why income seekers often see REITs as the best way to invest in real estate. In the U.S., most of those dividends are taxed as ordinary income, so check how they fit your tax situation.
Crowdfunding income depends on the deal. Rental deals pay a share of the rent, development deals may pay nothing until the sale, and debt deals pay interest. Tax paperwork also varies by structure, and it often arrives later than a broker’s forms.
Accredited vs Non-Accredited: The Rule That Sets Your Menu
Before you compare platforms, check which deals you are legally allowed to buy. In the U.S., an accredited investor is broadly someone earning over $200,000 a year, or $300,000 with a spouse. Holding more than $1 million in net worth, excluding your home, also qualifies.
Many single-property deals are open only to that group. Everyone else can still use platforms that file public offerings, such as Fundrise and Arrived. Regulators cap how much non-accredited investors can put into some of these, though. Under Regulation Crowdfunding, for example, the yearly limit is tied to your income and net worth.
Publicly traded REITs have no such gate. If you can open a brokerage account, you can buy them. For a beginner weighing the best way to invest in real estate, that open door is a real advantage.
The Number That Shows You May Already Own REITs
Nareit, the U.S. REIT industry association, estimates that about 168 million Americans own REIT shares. That is roughly half of all U.S. households, counting direct holdings plus mutual funds, exchange-traded funds and target-date retirement funds.
The estimate comes from a research note published in January 2024. Nareit represents the industry, so treat it as an informed estimate and not an audited count.
The practical lesson is simple. If you hold a broad stock fund or a workplace retirement plan, look at its holdings before buying more. You may find you already have more property exposure than you thought.
The Best Way to Invest in Real Estate if You Avoid Riba
Rent from a building you part-own is generally seen as permissible income. The difficulty is financing. Riba, the interest that Islamic finance prohibits, shows up in both routes.
Mortgage REITs earn their income from interest on property loans, so they are out. Equity REITs earn rent, but most borrow heavily. Shariah screening methods typically exclude companies whose debt exceeds roughly one-third of their size.
A screened fund applies those filters for you. One example is the SP Funds S&P Global REIT Sharia ETF (SPRE), which carries a reported fee of 0.50% a year.
In crowdfunding, debt deals are loans that pay interest, so skip them. Equity deals are closer to a partnership, yet the property itself often carries a conventional mortgage. Ask the platform how each deal is financed, and favour unleveraged or Shariah-certified offerings.
This is general guidance, not a religious ruling, so consult a scholar you trust. Readers who are comfortable with interest can skip this filter and judge the best way to invest in real estate purely on cost and liquidity.
5 Crowdfunding Platforms to Know
These are established U.S. platforms, listed by minimum investment. This is not an endorsement, and terms change, so confirm the details on each site.
- Fundrise. From $10 and open to all investors. It is built around diversified private property funds.
- Arrived. From $100 and open to all investors. It sells shares in individual rental homes and vacation rentals.
- RealtyMogul. From about $5,000. It offers non-traded REITs to everyone and individual deals to accredited investors.
- EquityMultiple. From about $5,000, for accredited investors only. It focuses on commercial property equity and debt.
- CrowdStreet. Typically from $25,000, for accredited investors only. It is a marketplace for individual commercial deals.
Pros and Cons of Each Route
No list settles the best way to invest in real estate on its own, but these are the trade-offs that come up most often.
Where REITs Win
- Easy exit. You can sell on any trading day.
- Low cost. Index funds keep annual fees small.
- Instant spread. One purchase covers many properties and sectors.
- Open access. No income or wealth test applies.
Where REITs Fall Short
- Visible swings. Prices can fall fast along with the wider stock market.
- No say. You cannot pick or veto a building.
- Heavy borrowing. Most carry interest-bearing debt, which matters to halal-conscious investors.
Where Crowdfunding Wins
- Real choice. You pick the property, the city and the strategy.
- Less daily noise. Values are not repriced every second, which helps some investors stay put.
- Private deals. You can reach projects that never list on an exchange.
Where Crowdfunding Falls Short
- Locked money. Exits often take years and are not guaranteed.
- Concentrated risk. One weak deal or sponsor can hurt badly.
- Layered fees. Platform and sponsor charges reduce what reaches you.
- Platform risk. You depend on a fairly young company staying in business.
The Best Way to Invest in Real Estate for Your Situation
- You are starting with under $1,000. Choose a REIT index fund. You get broad exposure and can sell whenever you need to.
- You want income you can reach. Stick with publicly traded REITs and reinvest the dividends until you need them.
- You have spare capital and patience. Keep REITs as the core and place a small slice into two or three crowdfunded deals. Something like 5% to 10% of your property money is a cautious starting point.
- You avoid riba. Look at a Shariah-screened REIT fund first. Then consider equity-only, unleveraged crowdfunded deals.
- You are an accredited investor who enjoys research. Single-deal platforms can add something REITs cannot, provided you spread your money across several sponsors.
Key Takeaways
- For most beginners, a low-cost, publicly traded REIT fund is the sensible starting point.
- Crowdfunding offers choice and private deals, but it can lock up your money for years.
- Liquidity, not the headline return, is the deciding difference between the two.
- Check whether you already own REITs through retirement or index funds.
- Halal-conscious investors should avoid mortgage REITs and debt deals, and check the financing on everything else.
- The best way to invest in real estate is the route you understand well enough to hold through a rough year.
Keep Reading
For another take on this comparison, see SmartAsset’s guide to real estate crowdfunding vs. REITs. NerdWallet also reviews the top real estate crowdfunding platforms.