Avoid Crowd Funding - Mainly liquidity issue

I happen to see a nice post ( I think so ! ) suggesting to avoid crowd funding and choose REIT instead.

Question: Recently came into some money and I’ve been hearing from friends and through research that retail real estate could be a wise investment. While I don’t have the capital to purchase an entire shopping plaza on my own, I thought there may be crowdfunding options that specialize in retail real estate and thats how I came across realtymogul.com. I’m a bit skeptical so I wanted to ask if anyone has experience or guiding thoughts regarding realestatemogul.com. Also, any advice in general for someone looking to invest in retail real estate is welcomed.

Answer:I’d avoid these real estate crowd funding platforms. If you want to diversify into real estate, I’d recommend REITs (Real Estate Investment Trusts) or index funds/ETFs that track real estate funds.

In the case of REITs, you essentially own stock in a company that invests in various sectors of real estate, such as shopping malls, apartments, student housing, land, storage units, etc. Then of course there are ETFs and index funds that hold handfuls of various REITs diversified across or in specific sectors.

There are various benefits to REITs, including their necessity by regulation to pay dividends of 90% (?) of taxable earnings, but most important to this comparison is scale, diversification as a result of property portfolio, and liquidity.
When you go through these crowd funding platforms, you’re basically just pooling your money in with others for someone else to buy a property and pay you either a share of revenues or pay back of debt.

The primary problem is liquidity. When I buy an investment property to rent, I go to a bank, they offer me a 30 year mortgage at a fixed rate. They can perhaps sell that loan to another lender, but in short when you crowd fund a property, you’re locking your funds up until maturity of the loan, unless there’ssome mechanism with which to sell your equity on that crowd funding platform. But then, low volume markets are privy to huge spreads.

In the case of a flip, your equity position is essentially a short term hard money loan. Its not necessarily ideal either unless you knkw what youre doing and the risks associated with any particular project.

In comparison, a person who invests $5000 on a real estate investing crowd funding site, is going to have equity in one property, with an owner who probably doesnt have a huge portfolio, and a huge length of time until their position can be turned into cash again in full.

That same $5,000 can be used to buy a REIT like O (Realty Income - a monthly dividend real estate company/REIT), and you’ll get a share of hundreds of properties and units, a track record of financial records, a scale that minimizes management expenses, and a dividend. Oh, and if you need fast cash, you sell your shares on the stock market like any other stock.