Investing in real estate used to mean buying a building. Now it can mean tapping a button. Crowdfunding platforms, fractional-ownership apps and private lending marketplaces let you put $500 or $50,000 into real estate without ever signing a deed. Plenty of agents use them for their own money, and clients ask agents about them too.
Access is a good thing. But the app puts the friendliest number front and center … an average rate of return. It rarely shows you your actual annualized return after fees and defaults or how far your balance could drop in a bad year.
This fall, I sat down with several people who had all invested through the same program. Each of them had a different understanding of where their money was going.
One had stopped going to the program’s update calls years ago, because nobody on them would tell her whether she was making money or losing it. Every one of them could tell me, to the dollar, what landed in their account each month.
I haven’t put my own money into these platforms, and most of the reasons why are on this list.
5 questions to ask about real estate investing apps
Here are five questions to ask before you, or a client, put money into any real estate investing platform.
1. Who manages the money, and do they also own the product?
Some platforms are marketplaces. They connect you to deals that someone else runs. Others steer your money into funds they manage themselves. The second setup isn’t automatically bad, but it means the company can get paid more than once: a platform or membership fee up front, then a management fee inside the fund.
How to check: Find the fund’s name on your statement and look up who manages it. If it’s the same company that recommended it (or a close affiliate), ask for every layer of fees in writing.
2. Is the ‘income’ really income?
Real estate funds on these platforms usually pay monthly or quarterly distributions, and part of each payment is often classified as return of capital. In plain English, part of what you’re paid is your own money coming back.
In real estate, some return of capital is normal. Depreciation lets a property fund pay out cash that isn’t taxed as income yet, and that gets labeled return of capital, too. The warning sign is return of capital paired with a sliding share value.
If the distributions hold steady while the fund’s value per share (often called NAV) keeps dropping, the income is coming out of your principal. You still feel paid every month, and the account is getting smaller.
How to check: In the app, compare the fund’s value per share on the day you bought with today’s. Then look at your year-end tax forms, which show return of capital separately from dividends.
3. Is the payout rate the same as your return?
The gap can go either way.
Say you put $20,000 into a private loan that pays you $400 a month for five years. That’s $24,000 back. Spread over five years, it looks like about 4 percent a year. But because part of every payment is your own principal coming home, the annualized return is actually closer to 7.4 percent. The payout made it look worse than it was.
Now flip it. That 7.4 percent only holds if the borrower pays every month. Lending platforms spread your money across many borrowers, and some of them won’t pay. A platform advertising 10 percent that loses 4 percent of its loans to default each year is paying you closer to 6 percent.
How to check: Ask the platform for the annualized return after fees and defaults, not the payout rate. Then ask what that number was in its worst year.
4. How long is the track record, and what if the company behind the app fails?
Many of these platforms are newer than the last real estate downturn. A platform that developed when money was cheap hasn’t shown you how it behaves when money is expensive. The company running the app is also a business, and businesses fail. WeWork, the shared-office company, was valued at $47 billion in 2019 and filed for bankruptcy in November 2023.
How to check: Find the platform’s launch date and look for at least one stretch of rising rates or falling prices in its history. Then ask where your investment actually sits. Many platforms hold each property or fund in its own legal entity, separate from the company itself, so your share can survive if the platform doesn’t. If neither answer is clear, size your investment like the experiment it is.
5. How do you get your money out, and who decides?
Many platforms expect you to stay in for five years or more. Some charge a penalty to leave early, others limit how much can come out each quarter, and many reserve the right to pause withdrawals entirely. In spring 2020, Fundrise, one of the best-known real estate investing apps, suspended redemptions from its mature funds “until further notice.”
The lockup is part of why these investments can pay more than a savings account, so it isn’t automatically a problem. It becomes one when money you might need in a slow month ends up somewhere that can tell you “not yet.”
How to check: Read the redemption section of the offering documents. Then ask one blunt question: “If I wanted all of it back next month, what would happen?”
What to say when a client asks you about one
When a client asks whether an app is a good idea, try:
“I can’t tell you whether it’s right for you, but here are the five questions to get answered first.”
You come across as the agent who thinks clearly about money without crossing into advice you’re not licensed to give.
Then ask yourself the same 5
Commission income doesn’t arrive on a schedule, so the money you can reach in a slow month matters more than the money that pays the most. Before your own dollars go into a platform, make sure your cushion lives somewhere you can actually reach. Liquidity first, then growth. Treat the app as the growth layer of your plan, not the floor under it.
The average return will always be the number they show you first. Make it the last one you trust.
Amanda Neely is a Certified Financial Planner and the CEO of Counterflow. Connect with her on LinkedIn and Substack.
