What Are You Really Paying?
Understanding the fee structures of real estate crowdfunding platforms and how they impact your returns.
Common Fee Types
Real estate crowdfunding platforms charge various fees that can significantly impact your investment returns. Understanding these fees is crucial for making informed investment decisions.
Asset Management Fee
An ongoing fee charged for managing the investment.
- Typically 0.5% to 2% annually
- Based on asset value or invested capital
- Charged throughout the investment period
- Similar to expense ratios in mutual funds
Acquisition Fee
A one-time fee charged when a property is purchased.
- Typically 1% to 3% of the purchase price
- Charged upfront at acquisition
- Covers due diligence and transaction costs
- Reduces the amount of capital invested
Servicing Fee
Fee for administering the investment and providing investor services.
- Typically 0.25% to 1% annually
- Covers investor relations, reporting, etc.
- May be bundled with asset management fee
- Ongoing throughout the investment
Promote / Carried Interest
Performance-based fee paid to the sponsor after certain return thresholds.
- Typically 15% to 30% of profits above a threshold
- Only paid after investors receive preferred return
- Aligns sponsor interests with investors
- Can significantly impact total returns
How and When Fees Are Charged
Understanding when and how fees are charged is just as important as knowing what fees exist. Fees can be charged:
Before Returns (Front-End)
- Acquisition fees
- Setup fees
- Origination fees (for debt investments)
- Reduces initial capital invested
After Returns (Back-End)
- Promote/carried interest
- Disposition fees
- Performance fees
- Reduces final returns to investors
Fee Comparison Example
| Fee Type | Arrived | Fundrise |
|---|---|---|
| Asset Management | 0.15% annually | 1% annually |
| Acquisition | 3.5% of purchase price | Varies (built into offering) |
| Promote | None | Varies by fund |
| Other Fees | Property management (8-10%) | Development fee, disposition fee |
"No Fees" ≠ Free
Some platforms advertise "no fees" or "zero platform fees," but this doesn't mean the investment is truly fee-free. Fees may be built into the deal structure in various ways:
- Sponsor Spread: Difference between what investors pay and what the sponsor pays for the property
- Markup on Purchase Price: Property acquired at one price, offered to investors at a higher price
- Development or Construction Fees: Built into project costs
- Property Management Fees: Charged at the property level, not the platform level
Key Takeaway
"Understanding fees helps you protect your returns."
Quiz: Test Your Knowledge
Q1: A promote fee is typically paid to:
Q2: An asset management fee is usually:
Q3: "No fee" platforms might still: