Exit Strategies for Real Estate Crowdfunding Investments

How Individual Deals Exit

For individual property investments (the type offered on CrowdStreet, EquityMultiple, and similar platforms), the exit typically happens when the sponsor sells the property or refinances it. The offering documents specify a projected hold period, usually 3 to 7 years for equity deals and 1 to 3 years for debt deals.

When the sponsor sells the property, the proceeds flow through the distribution waterfall. Senior debt gets repaid first, then any mezzanine debt, followed by preferred equity, and finally common equity investors and the sponsor's promote. Your share of the proceeds depends on where you sit in the capital stack and the specific waterfall terms in the operating agreement.

Refinance events can also return capital to investors. If the property value increases substantially, the sponsor may refinance with a larger loan and distribute the excess proceeds to equity investors. This returns a portion of your invested capital while you retain your ownership interest in the property. However, refinance proceeds are not guaranteed and depend on property performance and lending conditions.

The sponsor controls the timing of the exit. As a passive investor, you have no ability to force a sale or refinance. If market conditions deteriorate, the sponsor may extend the hold period beyond the original projection. Some deals that projected 5-year holds have stretched to 7 or 8 years, tying up investor capital longer than expected.

Redemption Programs on Fund Platforms

Platforms that offer diversified fund products (Fundrise, RealtyMogul's MogulREIT, DiversyFund) handle exits differently. These funds typically include a redemption program that allows investors to request a return of their capital before the fund's natural liquidation.

Fundrise allows redemption requests after a minimum holding period. Shares held less than 5 years may be subject to a penalty (currently 1% for shares held less than 5 years, with no penalty after 5 years). Redemption requests are processed quarterly and are subject to fund liquidity limits, meaning the platform can suspend or limit redemptions during periods of heavy demand. During market stress in 2022 and 2023, several platforms slowed or paused redemptions.

RealtyMogul's MogulREIT products similarly offer share repurchase programs with holding period requirements and quarterly processing. These programs are discretionary, meaning the fund's board can reduce or suspend repurchases at any time.

Secondary Markets and Transfers

A small but growing secondary market exists for crowdfunding investments. Some platforms allow investors to transfer their interests to other qualified investors, though this process is typically manual, slow, and may involve transfer fees. Platforms like Percent and Yieldstreet have experimented with secondary market functionality for certain offerings.

Private sales are another option. If you hold a significant position in a deal, you may be able to find a buyer willing to purchase your interest at a negotiated price. This usually requires the sponsor's consent and compliance with securities transfer restrictions. Expect to sell at a discount to the investment's estimated value, as the buyer takes on illiquidity risk.

Planning Your Exit Before You Invest

The best time to think about your exit is before you invest. Match the investment's expected hold period to your actual liquidity needs. Do not invest capital you may need within the projected hold period plus a 2-year buffer. If a deal targets a 5-year hold, assume you may not have access to that capital for 7 years.

Build a portfolio with staggered maturities so that some investments are maturing each year, providing regular return of capital that you can reinvest or withdraw as needed.

For a complete introduction to real estate crowdfunding, see What Is Real Estate Crowdfunding?.