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Written by Edward Canty on August 24, 2020
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Fundrise eFund Review 2020: Better Than A REIT?

Fundrise is a new investing platform that allows everyday investors to invest in private real estate deals traditionally reserved for those who were "in the know."

Now, average retail investors can get started with this platform with as little as $500.

By combining technology and the release of new regulations, Fundrise has been able to establish a platform that differs in many ways compared to traditional real estate investments. In the past, your only real options for real estate ownership was buying a property yourself (or with partners) or purchasing a publicly traded REIT.

Publicly traded REITs lack transparency, and are heavily correlated with the overall stock market. Owning rentals can be very lucrative, but it often requires tens of thousands of dollars upfront.

Through Fundrise, you can invest in two different investments known as eREITs and eFunds. Specifically in this article, we will be taking a look at the Fundrise eFund and what it has to offer potential investors.

Fundrise eREITs are designed to provide income to the investor, while Fundrise eFunds are designed for growth. 

When you invest with Fundrise, you have the option of choosing an income oriented, growth oriented or blended approach to your investments. Based on the portfolio you choose, Fundrise invests your money across numerous different eREITs and eFunds.

What Is A Fundrise eFund?

Fundrise eFunds consist of investments with the objective to realize capital appreciation for the investor. This is possible by buying existing real estate, renovating, and later selling the property for a higher price and recognizing a capital gain.

Fundrise currently offers 3 types of eFunds based on their geographic location:

  • Los Angeles eFund
  • Washington DC eFund
  • National eFund.

The focus of eFUNDs is primarily on single-family homes. However, this also includes townhomes and condominiums located in growing and developing metropolitan areas.

Want to learn the ins and outs of crowdfunded real estate?

Here's our free guide that covers the basics of getting started with this investment.
We will show you how to get started with as little as $500 and explain the basics, like debt versus equity investments.
Get The Guide

Fundrise eFund vs REIT

Fundrise builds the eFunds using a slightly different structure compared to traditional REITs. In an eFund, there is no minimum requirement for return of earnings to shareholders every year in the form of dividends.

A traditional REIT requires 90% of the taxable earnings to be distributed to the investors in the form of dividends.

It is important to understand the goal of the Fundrise eFund is to recognize capital gains over time, so this traditional REIT model does not make sense for this application.

Fundrise is not investing in properties with the goal of annual positive cash flow through the eFunds.

Since eFunds are designed for growth, they are set up as partnerships that are slightly more flexible to manage than REITs.

eFund Investment Strategy

Fundrise eFunds offer diversified investments in residential real estate. These investments are difficult for individuals to construct on their own and would require millions of dollars of start-up capital.

By setting up partnerships, Fundrise can leverage investor capital and participate in growing real estate markets throughout the US.

One of the main goals of Fundrise eFund investments is to participate in growing real estate markets. They do this by identifying specific areas that are showing a high demand for affordable housing.

Most of the cities Fundrise focuses on are metro areas with high affordability gaps. This is the gap between rental housing costs and the average monthly income of residents.

Fundrise sets the goal to provide more housing options in these high demand areas. In return, they are able to generate potential returns for investors.

Fundrise eFund Investments

National eFund

The National eFund plans to invest in residential housing in major metropolitan areas throughout the US. This fund strategizes in targeting first time home buyers and areas with high potential for development.

The National eFund plans for the construction of single-family homes, townhomes, and condos. This eFund plans to acquire land and other real estate in areas of the US that are not being sponsored by another eFund.

In LA, for example, this eFund aims for single-family renovations and rentals where the LA eFund targets new housing development.

Washington DC eFund

The Washington DC eFund looks to purchase land for development in the metropolitan areas of Washington DC. Like the other eFunds, this fund aims to develop single-family homes, townhomes, and condominiums in high growth areas.

This fund has a main focus on first time home buyers and areas of DC with high affordability gaps.

Los Angeles eFund

The Los Angeles eFund aims to purchase land in the metropolitan areas of LA for the development of residential housing. The main focus is on the construction of single-family homes, townhomes, and condominiums in high growth neighborhoods.

The LA eFund targets areas with high potential for first time home buyers and younger demographics.

eFund Minimum Investment

The minimum to invest in a Fundrise eFund is simply the minimum to invest in Fundrise itself.

  • Starter Portfolio: $500 Minimum
  • Core Plans: $1,000 Minimum

If you invest in the starter portfolio, this will include a blend of eFunds and eREITs. The core plans let you choose between a growth, income or blended approach.

Be cautious, however, as Fundrise investments aim for a 5 year minimum time horizon.

Investors should be prepared to hold the investment for some time.

eFund Liquidity

Like all other Fundrise investments, liquidity or the ability to sell is not guaranteed.

Keep in mind, the money collectively raised from this fund is being used to purchase real estate, a highly illiquid investment. That is why Fundrise reserves the right to suspend redemptions at any point in time.

They do offer quarterly redemption periods, however they do not guarantee this.

Fundrise eFund Fees

Fundrise has some fees that investors should be aware of:

  • 1% Annual Fee: This is broken down into a 0.85% asset management fee for managing the underlying properties and a 0.15% portfolio management fee for managing your investment account.
  • Early Redemption Fees: Ranging from 1% to 3% depending on how long you've held your investment. No early redemption fees if you sell within 90 days of your initial investment or after the 5 year investment period.
  • Asset Origination Fees: Ranging from 0-2% for the origination of the real estate deals, typically paid by the borrower.

For more information, here's our full article on Fundrise fees.

Fundrise Return History

YearAverage Annualized Return
201412.25%
201512.42%
20168.76%
201711.44%
20189.11%
20199.47%

 

eFund Taxes

Fundrise creates eFunds as partnerships and, therefore, they have tax implications unique to partnerships.

In a partnership, your share of the net income or loss generated by the eFund will be reported to you on a K-1.

At the end of the year, you will report earnings from the K-1 on your tax return. This often comes out much later on in the tax season, so you may want to hold off on filing right away if you are a Fundrise investor.

They generally tax partnership earnings as ordinary income to the taxpayer. Any capital gains in the partnership will be the same capital gains tax rate the individual pays from their employment income.

Consult your tax advisor for questions about your specific tax situation.

Fundrise eFunds: Conclusion

If you are looking to invest in real estate, a Fundrise may be an interesting option to consider.

Rather than being limited to traditional REITs or real estate in your immediate area, Fundrise allows you to invest in markets all across the US.

To invest in these eFunds, you simply have to become a Fundrise investor. Then, they automatically allocate a portion of your money into different eFunds and eREITs based on what portfolio you choose.

Keep Reading:

Fundrise efund review
Article written by Edward Canty
Ed is a financial planner and personal finance enthusiast. At his day job, Ed helps clients plan for retirement, manage their investments, and navigate their tax situation. In his free time, Ed enjoys golfing, traveling, and wrenching on his old BMW.

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