Real estate is one of the most-coveted investing mediums in the world. Almost everyone wants to purchase a home and watch their equity rise in value. However, not everyone has the capital required to put 20% down on a house, duplex, or apartment complex.
This problem is what inspired many crowdfunded real estate platforms to enter the scene. Fundrise is just one of the many real estate investing platforms that allow the average individual to invest in real estate projects outside of their local community.
Fundrise allows investors to invest in private real estate with as little as $10. This incredibly low minimum investment in addition to its low fee structure are the main reasons this platform has become so popular. Since its inception, Fundrise has been extremely transparent about the fees it charges its users.
This is not particularly common among crowdfunded real estate platforms that tend to sneak in hidden fees and costs.
While this article is dedicated to exploring the fees associated with using Fundrise, you can read our full review of Fundrise here.
Compared to traditional private real estate investments, fees are significantly lower on the Fundrise platform. In this article, we will be explaining what these fees are and what, if any, hidden costs exist.
I started with a $5,000 Fundrise investment and since then I have scaled it up to $25,000. I will be sharing screenshots from my account throughout this article to show you the fees down below.
There are three different fees associated with investing in Fundrise. These are clearly stated on the website's pricing page to not be misunderstood. These fees are the following:
In total, Fundrise charges a flat fee of 1% per year to every user. This fee is levied against all investors no matter the size of their portfolio.
This 1% annual fee is broken up into two individual fees.
The first is called an asset management fee. This fee goes toward the management and oversight of real estate investments as well as the normal business expenses incurred. This fee pays for a variety of expenses such as the accounting, construction, financing, zoning, sales, and marketing associated with the maintenance of a property. The asset management fee is 0.85% annually.
The second part of the Annual Account Fee is the investment advisor fee. This fee pays for the online investing platform, reporting, and other administrative fees related to investing in Fundrise. The investment advisor fee is 0.15% annually.
While the Annual Account Fee listed above covers the day-to-day maintenance and operations that the firm has to undergo, there are additional fees assessed each time a new property is acquired. This fee is deemed an Origination Fee, and it is only paid once at the beginning of an investment.
When Fundrise takes on a new project, there are some fees incurred with the process of originating a loan. This fee is passed on to investors and ranges from 0 to 2% per investment.
Investors who understand the purpose of real estate investing recognize that it is focused on the long term. Real estate does not appreciate overnight, and therefore, requires patience. Investors who are in a position that does not allow them to wait the full five years before withdrawing their investment will pay a penalty.
However, those who withdraw their investment within the first 90 days will not pay an early redemption fee. Likewise, if you hold your investment for the full 5 year period, you will not pay an early redemption fee.
Otherwise, the Early Redemption Fee follows the table below:
|First 90 Days||None|
|90 Days To 3 Years||3%|
|3 To 4 Years||2%|
|4 To 5 Years||1%|
So, are there any hidden fees you should know about? No. Fundrise is extremely transparent with their fee structure, and as will be seen later in this article, the fees you pay to invest with Fundrise are shown in your overview along with your returns.
With Fundrise you know exactly what you're paying for.
When compared to many other REITs or "real estate investment trusts", Fundrise has fees that are quite reasonable. The 1% combined asset management and investment advisor fee is lower than many other comparable REITs out there.
Some low-cost ETF investors that are used to seeing fees of under 0.10% on funds might balk at a 1% fee. But, for a real estate investment, you're typically going to incur more expenses than you would with a stock portfolio. Tangible assets require upkeep and significant due diligence each time a new project is proposed.
Additionally, Fundrise does not charge any sales commissions or carry. When you invest $1,000 into Fundrise, your full $1,000 is invested. There is not an initial commission that you have to pay to get in.
There is also no carry with Fundrise investments. That means that there is no cap on your earnings potential. With some other REITs, the fund will start shaving off profits once returns exceed a certain amount. Fundrise does not do this.
It is important to understand that these annualized Fundrise returns are "net of" or after fees. This is the actual return investors earned after paying all of the fees mentioned, excluding the early redemption fee.
|Year||Average Annualized Return|
When you log on to Fundrise, one of the first things you will see is an overview of your earnings and fees. They do not try to hide this from investors. Below, you can see that I have paid a total of $7.98 in fees since using Fundrise.
While Fundrise's fees are incredibly low compared to other real estate investment platforms, they did not arrive in this situation by accident.
The secret to Fundrise's significantly lower fees lies in its decision to keep many of its business activities in-house. While several other crowdfunding platforms and REITs decide to outsource everything from administrative tasks to investment analysis, Fundrise hires employees to perform these tasks.
By insourcing and deciding not to rely on a host of expensive third parties, Fundrise keeps its fees lower than most. Even compared to Vanguard which is known for its low fees, Fundrise's 0.15% advisory fee is half of Vanguard's 0.30% average advisor fee.
Additionally, unlike many other crowdfunding platforms, Fundrise doesn't sneak in fees at the fund level where individuals can't see them. Fundrise keeps all of its fees out in the open.
That means that, even if you find a platform that claims they have lower fees, there is a good chance they are squeezing in fees at the fund level where you won't see them directly impacting your returns.
Fees are never a good thing for investors. So, the best thing that any investing platform can do is be completely transparent about them. This is what Fundrise has tried to do here.
Traditional Wall Street fees have been sky high for several years. It wasn't until recently that new online investing platforms have taken a foothold and are competing against giants in the long-established brokerage industry.
Before these newer platforms started to democratize the investing landscape, the brokers had all the power. They could charge investors whatever they wanted because they were the gatekeepers. Now, everyday investors can skip the gatekeepers and get straight to the profit.
Cutting middlemen and inefficiencies out of the picture is one of Fundrise's stated goals and so far they have been mightily effective.
With Fundrise, the fees are transparent and minimized to save the investor money. Fundrise is not trying to use smoke and mirrors to hide its fees. They are straightforward and honest about it.
There's no such thing as a free lunch, but as far as fees go, these are actually quite reasonable. When you look at Fundrise's competitors, it is clear that Fundrise is taking the lead in lowering fees for investors. This is a good sign because it will likely lead to fees continuing to decrease as more and more crowdfunded real estate platforms pop up.