Fundrise is an online crowdfunded real estate investing platform that gives investors the opportunity to invest in private real estate with as little as $500. One of the reasons why Fundrise has become so popular is because of the low fee structure. They are very transparent about what fees investors pay.
This is not particularly common among crowdfunded real estate platforms that tend to sneak in hidden fees and costs that investors are not always aware of.
In case you missed it, here is our full review of Fundrise.
Compared to traditional private real estate investments, fees are significantly lower on the Fundrise platform. In this article, we will be explaining what this fee is and whether or not there are any hidden fees that you should know about.
I started out 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 to show you the fees down below.
There are basically three different fees associated with investing in Fundrise:
Fundrise charges a fee of 1% per year. However, there are other fees to keep in mind such as asset origination fees and early redemption fees.
This 1% all-in fee is broken up into two individual fees.
The first is the asset management fee. This fee goes toward the management and oversight of real estate investments as well as the normal business expenses incurred. The asset management fee is 0.85% annually.
The second 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.
There are some upfront costs associated with a real estate 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 the investors and ranges from 0 to 2% per investment. It is only paid once at the inception of the investment.
There are also early redemption fees that range from 1 to 3% of your investment. Investors who withdraw their investment within the first 90 days will not pay an early redemption fee. If you hold your investment for the full 5 year period, you will not pay an early redemption fee.
|First 90 Days||None|
|Less Than 3 Years||3%|
|3 To 4 Years||2%|
|4 To 5 Years||1%|
Nope, no hidden fees here. The only fees you will end up paying on Fundrise are the three fees listed above.
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 in order to get in.
There is also no carry on 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 they show you is an overview of your earnings and fees. They do not try to hide this from investors. So far in 2020, I have paid $4 in advisory fees and all time I have paid $7.98 in fees.
The secret to Fundrise's significantly lower fees lies in their decision to keep much of their business activities in-house. While many 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 their fees lower than most. Even compared to Vanguard which is known for their 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. They keep all of their fees out in the open.
That means that even if you find a platform that claims they have lower fees, there's a good chance they are squeezing in fees at the fund-level where you won't directly see them.
Fees flat out lose investors' money. Why start your investment already down 5% because you paid a broker a fat commission?
Traditional Wall Street fees have been sky high for a number of 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 don't have to go through these outdated gatekeepers and we are seeing the benefit in the form of lower fees.
Cutting middlemen and inefficiencies out of the picture is one of Fundrise's stated goals and so far the platform that they have built has been effective in doing just that.
With Fundrise, the fees are transparent and minimized to save the investor money. They are not trying to use smoke and mirrors to hide their 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.