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It is a well-known fact that many of today's wealthy individuals gained a majority of their wealth by investing in real estate. Yes, office buildings, storage units, apartment complexes, and even single-family homes have made a lot of people very wealthy.
We all have that friend or uncle that became a millionaire real estate investor. However, one of the biggest obstacles to achieving this dream is the amount of money needed to buy a single piece of real estate.
The upfront cost for an individual to purchase a piece of residential or commercial real estate can be astronomical. On top of that, home prices are on the rise. Since you need more money upfront, it is becoming increasingly difficult to invest in real estate.
The good news is there are other ways to invest in real estate outside of direct ownership. One option that is growing in popularity is crowdfunded real estate. This new form of investment centers around investors from all over the world who pool money together to invest in real estate projects.
Fundrise is, by far, the most well-known crowdfunded real estate platform. In this review, we will be covering the ins and outs of this investment. If you want to learn about other similar investments, check out our top crowdfunded real estate platforms review!
Summary
I have personally invested $5,000 with Fundrise to try it out. Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. This is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.
Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.
Fundrise is best for investors with a 5 year time horizon. Real estate is not a highly liquid investment, and inexperienced investors need to take this into consideration.
While Fundrise does offer a 90-day satisfaction guarantee, you should not invest if you have a short term investing mentality.
Pros
Cons
Fundrise is a platform for investing in real estate that was founded in 2010. Just like with other crowdfunded real estate platforms, investors from all over pool money together to invest in several real estate projects. Fundrise includes a mix of both debt investments and equity investments in their portfolios.
All of the investments offered on this site are portfolio based. This prevents individuals from choosing individual projects to invest in. Rather, investors may choose to invest in a certain portfolio of projects. These portfolios are separated by how much investors are willing to invest and what their main goals are. More on this later.
By investing in portfolios, investors are able to diversify across many different real estate projects and across several locations.
Fundrise is open to all investors with no limitations. You do not need to be an accredited investor.
When it comes to passive real estate investing, most people are familiar with a traditional or publicly-traded REIT. Investors have been able to overcome the difficulties of owning physical real estate by investing in REITs (real estate investment trusts) or other investment vehicles offered on public exchanges.
These investment vehicles are large pools of real estate split into millions of shares. Shares of these REITs trade on the public major stock exchanges. You can buy and sell these shares just like stocks! Vanguard has one that is very popular called VNQ.
One of the downsides of publicly-traded real estate investment trusts is the high fees that often accompany such an investment. These fees are often required upfront and you may need a minimum net worth or income to invest.
One way that investors look to achieve diversification is by investing in different asset classes. Typically, these are assets like stocks, bonds, real estate, and even precious metals. While publicly-traded REITs offer the ability to easily diversify asset classes and own real estate, these investments are heavily correlated with the overall market.
Generally speaking, if the markets are doing well the publicly-traded REIT investments are as well. If the markets are performing poorly, the publicly-traded REIT investments will likely perform poorly as well.
The point of investing in different asset classes is to have assets performing in different ways at different times. Maybe the stocks in your portfolio are performing poorly, but the value of the gold in your safe is soaring. If your assets do the same things at the same time, this is not desirable.
Another potential downside to investing in publicly-traded REITs is the lack of transparency. Often, investors have no idea what real estate their money is buying or even what the underlying fees are. REITs are only required to offer a prospectus, a complicated and non-intuitive document filled with legal jargon about the return and risk factors. This is not helpful to most investors. Fundrise wanted to change this.
Fundrise is a platform where you can click around and read about exactly what you are investing in. In fact, Fundrise strives to be completely transparent with its fees and does not have any hidden recurring fees.
Investors on the Fundrise platform invest in eREITs and the eFund.
These investments are non-traded, meaning they are not available on a public exchange like a traditional publicly-traded REIT. The eREIT and eFund are also investments you purchase directly from Fundrise. This cuts out the middleman and reduces the overall fees.
However, as a result, you cannot sell these Fundrise investments on a traditional stock exchange. You can only buy and sell them through the Fundrise marketplace.
Fundrise recently rolled out a new investment, where you can invest directly in the company itself. You have to be a Fundrise investor in order to take part in this. Rather than owning real estate, you own a piece of Fundrise.
This is a bit complicated, so we wrote a full review of investing in the Fundrise iPO.
The main revenue stream for Fundrise is charging fees to investors. If you are curious about all of the ways they earn income, here's our full article on how Fundrise makes money.
Fundrise charges a fee of 1% per year.
Aside from the recurring fee, there are some upfront fees to be aware of as well. Fundrise collects asset origination and acquisition fees when they bring on a new property. The fee for this ranges from 0% to 2% upfront.
They do not charge any other hidden fees and there is no front load fee with Fundrise. There are early redemption fees, which we outline below.
One of the biggest advantages to investing with Fundrise is the low and transparent fee structure compared to other real estate investment trusts.
If you are looking for more information, here is our full article explaining all of the Fundrise fees.
In a nutshell, Fundrise is a safe investment based on the fact that they are regulated.
Fundrise files with the SEC and is audited on an annual basis.
These financial statement audits are disclosed on Form 1-K. Beyond that, Fundrise offers a 90-day satisfaction guarantee.
Some limitations apply, but if you are unhappy with your investment in the first 90 days, Fundrise will buy it back at the original price you paid. Fundrise is for U.S. investors only and the minimum investment to get started with is $10.
Since this investment is regulated by the SEC, you do not have to be an accredited investor in order to participate. Here are a number of other crowdfunded real estate platforms for non-accredited investors!
An asset has high liquidity if it can quickly and easily be converted into cash. Assets like stocks are highly liquid as you can sell them on a stock exchange in a matter of seconds.
Real estate is a low liquidity investment. This is because real estate does not change hands as easily as a stock.
When Fundrise invests in a real estate project, it is typically a long-term investment of five years or more. It is important to understand this as an investor. You should be prepared to leave that money invested for the long term.
Fundrise has stated this platform is for investors who have a minimum time horizon of five years. If you are a short-term investor, Fundrise is not for you!
Fundrise offers a monthly redemption period where investors have the opportunity to cash out each month following a minimum 60 day waiting period. It is important to understand however that Fundrise does not guarantee liquidity.
In order for Fundrise to generate the greatest return for investors, they need to remain as fully invested as possible. If Fundrise holds 20% of the fund in cash for redemption, that means 20% of the fund is earning a return of 0% or close to it.
These redemption fees are in place to discourage people from moving money in and out of Fundrise. This is in the best interest of all investors collectively.
Fundrise offers a variety of portfolios at differing minimum investments. As you can see below, the higher your minimum investment, the more features you will have access to.
Minimum: $10
Features: Dividend reinvestment, auto-invest, registered products
Minimum: $1,000
Features: Start features + IRA investing, Fundrise iPO, goal creation and management tools
Minimum: $5,000
Features: Core features + customizable portfolio strategies, non-registered products
Minimum: $10,000
Features: Core features + plus plans (evolving real estate strategies that adjust over time based on new market opportunities)
Minimum: $100,000
Features: Advanced features + access to investment staff, periodic accredited offerings
Upon signing up for Fundrise, investors are administered a questionnaire to determine objectives and ultimately receive a recommendation on investment strategy. Below are the various strategies investors may choose from.
The Fundrise Supplemental Income Portfolio holds income-producing real estate.
Investors will earn returns primarily through dividends from cash flow-producing real estate. Fundrise generates dividends through rental and interest payments in proportion to your share of the fund. These dividends will be dispersed quarterly. Because of this, many income investors prefer RealtyMogul over Fundrise since they offer monthly distributions instead of quarterly.
The Fundrise Balanced Investing Portfolio offers a blend of 50% growth and 50% income-oriented investments.
The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal of this portfolio is to create a balance of income-generating real estate and real estate that is appreciating quickly.
Finally, we have the Fundrise Long-Term Growth Portfolio. The goal of this portfolio is to generate returns primarily from asset appreciation.
This portfolio aims to purchase high-growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.
Fundrise is a 100% passive investment.
You simply invest your cash and it is immediately put to work. With Fundrise, you make money in one of two ways: asset appreciation and dividends or distributions.
Your eREITs within Fundrise will pay quarterly dividends or what Fundrise calls distributions. These dividends consist of interest payments from loans and rental payments. The amount of your investment in the entire eREIT determines the amount of your dividend payout.
Investors can expect to receive dividends from Fundrise on a quarterly basis, but it is important to remember that Fundrise does not guarantee these dividends.
It is also important to remember that there is no guarantee of dividends in the stock market either. Fundrise can increase, decrease, or cancel dividends at any time. Just like a publicly-traded company.
We wrote an entire article comparing investing with Fundrise vs the stock market.
In terms of asset appreciation, Fundrise will purchase properties with a high potential to grow in value. Often, this is a property in a booming area where population growth is exceeding the national average.
The goal is to buy property ahead of a major trend and capitalize on the growth of the neighborhood. Once they purchase a property, Fundrise will often renovate the real estate and make improvements to increase the sale price and the value of the property. As a result, investors make money from the sale of the property primarily.
Fundrise will automatically deposit dividends or distributions into your bank account on file unless you opt into the dividend reinvestment program.
If you want to maximize your returns with Fundrise and earn compound interest, you should opt into the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.
Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends, you are able to earn more dividends because you have a larger investment.
Over time, the compounding of these dividends will result in exponential growth of your portfolio.
It is important to understand the tax implications, which are explained in our article on Fundrise taxes.
This is the data from the Fundrise website. Returns are "net of" or after fees are paid. This includes Rise Companies Corporation sponsored deals.
Based on these returns, it is up to you to decide whether or not you think Fundrise is a good investment.
I have personally invested $5,000 with Fundrise to try it out. Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. This is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.
Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.
Fundrise is best for investors with a five-year horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration.
While Fundrise does offer a 90-day satisfaction guarantee, you should not invest if you have a short-term investing mentality.
There are countless ways to invest in real estate. Fundrise is just one of the many options and these may not be the best fit for you based on your goals and objectives. If you are still not convinced Fundrise is for you, check out our comprehensive guide on real estate investing to learn more and explore other avenues!
If you are ready to get started with Fundrise, check out our beginner's guide to investing with Fundrise next!
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