Fundrise Review 2020
It seems like the American dream today is to make money by investing in real estate.
We all have that friend or uncle that became a millionaire real estate investor. One of the biggest obstacles to achieving this dream is the amount of money you need 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 more difficult to invest in real estate.
The good news is, there are other ways to invest in real estate outside of direct ownership. One of these options that is growing in popularity is investing in crowdfunded real estate. This is where investors from all over 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!
|Portfolios||Starter, Growth, Income, Blended|
|Accredited Investor||No - Open To All Investors|
|Private Placements||No - Portfolios Only|
|Time Horizon||5+ Years|
|Assets||Non-Traded eREITs & eFunds|
|Fees||1% Annually + Origination Fees|
|Liquidity||Low Liquidity, Non-Traded Asset|
|Retirement||IRA Accounts Available|
|Early Redemption Fees||Yes 1% To 3%|
What Is Fundrise?
Fundrise is a new 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 real estate. 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, so you are not able to pick and choose projects to invest in individually. Many different projects go into each portfolio, and then investors buy shares of ownership of the portfolio. This gives you diversification across many different real estate projects.
Fundrise is open to all investors with no limitations. You do not need to be an accredited investor.
Fundrise vs Traditional REIT
When it comes to passive real estate investing, most people are familiar with a traditional or publicly traded REIT. Iinvestors 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 up into millions of shares. Shares of these REITs trade on the major stock exchanges. You can buy and sell these shares just like a stock! Vanguard has one that is very popular called VNQ.
One of the downsides of this publicly traded real estate investment is that they often have high fees you have to pay upfront, and you may need a minimum net worth or income to invest.
Here's another issue; correlation. 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 are as well.
You will also find that these REITs are less transparent about the underlying investment. Fundrise offers an easy site where you can click around and read about exactly what you are investing in. A REIT only offers a prospectus, which is not a very easy document to comb through.
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 to the same things at the same time, this is not desirable.
What Are You Investing In?
The short explanation of these investments is that they 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.
What Are The Fees?
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 down below.
One of the biggest advantages to investing with Fundrise is the low and transparent fee structure compared to other real estate investment trusts.
|Investment Advisor Fee||0.15% Annually|
|Asset Management Fee||0.85% Annually|
|Asset Origination/Acquisition Fee||0-2% Upfront|
|Total Fees||1% Annually + 0-2% Upfront|
Is Fundrise Safe/Legit?
Fundrise files with the SEC and is audited on an annual basis.
These financial statement audits are disclosed on the Form 1-K. Beyond that, Fundrise offers a 90 day satisfaction guarantee.
Some limitations do 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 United States investors only, however international investors can invest through some US based entities. The minimum investment to get started with is $500.
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 that as an investor, you should be ready 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.
Early Redemption Fees
If you do redeem your shares early, you will pay an early redemption fee as follows:
|First 90 Days||None|
|Less Than 3 Years||3%|
|3 To 4 Years||2%|
|4 To 5 Years||1%|
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.
The Fundrise Starter Portfolio is for new investors who would like to give Fundrise a shot.
The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income-oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!
Next, we have the Fundrise Supplemental Income Portfolio. This 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.
A lot of 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 for this portfolio is for a balance of income-generating real estate, as well as real estate that is appreciating in value.
Long Term Growth
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.
How To Make Money With Fundrise
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 important to remember that there is no guarantee with dividends in the stock market either. Fundrise can increase, decrease or cancel dividends at any time, just like a publicly traded company.
In terms of asset appreciation, Fundrise will purchase properties with a high potential to grow in value. Often times 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 in to the dividend reinvestment program.
If you want to maximize your returns with Fundrise and earn compound interest, you should opt in to 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.
Fundrise Historical Returns
This is the data from the Fundrise website. Returns are "net of" or after fees are paid. This includes Rise Companies Corporation sponsored deals.
|Year||Average Annualized Return|
Pros Of Investing With Fundrise
- The minimum to invest with the Starter Portfolio is $500
- Since this is a non traded REIT, there is less correlation with the overall market
- Small retail investors are able to access private real estate investments
- Fundrise has a transparent fee of 1% per year + origination
- They do not have a minimum net worth or income requirement like most private investment funds do
- Fundrise gives you diversified exposure to real estate
- This investment allows you to earn compound interest, with the option of automatically reinvesting quarterly dividends
- Fundrise supports some retirement accounts
- This is a 100% passive real estate investment
- Monthly redemption periods eliminate the temptation for panic selling
Cons Of Investing With Fundrise
- Fundrise cannot guarantee liquidity
- There is no guarantee of dividends or distributions
- Distributions (dividends) are taxable as ordinary income
- This platform has a limited operating history
Fundrise Review: The Verdict
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.
There are countless ways to invest in real estate. Fundrise is just one of the many options. These may not be the best fit for you based on what you are looking for out of the investment. Check out our comprehensive guide on real estate investing to learn more and explore other avenues!