Real estate is an important asset to hold in your investment portfolio. Relying too much on one asset can cause investors to be ill prepared in the case of economic downturn.
Investing in real estate is just one way to prevent a slowdown in the economy from ruining your nest egg.
Diversifying between stocks, bonds and real estate is how most experts recommend diversifying. However, in the past, it has been difficult to invest in real estate. It often involves being a landlord and managing rentals, something many investors do not want to do.
For this review, we will take a look at two investment platforms that make real estate investing easy; Fundrise vs EquityMultiple.
Fundrise is a crowdfunded real estate investing platform that lets you get in on private deals with as little as $500. It is open to all investors.
EquityMultiple is a newer crowdfunding real estate investment platform for accredited investors only with a minimum investment of $5,000.
|Investment Focus||Residential, Commercial||Commercial|
|Fees||1%||1% + profit sharing|
|Best for||Novice to expert investors||Expert investors|
Fundrise Review 2020: Best Passive Real Estate Investment?
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EquityMultiple Review 2020: Ideal Crowdfunded Real Estate Platform?
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Fundrise, founded in 2010, focuses on investing in real estate via crowdfunding and is considered a pioneer in this field.
In the past, it was difficult for average investors to get access to private real estate deals.
The average investor, without a trust fund to rely on, was usually shunned by the real estate investing world. They did not have the capital or the connections.
That is until the REIT came along. REITs allow investors to purchase shares of real estate, just like a stock. No matter your income level or net worth, you can participate in real estate by buying REITS (Real Estate Investment Trust).
Fundrise simply offers private REITs, meaning they are not available to the general public. This has numerous benefits, including greater transparency and the possibility for higher returns.
Fundrise allows individuals to invest in low-cost diversified portfolios of real estate assets.
Investors choose a portfolio of real estate containing both debt and equity. Investors earn returns from interest payments on debt investments, asset appreciation and rental income from properties.
Of course, it is always wise to reinvest these received dividends in order to reap the full advantage of compound interest. Fundrise allows you to do this in an easy, automated fashion.
A common phrase in real estate is "you make money on the purchase, not the sale."
Fundrise looks for undervalued properties that make a good case for returning serious profits.
When a property is identified, Fundrise managers connect with developers, contractors, and inspectors to complete the necessary works to make the property ready for tenants.
These changes can come in the form of repositioning these properties, rehabilitating the property and subsequently increasing rent, or simply holding it until an opportunity for a sale arises.
These accounts range from a minimum investment of $500 to $100,000 each with their own unique perks.
In your account dashboard, you will be able to see each individual property in your portfolio.
One of the most impactful aspects of real estate investing is unlike stocks or bonds, owning a piece of real estate is investing in something tangible. These buildings can be renovated, expanded, updated and even demolished.
From the account dashboard, you can learn about progress with the buildings in your portfolio. These bits of information include new rehab projects, building permit approvals, and sales affecting the properties.
A key difference between Fundrise and a publicly traded REIT is this level of transparency. With a publicly traded REIT, it is very difficult to determine what exactly your money is invested in.
Fundrise collects an annual fee of 1%.
This fee breaks down into an advisory fee and an asset management fee.
You should not invest with Fundrise unless you are comfortable with the lack of liquidity and have a 5+ year time horizon.
Fundrise has stated they retain the right to deny requests for liquidation during times of economic uncertainty. For example, in March 2020, Fundrise published a notice that they had “suspended redemption's for our mature eREITs and eFunds in order to maximize cash reserves."
In order to avoid redemption fees, be sure you understand the following fee table as redemption fees correlate with the length of time invested.
|First 90 Days||None|
|Less Than 3 Years||3%|
|3 To 4 Years||2%|
|4 To 5 Years||1%|
EquityMultiple is a crowdfunding real estate investment platform for accredited investors with a minimum investment of $5,000.
This means that this investment platform was built with very specific investors in mind; accredited investors. These are investors who meet at least one requirement in terms of income, net worth, asset size, governance status or professional experience.
Most people reading this article won’t be able to invest with EquityMultiple, but in the hopes that one day you will, let’s dive into the details.
EquityMultiple allows investors to be completely hands off as the experts search for real estate deals. These are real estate properties like malls, office buildings, multifamily and more.
These investment opportunities are not limited to just one area. Investors can choose from a variety of building types, locations, and expected returns in order to reach their goals. As of recently, EquityMultiple has completed more than $80 billion in real estate transactions since inception in 2015.
Currently, EquityMutiple has over $2.5 billion in assets and has returned nearly $24 million to investors.
Users can choose how they want to invest their money by choosing one, or all, of EquityMultiple’s predetermined investment strategies.
Individuals who are focused on a slower growth of their real estate portfolio will most likely opt for the direct investing strategy.
Through this, investors focus on one property at a time and are able to hold this for a shorter duration. Generally investors prefer to hold these assets for as little as 6 months up to 5+ years. Again, this investment comes with a high minimum investment of $10,000.
This form of investing is best for those looking for diversification across the portfolio.
Investors that find this most helpful are those that have a timeline of at least 1.5 years all the way up until 10+ years. Unfortunately, this kind of diversification comes at a cost. The minimum investment for this type of portfolio is $20,000.
Investors who have already realized large, or will soon recognize large capital gains taxes can take advantage of a 1031 exchange to invest with EquityMultiple in the Tax-Deferred category.
These investors have a much longer horizon of 5 to 10+ years. Investors should come prepared with a minimum investment of $40,000.
Investment in preferred equity allows investors to have preference over other investors when cash flows are present.
Similar to preferred shares of a publicly traded company, holders of preferred equity are first in line for cash flow payments once the properties are free and clear of debt and until the preferred return has been met.
Again, as is common with shares of publicly traded companies, common equity holders have a higher risk to reward ratio. Their spot is less of a priority for cash flows from a property but because of the increased risk, the return is also greater for these types of investors.
When investors loan their money to a certain project, this comes in the form of syndicated debt. This money is pooled together from several different investors and is used to fund a project. These investors receive more confidence as deals completed using syndicated debt go through an extra layer of diligence.
As with every investment, fees play an important part in the equation.
All investments receive this same servicing fee. This fee of 1% compensates EquityMultiple for asset management, reporting, record keeping, tax preparation, distribution administration and other services.
EquityMultiple takes a cut of the upside in addition to the 1% servicing fee.
EquityMultiple charges a flat $30 fee per year for each investment.
Both Fundrise and EquityMultiple both have great systems to automate the process of purchasing new properties. However, one important distinction is that EquityMultiple will only invest in commercial properties.
It goes without saying that Fundrise is much more suited to investors who are just beginning to invest in real estate while also offering premium packages for those with more than $100,000 to invest.
Both platforms are illiquid in nature, and not a good fit for short term investors or those who prioritize liquidity, or the ability to sell at a moments notice.