Fundrise vs. Groundfloor
Real estate can be an extremely valuable asset in a well-balanced portfolio. Over the last few years, new investing regulations have allowed new real estate investing platforms to emerge. Crowdfunded real estate investing has allowed everyday investors to gain access to private residential and commercial real estate investments. In this article, we are going to compare two popular real estate investing platforms, Fundrise vs Groundfloor.
What Is Fundrise?
Starting with Fundrise, this is a new investing platform that allows everyday investors to invest in private real estate projects. In the past, only high net worth investors had access to projects like this. Now under new investing regulations, Fundrise gives you the chance to invest in these deals. You have the ability to gain investment exposure to both commercial and residential real estate.
How Does Fundrise Work?
Fundrise is a crowdfunded real estate investing platform. Similar to real estate investment trusts or partnerships, all the investors pool their money together to purchase real estate assets. These assets then produce income and/or growth based on the principal investment. Historically, Fundrise has provided investors with a positive return on their portion of the investment over time.
Real estate is traditionally a high barrier to entry investment. Now platforms like Fundrise allow average retail investors to get exposure to this asset class. The Fundrise Starter Portfolio has a minimum account balance of $500.
Fundrise E-REIT & E-FUND
Fundrise takes a new approach to the traditional Real Estate Investment Trust (REIT) structure. The platform features an online portal which makes it easy to fund your account, check in on projects and choose your portfolio. By using new investment regulations to their advantage, Fundrise gives investors access to commercial and residential real estate with a $500 minimum investment.
An eREIT will produce income for your portfolio in the form of dividends. You may earn dividends from the rent payments of the underlying apartment and commercial leases owned within the eREIT as well as interest payments from underlying real estate debt investments held by Fundrise.
An eFund is a partnership created by Fundrise to provide greater investment flexibility. Partnerships have the advantage of avoiding the double taxation of normal C-Corps. eFunds are built in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are built to generate income, eFunds are geared towards growth.
The Fundrise platform offers a variety of benefits such as low account minimums and quarterly redemption periods. However, investors should understand the liquidity and time horizon of an investment in the Fundrise platform. Fundrise investments have no secondary market so there is no way to easily get out from under your investment, other than by the means of redemption.
Real Estate Projects
Fundrise offers plans to invest in different types of real estate. You can invest in income-producing rental properties or growth-oriented real estate developments. Fundrise offers different investment plans based on your investment goals. You can keep track of Fundrise real estate projects within your investment account. Fundrise will also notify you about major developments with their projects.
Fundrise has a main investment objective to generate revenue from income producing properties as well as buying and selling real estate in thriving markets. As a Fundrise investor, you can choose whether you want to be in a growth-oriented portfolio or income-oriented portfolio. Investors receive income from rental payments and proceeds from flips in the form of dividend payments or distributions. In exchange, Fundrise collects a 1% fee as the investment manager.
It is important to understand that Fundrise is a private real estate investment. You can only buy and sell Fundrise eREITs and eFUNDs on the Fundrise platform. They are not publicly traded on a stock exchange like a publicly traded REIT.
Fundrise Investment Options And Portfolios
Fundrise allows you to choose from four real estate portfolios based on your risk and investment goals. Some portfolios aim for cash flow and others focus on the growth of the underlying assets. If you invest the minimum of $500, you will have access to the starter portfolio. The other three advanced plans require a minimum investment of $1,000.
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. Dividends are generated through rental and interest payments in proportion to your share of the fund.
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 producing 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.
Fundrise Investment Liquidity
Fundrise uses the funds you invest to purchase real estate. For this reason, there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods when you can withdraw your funds.
This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long-term investment of at least a 5-year time horizon when investing with Fundrise. This Real estate investment is not highly liquid and may not be for everyone!
It is important that investors understand that liquidity and distributions are never a guarantee.
Fundrise Historical Returns
Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front load fee with Fundrise. The returns shown above are the returns after Fundrise collects the 1% fee.
Pros Of Investing With Fundrise
- The minimum to invest with the Starter Portfolio is $500.
- Small retail investors are able to access private real estate investments.
- Fundrise has a transparent fee of 1% per year.
- This investment allows you to earn compound interest, with the option of automatically reinvesting quarterly dividends using a drip (Dividend Reinvestment Plan).
- Fundrise does not have a minimum net worth or income requirement like most private investment funds do.
- This is a 100% passive real estate investment.
- Fundrise gives you diversified exposure to real estate.
- Fundrise supports retirement accounts.
Cons Of Investing With Fundrise
- Liquidity is never guaranteed. During a downturn, liquidity may not be available as many investors will rush to sell and buyers may be few and far between.
- Distributions (dividends) are never guaranteed.
- Distributions (dividends) are taxed as ordinary income rather than capital gain rates.
- The platform has a limited track record of four years and not a long investment history.
Fundrise: The Bottom Line
Fundrise may be a great platform for passive investors who are looking to gain access to private real estate markets. The Fundrise platform may also a good option for investors who are looking to diversify asset classes.
In addition, you can automate your dividend reinvestment plan, allowing compound interest to build up in your account.
In most cases, Fundrise is best for investors with a minimum 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.
What is Groundfloor?
Groundfloor is a crowdfunded real estate investing platform specializing in loans for single and multi-family housing projects. Their goal is to purchase homes in need of work, repair and update the house, then later sell it for a profit. Overall Groundfloor projects are shorter term investments compared to other real estate investing platforms. Groundfloor loans have returned 10% annually according to Groundfloor.
You can choose from a variety of different loans on the Groundfloor platform, allowing you to choose specific projects and identify loan grades for that project. Loans are typically short term, 6 to 12 months.
The Groundfloor platform is available to non accredited investors with a minimum investment of $10. This may be a good platform for someone who is looking to loan money to make a return on quick flip real estate deals. Groundfloor does all its own due diligence for the loans offered on its platform. You can also choose your risk based on the loan grade for each specific project.
How Does Groundfloor Work?
Groundfloor will fund a project through crowdfunded loans from a group of investors. Once the deal has reached its full funding potential, Groundfloor will take a loan origination fee and close the deal. Over the next 6 to 12 months the borrow will fix and repair the property. Then Groundfloor will aim to sell the property for a gain, giving back the investors principal and interest from the proceeds.
When investors are funding loans on the Groundfloor platform they are purchasing a debt security called a Limited Resource Obligation (LRO) from Groundfloor. Each LRO is tied to the specific project you are investing in. The LRO performance and payout structure is based on the terms of the deal with the borrower.
When a borrower is looking to renovate a real estate project and they need a loan they will contact Groundfloor. At this point, Groundfloor will analyze the project and complete the due diligence to see if it is a potentially profitable project. If Groundfloor likes the project, they will underwrite the loan and try to attract lenders by offering the project on their platform. The loans offered on the Groundfloor platform vary by grade based on the expected rate of return and risk of the project. Groundfloor grades loans from A to G with A considered less risky and G grades offering the highest potential returns but carrying the most risk.
The loan grade structure is based on a variety of factors such as location, borrower commitment, skin in the game, lien position, and other factors. All loans on Groundfloor are secured by the underlying real estate itself. In most of the deals, Groundfloor will have the senior lien position in the case of a default.
Groundfloor loans have no secondary market where investors can resell their investments. Investors need to understand this is not a highly liquid investment. In the case the investor needs their principal investment back, they will have to wait until project completion.
Investments: Debt investments for real estate fix and flip projects
Fees: No fees for investors
Accredited Investors: Not limited to accredited investors
Minimum Investment: $10
- Low Minimum Investment: Investors can get started with a $10 minimum investment.
- Open to More Investors: Not limited to accredited investors.
- Fix and Flip investment strategy in a relatively passive format.
- Diversification with small micro investments.
- No fees for investors: Borrowers will pay interest to Groundfloor for the loans they borrow.
- Control: You have no control over the projects and how they progress.
- Lending Risks: LROs can carry significant risks, investors may not be able to liquidate and get out from under their investment.
- Debt Investments only: Unlike other crowdfunded real estate investing platforms which allow you to invest in equity, Groundfloor only offers debt investments.
Fundrise vs Groundfloor
When comparing Fundrise vs Groundfloor both are crowdfunded real estate investing platforms, but their similarities pretty much end there. Fundrise allows you to invest in a variety of prebuilt portfolios, offering debt, equity, and preferred equity investments with a minimum investment of $500. While Groundfloor allows you to invest in a variety of different real estate loan grades within your portfolio starting at a $10 minimum investment.
Fundrise offers investors a way to invest in real estate along with a dividend reinvestment option which will allow your investment to be more passive in nature. Fundrise equity investments are typically 5 years in term. Groundfloor has short term debt investments which are typically 1 year or less in term. When a real estate note in Groundfloor matures, investors will need to manually reinvest their proceeds to keep their money invested at all times.
Fees are clear with Fundrise, who charges a 1% annual management fee for finding, constructing, and managing the deals offered on the platform. There are also deal origination fees that can add up to 2% depending on the deal. Groundfloor charges no fees to investors, rather, those looking to take a loan from Groundfloor will pay interest to borrow money on the platform.
Overall, we believe Fundrise is the superior crowdfunded investment platform when compared to Groundfloor. Fundrise gives investors a way to invest in debt, equity, and preferred equity investments. Investors can track and manage their investments on the user-friendly Fundrise platform and reinvest their dividends for continuous growth. Groundfloor offers debt investments, which may be a good fit for those looking to invest in the fix-and-flip strategy. Groundfloor also may be a good platform for those looking to invest a smaller amount, with the minimum investment being only $10. As both Fundrise and Groundfloor have relatively low minimums and aren’t limited to accredited investors, you can always give both a shot and see which platform you like best.