Real Estate is an asset class that most investors use in a well balanced portfolio. Investors have been using real estate as an investment for thousands of years. It isn't until the last 50 years where investors can gain real estate exposure without committing a massive amount of capital.
Recently a number of new real estate investing platforms have emerged. In this post, we would like to review and compare two very popular crowdfunded real estate investing platforms, Fundrise vs PeerStreet.
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. Here is our full review of the Fundrise investment platform.
Account Types: Traditional taxable, Individual Retirement Accounts (IRA)
Minimum Investment: $500
Investments: Real estate debt and equity investments across the United States. Fundrise aims to find properties that provide value in the form of income and/ or growth. Fundrise real estate investments are private investments, not publicly traded on exchanges. Liquidity is never guaranteed when investing in Fundrise portfolios.
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 takes a new approach to the traditional Real Estate Investment Trust (REIT) structure. Through the use of technology, Fundrise makes it easy to fund your account, check in on projects and choose your portfolio. By leveraging new regulations, Fundrise gives the average investor access to commercial and residential real estate with as little as $500.
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. We will discuss this in further detail throughout the article.
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.
The main investment objectives of Fundrise are 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 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-generating real estate, as well as real estate that is appreciating in value.
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.
Core - Fundrise Core accounts give you the opportunity to invest in the standard Fundrise portfolios - supplemental income, long term growth, and balanced investing. The minimum investment for Fundrise Core accounts is $1,000.
Advanced - Fundrise Advanced accounts provide all the features offered in Core, plus access to additional investment opportunities. These investments are not available to all Fundrise investors and are more strategic in nature. The minimum investment for Fundrise Advanced is $10,000.
Premium - Fundrise Premium accounts give you all the features offered in Core and Advanced, plus even more unique investment opportunities. These investments typically have longer time horizons and have a limited number of investors. The minimum investment for Fundrise Premium is $100,000.
Each portfolio consists of eREITs and eFunds designed by Fundrise. Fundrise takes the management role for these investments which are set up as real estate investment trusts or partnerships.
An eREIT aims to 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.
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 guaranteed.
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.
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.
Since you can only liquidate your positions quarterly, investors may be less tempted to actively trade in and out of positions. This may protect you from self-harm or emotional investing.
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.
PeerStreet is an online crowdfunded real estate investing platform similar to Fundrise. Investors pool their money together to purchase real estate notes. However, PeerStreet takes a slightly different approach to real estate investments. PeerStreet strictly offers real estate debt investments, where investors can purchase notes that may earn a return based on interest payments made by the borrower. The platform allows accredited investors, funds and institutions to invest in high quality private real estate loans.
PeerStreet allows investors to purchase a variety of real estate notes offered on their platform. Conveniently, PeerStreet will underwrite each loan utilizing preset metrics and requirements to make sure each loan is of the highest quality. The PeerStreet investment team has strict investment standards and will only work with experienced private lenders with great track records.
PeerStreet explains on their website how they vet partners and loans themselves...
Most loans on the PeerStreet platform are backed by the underlying real estate itself. This means if the loan goes into default, there will be a hard asset to act as collateral and pay back investors. PeerStreet loans are typically short term with 6 to 24 month maturities. The PeerStreet team aims to build a diversified loan portfolio across property types, geographic locations and originators.
The PeerStreet platform offers private real estate debt investments for both commercial and single-family residential real estate. Most of the metrics taken into account by PeerStreet when they are analyzing a potential loan include property type, loan to value ratio, geography, maturity, the originator as well as multiple other factors.
PeerStreet allows you to select your own loan investments so you can use your own parameters to select the best investments specific to you.
PeerStreet also has an automated investing feature. Using automated investing, PeerStreet will automatically select a loan profile for you and add those loans to your portfolio.
Investors should understand that PeerStreet investments are illiquid in nature. Meaning once you purchase your investment you are locked in and cannot sell your investment on a secondary market. This is why investors must understand the risks involved before they commit capital to an illiquid investment.
Using cutting edge technology, PeerStreet offers a user-friendly platform where investors can keep track of their investments and follow their progress.
PeerStreet makes its fees through an interest rate spread between what it receives from lenders and what it pays out to borrows. Each deal has a 0.25% to 1.00% service fee, PeerStreet will always disclose this fee to investors.
While Fundrise and PeerStreet both offer debt investment in real estate, the similarities pretty much end there. PeerStreet and Fundrise take very different approaches to crowdfunded real estate investing. Here is what it comes down to when comparing Fundrise vs PeerStreet.
Fundrise offers both equity and debt real estate investments. Fundrise allows you to select from one of their four prebuilt portfolios: Starter Portfolio, Supplemental Income, Balanced Investing or Long Term Growth. These portfolios have a mix of debt and equity real estate investments. With only a $500 minimum deposit and no accreditation status, investors can get started with Fundrise seamlessly.
PeerStreet, on the other hand, offers only debt real estate investments. Investors can choose to select their own loan portfolio or they can use the PeerStreet automated investing feature where their loan portfolio will be selected for them. Investors on the PeerStreet platform need to have a greater knowledge of the risks involved with an illiquid investment. The minimum to invest with PeerStreet is $1,000 and limited to accredited investors only.
In summary, if you are an average investor looking for a crowdfunded real estate investing platform we believe Fundrise will be the best option for you. A lower account minimum, not limited to accredited investors, and both debt and equity investments make Fundrise an appealing platform. PeerStreet offers more sophisticated investors a way of gaining access to private real estate debt investments with an easy to use platform.