As investors, we are always looking for ways to grow and diversify our portfolios. Whether we buy many different stocks or spread our money across different asset classes, diversification is key to a successful portfolio. One key component of a well-rounded portfolio is real estate.
The problem is, real estate isn't always the most passive investment. It can take a lot of hard work and time to maintain and manage a real estate investment. In addition, the upfront investment is often quite high. If you are buying a rental property, get ready to shell out 20 to 25% of the value of the property as a down payment!
Recently, a number of different crowdfunded real estate investing platforms have emerged. This provides investors with a great way to passively invest in real estate all over the US! Instead of investing tens of thousands of dollars into a rental property, you can passively invest with as little as $10.
Many of these crowdfunded platforms offer unique features to investors, making it difficult to choose between them. In this article, we will compare two popular crowdfunded real estate platforms: Fundrise and RealtyMogul.
Fundrise is the original crowdfunded real estate platform and allows the everyday investor to get exposure to real estate. With low minimums and hands-off investments, the platform is built with beginners in mind.
RealtyMogul is a more advanced platform that is tailored toward higher net worth investors. On the platform, you can choose to invest in individual deals or in privately traded REITs. However, the minimums will be quite a bit higher than you will find on Fundrise.
Both platforms were designed to make it possible to invest passively in real estate. While both achieve this goal, they do so in very different ways.
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Fundrise Review 2021: Best Passive Real Estate Investment? |
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RealtyMogul Review 2021: Best Crowdfunded Real Estate Platform? |
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Similar to real estate investment trusts or partnerships, Fundrise allows investors to pool their money together to purchase real estate. The company facilitates a combination of debt and equity deals, giving investors both growth and income potential.
Fundrise has changed the game by offering its starter portfolio with a $10 minimum balance. You can upgrade to one of its advanced plans at any time with no change fee.
In a nutshell, Fundrise curates private real estate deals. With some of these deals, you are an owner who has equity in the property. In others, you serve as the bank having a debt interest.
Generally speaking, equity investments are growth investments, as you can capitalize on asset appreciation. Debt investments are income investments, as you aim to receive interest payments from the loan. Each portfolio holds a blend of both debt and equity investments.
Fundrise only offers portfolios to invest in. They do not offer any individual properties known as private placements. These are unavailable to non-accredited investors.
The average Fundrise investor is in their 30s while the median initial investment is $4,500.
However, the amount you invest is totally up to you! You can open a starter portfolio for just $10. This allows you to dip your toes in without going all in. At any time, you can upgrade from the starter portfolio to one of the advanced plans.
The amount that you invest is completely up to you, and how comfortable you feel about investing in crowdfunded real estate. Be cautious of over-allocating too much of your portfolio to any single position. Diversification is the key to managing your risk.
Real estate gurus also emphasize this isn’t a get-rich-quick avenue. It’s meant to be a long-term investment. If you have a minimum time horizon of approximately five years to put into the deal, Fundrise may be for you.
Fundrise aims to acquire assets with a high potential to grow in value.
The key here is to buy ahead of major demographic or cultural shifts, understand emerging neighborhood growth, or recognize untapped property potential. That’s where the experts come in.
Another focus of the Fundrise strategy is making major improvements to the property to increase the sale price.
Fundrise puts your investment to work on across-the-board improvements. These improvements include projects such as building new urban housing, renovating run-down apartments, and renting out viable vacant buildings.
When the refurbished properties are sold, often returns are recognized and returned to the investors. There is far greater demand for complete real estate developments. Most people do not want to purchase a fixer-upper.
Fundrise has found that there are many more potential homebuyers for a fully renovated home than a rundown fixer-upper and there are more renters for new luxury apartments near a metro area than for the previously vacant land.
The two primary ways to make money with Fundrise are:
In debt investments, you and other investors act as the bank. The interest payments earned on the loan are paid out to you as quarterly dividends
The same is true for rental income. If your Fundrise portfolio holds a cash-flowing portfolio, the rental payments are shared among the investors.
Finally, Fundrise aims to buy properties at a lower price and sell them at a higher price. This is called asset appreciation. All of these different methods allow you to make money with Fundrise.
There is a flat annual fee of 1% on the Fundrise platform.
This is broken down as a 0.15% investment management fee to manage your portfolio.
The other fee is a 0.85% asset management fee to manage the underlying properties held in your portfolio.
Fundrise also has an asset origination/acquisition fee. This is a one-time fee that can range from 0-2% of the initial investment. This is a fee for establishing real estate partnerships and the origination and negotiation of the underlying real estate assets.
Investors who would like to redeem their shares before holding them for five years will pay an early redemption fee.
The fee is calculated as a discount to the share price of your investment. The fee is reduced for each additional year you hold the investment.
Within Fundrise, you will have the option to invest at five different levels. Each level unlocks new features and portfolios.
Starter - This account is for beginners and offers the minimum amount of features and investment options but at an incredibly low minimum. The minimum investment for this account is $10.
Basic - Fundrise Basic gives you the opportunity to invest in the Starter Portfolio with the added capability to invest via an IRA and to create and manage your own personal investment goals. The minimum investment for Fundrise Basic accounts is $1,000.
Core - Fundrise Core gives you the opportunity to invest across portfolios such as balanced investing, supplemental income, or long-term growth. The minimum investment for Fundrise Core accounts is $5,000.
Advanced - Fundrise Advanced account level gives you all the features offered in the Core plan, but also gives you access to Fundrise Plus plans. These are investments beyond what is offered in the standard Fundrise portfolios. These investments are more strategic in nature and change based on market opportunities. The minimum investment for Fundrise Advanced accounts is $10,000.
Premium - Fundrise Premium gives investors all the features offered in Core and Advanced and also allows users to invest in projects that occasionally become available. These projects are illiquid and typically have even longer term time horizons. The minimum investment for Fundrise Premium accounts is $100,000.
Fundrise allows you to choose from over a dozen real estate portfolios based on your risk tolerance and investment goals.
Some portfolios aim for cash flow and others focus on the growth of the underlying assets. If you invest a minimum of $10, you will have access to the starter portfolio. The next tier requires a minimum investment of $1,000 and will provide you with access to retirement investing.
In order to access the rest of the portfolios, you'll need a Core Account which requires a $5,000 minimum investment. This opens up your portfolio to a more customized experience by investing in supplemental income, balanced investments, or long-term growth investments.
More on these below!
The Fundrise Starter Portfolio is for new investors who would like to give Fundrise a shot.
The minimum account requirement is only $10 needed by you to start investing.
This portfolio consists of 50% growth and 50% income-oriented holdings. If you want to upgrade to a basic plan, it is entirely free to do so!
Once you have invested in a Core Portfolio, you will have access to the Supplemental Income Portfolio. This set of assets focuses on income-producing real estate.
This will create a consistent income stream by investing in cash-flowing real estate.
The goal here is to funnel quarterly dividends to you via a portfolio allocated mostly to debt real estate assets. Investors will earn returns primarily through dividends from cash flow producing real estate and interest payments. Dividends are generated through rental and interest payments in proportion to your share of the fund.
Around 25% of Fundrise investors choose this strategy, with the average age of investors in their 30s and the average investment around $6,670.
The Fundrise Balanced Investing Portfolio offers a blend of 50% growth and 50% income-oriented investments.
The goal of this portfolio is for a balance of the income-generating real estate, as well as real estate that is appreciating in value. Fundrise balanced investing helps you build wealth steadily through diversification.
If you buy into this class, the goal is to earn returns through a blend of dividends and appreciation. This is a balanced mix of income and growth strategies. The median age of investors in this class is mid-30s, and the average investment is $6,800.
Current projects on the docket feature apartment renovations in Jacksonville, FL; new apartment development in Georgetown, TX; and new commercial projects in Colorado Springs, CO.
The fourth portfolio option is the Fundrise Long-Term Growth Portfolio.
The goal of this portfolio is to generate returns primarily from property appreciation. This portfolio aims to buy high-growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying a property and performing renovations in order to sell the asset for a gain later.
This category will earn you returns on your investment via appreciation in value, rather than consistent dividends. This is a growth-oriented strategy favored by people with an average investment of $7,600.
The wide array of projects currently includes apartment renovations in Charlotte, NC; new home construction in Daly City, CA; and new commercial development in Chicago, IL.
When you invest with Fundrise, you will get shares of eREITs and eFunds.
Keep in mind 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 traded on a stock exchange like a publicly-traded REIT.
Real Estate Investment Trusts (REITs) are corporations, trusts, or associations that invest directly in income-producing real estate and are traded like a stock.
An eREIT will produce income for your portfolio in the form of dividends.
Dividends are earned from the rent payments and interest payments from the underlying apartment and commercial leases owned within the eREIT as well as interest payments from debt investments.
An eFund is a partnership created by Fundrise to be treated differently for tax reasons and to provide greater investment flexibility.
Partnerships have the advantage of avoiding the double taxation of normal C-Corps. eFunds are designed by experts in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Whereas eREITs are designed to generate income, eFunds are designed by experts for growth potential.
Fundrise uses the funds you invest to purchase real estate. For this reason, liquidity or the ability to sell is not guaranteed.
There is a 60-day waiting period for withdrawing funds. There are also quarterly redemption periods when you can withdraw your funds.
It’s vital to remember that a Fundrise investment is a long-term one and you should expect to keep your money invested with them for at least five years. If you aren't comfortable with this, you should consider a more liquid investment like a publicly-traded REIT.
After holding the investment for five years, there is no early redemption fee.
Fundrise offers quarterly redemption periods but liquidity is never guaranteed. Fundrise also reserves the right to suspend liquidation/redemption as they see fit.
Real estate does not sell overnight and if there are many people looking to pull out at the same time, Fundrise may not have the cash on hand.
You may also end up paying early withdrawal fees if you pull your money out early.
When you sign up, Fundrise will guide you through a series of simple but important questions to get a sense of who you are and where you stand financially.
The first step is to open an account here.
Next, you need to provide your age and whether you’re actively working or retired.
Following will be an opportunity for you to elaborate on your real estate experience. Maybe it’s homeownership or apartment renting. Maybe it’s none. No experience is needed to start investing on Fundrise.
Then, you will need to give some thought to your specific goals for signing up. Are you in it just to test the waters? Or have you pinned down an exact dollar goal in a spelled-out time frame?
Whatever your goal, chances are good you’ll find something to suit your goals and strategy.
RealtyMogul has a sleek online platform that allows you to keep track of your real estate investments. This is a 100% passive, hands-off real estate investment where you invest in portfolios of real estate projects. RealtyMogul lets you buy into both commercial and residential properties.
Commercial sites include plazas, shopping centers, marketplaces, and offices.
Residential projects include assets like multi-family housing units such as condos or apartment complexes.
When you invest in real estate, you’re tapping into the potential for long-term appreciation along with regular and consistent cash flow.
Through the RealtyMogul platform, you will have the opportunity to put your money into real estate ventures through a user-friendly online platform. You can browse investments, review research that’s been done, and sign legal documents securely online.
When you invest on the platform you're typically buying a share of a RealtyMogul LLC that invests in an LLC or LP that holds title to the property you see on the platform.
Once invested, you will have access to an investor dashboard, giving you 24/7 access to watch your money grow and proliferate.
The platform has seen enormous success! To date, over 128K investors have joined. Over $600M has been invested through the platform with over $3.5B in deals posted on the site.
RealtyMogul experts are constantly on the lookout for diversified, multi-tenant, centrally located, cashflow-producing properties. Its investment team examines every project on the drawing board, checking it against hundreds of data priorities. This is one of the advantages of investing in a passive real estate investment, they do all the leg work for you!
Every RealtyMogul deal is put to the test against the most conservative financial models and requires unanimous approval from an investment committee.
First, create a RealtyMogul account.
RealtyMogul carries a minimum investment of $5,000.
Investment time horizons start at just 6 months and range out to a high of 120 months. This lets you make your investment decisions specifically based on your own long and short-term goals.
To invest in RealtyMogul private placements, you must be an accredited investor. The minimum is also much higher, at $15,000 to $50,000. With private placements, you are investing in individual properties, not portfolios.
An accredited investor is someone who has a recognized level of income, net worth, or professional experience allowing them to invest in higher-risk securities that may not be registered by companies with traditional securities laws.
To be eligible to invest in Mogul REIT I and Mogul REIT II, you are not required to be an investor who is accredited.
You can invest in these REITs as long as you meet the $5,000 minimum investment.
In order to stay compliant with the SEC, the companies who issue unregistered securities must verify they are selling to accredited investors only. They may do this by verifying the income and net worth of the investor.
When you create an account with RealtyMogul, you will need to answer some questions to expound on your goals for real estate investments.
Are you looking for returns in the shorter term to meet a specific need, such as a down payment, or do you plan to reinvest some of the dividends you’ve earned into new projects?
Investors can purchase equity investments in both commercial and residential real estate, as well as real estate debt investments. RealtyMogul offers multiple investment vehicles, however, some are only accessible to accredited investors.
Both accredited and non-accredited investors can invest in the non-publicly-traded REITs. The private placements are for accredited investors only.
One option is Mogul REIT I, a public, non-traded Real Estate Investment Trust (REIT) that gives you debt and equity investments in commercial real estate properties of different types and in various locations.
The REIT’s primary focus is providing monthly income and diversification to investors by taking a close look at numerous investment opportunities. The driving force of REITs is to allow investors to spread funds across multiple properties, creating higher levels of diversification.
Over time, REITs have provided investors of all types with regular income streams, diversification of their portfolio, and long-term capital appreciation opportunities.
MogulREIT II is a public, non-traded REIT for residential real estate, primarily apartment buildings. It is set up for appreciation and income through investments in equity in multifamily apartment buildings with a minimum investment of $5,000.
Although RealtyMogul has paid a 4.5% annualized distribution to investors in MogulREIT II, the focus is also on long-term capital appreciation. This comes about from renovating, upgrading, and repositioning the multi-family properties, which ups their net worth.
Projects have included complexes in Texas, Brooklyn, and Chicago. They are adding more all the time, so you may want to subscribe to its email list where they share new investment opportunities.
RealtyMogul also offers a variety of private placement investments. These private placements are for accredited investors only. For the most part, all private placement offerings are slightly different within RealtyMogul. Some may have investment minimums as well as lock-up periods for your initial investment.
For accredited investors, RealtyMogul also offers private placements. This is an investment directly into a single property or small handful. Since it is not diversified, it is seen as higher risk by the SEC, and investors are therefore required to be of accredited status. They also offer a 1031 Exchange service for high-net-worth investors.
RealtyMogul charges fees based on the type of investment you select.
Typically you can expect to pay approximately a 1% annual asset management fee on RealtyMogul.
There are also REIT management fees that range from 0.50% to 0.60% annually.
Certain investments may also have legal fees for specific investment types. These fees are usually a one-time fee for the initial origination of the investment.
Fundrise and RealtyMogul are two of the most popular real estate crowdfunding investing platforms out there today. These platforms have a lot in common, but there are small differences between the two that you need to consider before making a choice.
One important difference is the minimum investment. Investors can invest in the Fundrise Starter Portfolio with just $10. RealtyMogul has a $5,000 minimum investment for both MogulREIT I and MogulREIT II. This makes the barrier to entry for Fundrise much lower.
Additionally, as a non-accredited investor, you'll be limited to only 2 options on the RealtyMogul platform. With Fundrise, all investors regardless of accreditation will have access to its dozens of portfolios.
Another major difference between RealtyMogul and Fundrise is the dividends payout structure. RealtyMogul has monthly or quarterly dividend payouts, while Fundrise has only quarterly dividend payouts.
This may or may not be a factor for you as an investor. But monthly payouts let you reinvest your dividends on a more frequent basis. Or, these monthly dividends can provide more consistent monthly income.
There is also a difference in fees between Fundrise and RealtyMogul.
Fundrise has a fee structure displayed directly on its website. The most common fees on Fundrise are the 1% asset management and portfolio management fee. However, Fundrise also has early redemption fees for liquidating your investment early as well as other commission-based fees.
RealtyMogul fees are more complex and dependent on the specific investment. In some cases, fees might be lower on RealtyMogul but higher in other cases.
However you decide to invest, we recommend doing your homework and make sure you fully understand the investment you are making.
