Thanks to recent changes in legislation, average everyday investors can now participate in private real estate deals through a number of crowdfunded real estate platforms. While many are reserved for accredited investors only, there are a few that do not require this. In this post, we would like to review and compare two very popular real estate investing platforms known as Fundrise vs Rich Uncles. Both of these platforms have options for non-accredited investors.
Fundrise allows investors to purchase debt and real estate investments with a minimum of $500 to get started. Rich Uncles gives investors the opportunity to invest in real estate equity investments for as little as $5. Fundrise has a 1% annual fee, while Rich Uncles fees vary based on the success of the investment.
|Investment Focus||Residential, Commercial||Commercial|
|Fees||1%||40% profit sharing over 6.5%|
|Best for||Novice to expert investors||Student housing investors|
Fundrise is one of the most popular crowdfunded real estate investing platform. Similar to real estate investment trusts or partnerships, all the investors pool their money together to purchase real estate. This is a blend of both debt and equity investments that provide investors with both growth and income potential.
You start by opening an account with Fundrise with a minimum of just $500 for the starter portfolio. Beyond the starter portfolio, there are also three other account levels: core, advanced, and premium with a minimum investment of $1,000, $10,000, and $100,000 respectively.
You will be glad to know that you can upgrade from the starter portfolio to one of the other account levels at any time!
By upgrading to the other levels, you'll gain access to more control over your investments and the ability to pursue specific strategies that match your objectives. For example, with an advanced account you're even able to target your investments to a particular market like Washington DC or Los Angeles.
This is a 100% passive investment. There is not active property selection or ongoing management. The only decision you need to make is whether or not you want to reinvest the dividends you will earn quarterly. Some investors choose to reinvest them to earn compound interest while others want them deposited into their bank account.
With higher tier accounts there are more choices you can make regarding your investments but these are optional.
Your money is pooled with other investors to purchase real estate or finance real estate development projects. Fundrise will update you on the projects within your portfolio via email. For example, here was an update email regarding an apartment renovation in South Florida. In this case, the aim was to force appreciation through improvements. Money will be made for investors when the property is sold for a higher price than it was purchased for. You will also receive emails when projects are completed or fully repaid.
Investors should understand that any real estate investment is a long term investment. According to the Fundrise site, investors should have a minimum time horizon of 5 years. While there are quarterly redemption periods, liquidity is never guaranteed. Before you invest with any crowdfunded real estate platform, consider how long you plan on investing for.
There are four account levels available with Fundrise: starter, core, advanced, and premium. The level of your account depends on the total value of your account. The more you invest, the higher level your account becomes.
With a higher level account, you'll have the ability to take advantage of more features and customization within your investments.
The Fundrise Starter Portfolio has the lowest opening balance of just $500. You can upgrade to one of the advanced plans at any time. Your money will be invested in a blend of 50% growth and 50% income oriented properties.
To access the three portfolios offered to the core account level, you'll need at least $1,000 invested with Fundrise.
First, we have the Fundrise Supplemental Income Portfolio. The aim of this portfolio is to produce income for investors through interest payments from debt investments as well as cash flow from equity investments. There is higher dividend potential but lower growth potential from the projects in this portfolio.
The Fundrise Balanced Investing Portfolio is, well, self explanatory! It is a blend of both income producing properties and growth oriented properties. This is a very middle-of-the-road portfolio that resembles the Starter Portfolio.
Finally, we have the Fundrise Long Term Growth Portfolio. The goal of this portfolio is to generate returns primarily from asset appreciation. They aim to purchase real estate in hot markets, force appreciation through improvements, and sell it for a higher price down the road.
As the name suggests, investors in this portfolio should have a longer time horizon than the other two Core portfolios.
To reach the advanced account level, investors will need to invest $10,000 on the Fundrise platform.
An advanced account will allow investors much greater flexibility in their investing than the core or starter levels. At this stage you'll have access to a collection of niche portfolios like the Washington DC eFund or the Los Angeles eFund in addition to the Plus versions of the core portfolios.
The Plus class of core portfolios allow investors to pursue more advanced investing strategies such as tax-advantaged real estate projects. These can include implementing 1031 Exchanges or taking advantage of opportunity zones to defer or eliminate capital gains taxes.
The Los Angeles eFund focuses on, you guesses it, Los Angeles. The fund currently holds 31 active projects consisting mostly of single family houses that are being constructed or renovated.
By building from scratch or buying and fixing distressed properties, the fund delivers the majority of its returns through appreciation and currently does not pay a dividend.
This is a portfolio for investors with a long term time horizon and who believe that LA and the surrounding areas will continue to grow and remain a desirable place to live.
As the name suggests, this fund invests exclusively in the DC Metro area. Similar to the LA eFund, the portfolio is structured around appreciation. By purchasing properties in need of repair or updates, renting them out, and selling them at a higher price, the fund aims to provide investors with consistent capital gains over time.
The fund currently contains 25 active projects in close proximity to Amazon's HQ2. Investors are optimistic that upon completion of these projects, their value will be significantly higher as a result of increased demand from the influx of highly compensated Amazon employees.
Investors will need to invest $100,000 with Fundrise to reach the premium account level.
Currently the only additional benefit offered to those with a premium account is the ability to book a call with Fundrise's investments team. This priority access is useful for investors who want to talk to a real person and get support in structuring their investment.
In the future it is likely that more perks will be added to premium accounts, but for now the benefits are minimal.
When you invest with Fundrise, you will receive shares of both eREITs and eFunds. These are private investments, meaning they do not trade on a major exchange like a traditional REIT. The only way to sell them is on the Fundrise platform.
An eREIT will produce income for your portfolio in the form of dividends. Dividends are earned from the rent payments from the underlying apartment and commercial leases owned within the eREIT as well as interest payments from underlying real estate debt investments.
An eFund is a partnership created 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. Where eREITs are designed to generate income, eFunds are geared towards growth.
It is important to understand that Fundrise cannot guarantee liquidity. Just like with the stock market, they cannot guarantee dividends or distributions either. Your money is being used to fund real estate deals or purchase real estate. Unlike stocks, real estate is not a highly liquid investment. It does not change hands overnight.
They do offer quarterly redemption periods if you want to sell, but if there is a rush of investors looking to liquidate they may not have the cash on hand. This is why it is important that investors are comfortable with the characteristics and time horizon associated with private real estate investments.
Past performance does not guarantee future returns. All investing involves risk, including the potential loss of principle.
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.
Rich Uncles is very similar to Fundrise. It gives you the opportunity to invest in a variety of commercial and residential real estate projects. Originally, only accredited investors were able to invest with Rich Uncles. Now, they have released multiple new REITs with an investment minimum of only $5.
Rich Uncles is a non traded REIT. This means you cannot sell them on a major exchange like a stock. Rich Uncles does provide a share redemption service where investors can sell their stake back to Rich Uncles. Rich Uncles provides greater liquidity than a traditional real estate investment, but lacks the liquidity of publicly traded REITs.
Rich Uncles has an investment minimum of just $5 for the Student Housing REIT. The National REIT has an investment minimum of $500. This is consistent with other similar real estate investing platforms.
Rich Uncles takes a unique approach to their fee structure. Most traditional REITs charge significant maintenance and investment management fees. Rich Uncles, on the other hand, does not make money unless the investor makes money.
The first 6.5% of profits go to investors. Then, Rich Uncles then takes 40% of any profit that exceed 6.5%.
Rich Uncles is a long term investment. Rich Uncles looks for projects with a 4 to 7 year timeline. Once the fund has reached capacity, the Rich Uncles investment team may decide to liquidate and disburse the earnings to investors. Rich Uncles is an open-end fund, meaning new shares are constantly being issued so new investors can purchase shares in the fund. When a fund is liquidated, the investors will receive their portion of their principal investment as well as any earnings from the sale of the underlying real estate assets.
You will receive dividends on a monthly basis from Rich Uncles. Investors have the option of reinvesting these dividends through the Rich Uncles dividend reinvestment program.
The Rich Uncles platform currently offers two investment options; the National REIT and the Student Housing REIT. Rich Uncles holds strict investment standards in its acquisition strategy. With a focus on quality real estate, Rich Uncles reports that only 0.3% of the deals they review meet their acquisition standards.
As a result, the selection is a little bit limited. From restaurants to convenience stores to fitness centers, Rich Uncles provides a broad option of investments across commercial real estate.
The National REIT aims to invest in industrial, retail and commercial real estate throughout the United States.
Minimum Investment: $500
States Permitted To Invest: CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SD, TX, UT, VT, WI, WY
Estimated Dividend Yield (Annualized): 7%
This REIT aims to invest in student housing throughout the United States. They focus on student housing in broadly diversified markets around high demand universities. Rich Uncles searches for housing with greater than 90% occupancy rates and a minimum capacity of 150 beds.
Minimum Investment: $5
States Permitted To Invest: All
Estimated Dividend Yield (Annualized): 6%
The first key difference between the two platforms is the minimum investment requirement. Fundrise has a $500 minimum and Rich Uncles has a $5 minimum for the Student Housing REIT.
Another main difference is the types of investments they offer. Fundrise offers both debt and equity investments in both commercial and residential real estate. Rich Uncles, on the other hand, invests in commercial real estate only.
You do not need to be an accredited investor to invest with either platform. This significantly lowers the barriers to entry and makes this a feasible option for the average retail investor.We believe Fundrise has a slight edge over Rich Uncles mostly due to the wider variety of investment options and fee transparency. Fundrise gives you more options when choosing your investment. You can invest with the goal of capital appreciation or generating income, for example. Rich Uncles only offers limited commercial real estate investments.