These days, there are countless low-fee and fee-free investing platforms that are growing in popularity.
But that begs the question, how are they making money? Are there hidden fees lurking somewhere deep inside the fine print?
Clearly, they can’t stay in business without making any money, so let’s take a look at how one of the most popular real estate crowdfunding sites known as Fundrise earns a few bucks without making you empty out your wallet.
Fundrise facilitates real estate crowdfunding, which is an alternative way to pool money by raising small amounts of money from a large group of people. Typically done via social media platforms, crowdfunding is passive income at its best.
To get in on the game, you won’t need the experience, massive funds and connections with the heavy hitters to get a piece of the pie.
Crowdsourcing worldwide raises billions of dollars each year, and the platform continues to pick up speed as more people opt in.
More and more new investors are seizing the moment to become property owners. Why, you may ask? There’s huge potential for returns through long-term appreciation of the property, cash flow of passive income from rents and a long list of tax advantages.
Fundrise simply merges private real estate investing with crowdsourcing, allowing small retail investors to get in on these once coveted deals.
Your money will be funneled into any number of improvement projects or loans. Maybe it’s upgrading an older apartment complex. Or putting a new face on an aging retail hub. The point of Fundrise is to find places with a high potential to grow in value.
They want to find sites where there may be major demographic changes that result in more demand for affordable (or luxury!) housing. They may be in a location that has an exploding growth in the neighborhood population. Or there may be untapped potential in the property.
Making major improvements to the property ramps up the potential sale price. Fundrise puts your investment to work on across-the-board improvements, like building new urban housing, renovating run-down apartments, and renting out viable vacant buildings.
So, Fundrise makes YOU money in two different ways:
But, how does Fundrise profit from this? Since they are not a charity after all.
In short, Fundrise makes money by charging fees to investors. Here's a breakdown:
Fundrise charges a small fee of 0.15% for annual advisory services.
To break it down, this means that every year, you will pay a $1.50 advisory fee for every $1,000 you’ve invested with Fundrise. As you can see, it probably won’t add up very quickly.
This advisory fee pays their financial experts for things like communicating with you about how the projects are faring, keeping you in the loop about your investment dollars, distributing dividends and making you aware of all the tax benefits associated with owning real estate.
In short, their plate is full. They juggle lots of duties guarding and reporting on your investment. And remember, we may be Average Joes, but these are the experts from the big leagues who’ve mastered the art of buying and selling.
Next, there is a fee to manage Fundrise’s portfolios, which are the eREITS and eFunds underlying your portfolio.
There’s an annual 0.85% flat management fee for this part of their service. Go ahead, do the math: that’s $8.50 every twelve months for every $1,000 invested.
This money goes toward they ongoing operating expenses of the hundreds of real estate projects in the Fundrise investor portfolios. These expenses typically include ongoing, nit-picky details like zoning and project-specific accounting.
Again, do the math. These annual advisory services and management fees add up to 1 percent of your investment.
There are some upfront costs associated with a real estate investment.
When Fundrise takes on a new project, there are some fees incurred with the process of originating a loan. Fundrise passes this fee on to the investors and ranges from 0 to 2% per investment.
You will only pay once at the inception of the investment.
You will take a hit for early redemption if you cash out within 5 years of investing. These fees range from a low of 1% to a high 3% of your investment.
|First 90 Days||None|
|Less Than 3 Years||3%|
|3 To 4 Years||2%|
|4 To 5 Years||1%|
The obvious bottom line is that Fundrise needs to make a profit to stay in business. Rather than charging commissions or taking a cut of the profits, Fundrise simply charges a few fees to investors which they are very transparent about.
Fundrise is a 5+ year time horizon investment with low liquidity, meaning it is not for everyone!