Is Fundrise A Good Investment?
We’ve all heard the word “diversification,” and these days, a well-rounded portfolio includes real estate, now available to novice investors or people without deep pockets.
A couple of decades ago, only the wealthy could afford to buy into real estate ventures. Fast forward to today, when the field is wide open to anyone with the foresight to see its ongoing value.
Maybe you can’t open your checkbook and pull out thousands of dollars to put into a deal. But more and more young people are looking to become property owners. Why? There’s potential for hefty, sizeable returns, long-term appreciation, a consistent flow of passive income, and a long list of tax benefits.
Crowdfunded real estate platforms like Fundrise give you a tangible asset, and real estate does not directly correlate with the stock market. No, you won’t become wealthy overnight, but real estate has been turning average people into millionaires for decades.
So your question is this… is Fundrise a good investment? It is by far one of the most popular platforms out there for passive real estate investing. Not to mention, a $500 minimum to get started almost sounds too good to be true. Here’s what you need to know.
Real Estate Crowdfunding
Now there’s a viable way to buy into real estate projects that leave you in a hands-off position. That’s right, experts will manage the property for you, including collecting rent and doling out your share. This phenomenon is called crowdfunding, and you need to know more about it NOW.
Crowdfunding is passive income at its best. To get in on the game, you won’t need the experience, funds, and connections required to jump in.
This means that after your initial investment, you sit back and let the work get done, and the dividends accumulate. We recommend reinvesting that earned money into more shares, rather than going out and spending it! You know, compound interest.
Crowdfunding is an alternative way to pool money to fund a project or venture by raising small amounts of money from a large number of people, typically via social media platforms. Worldwide, this funding method raises billions of dollars each year, with platforms like Fundrise continuing to pick up speed as more people opt in.
Not only do you NOT need to be rolling in money to buy into real estate through crowdfunding, but you also don’t need to be an expert in real estate management. A team of experts oversee the daily aspects of the projects. Your only task is checking your earnings statements, and deciding which project you wish to buy into next.
Rental Property vs Crowdfunded Real Estate
Compared to buying and managing a rental property, real estate crowdfunding offers clear advantages, including:
- You will not need to handle any day-to-day responsibilities! Teams of experts manage the properties for you.
- You will know ahead of time what you’re getting into. Each potential project is thoroughly researched beforehand so that investors have as much info as possible to make wise decisions.
- You’ll receive tax benefits. Real estate crowdfunding allows investors to receive certain tax breaks, such as depreciation, that normally apply to owning an investment property.
How Does Fundrise Work?
Similar to real estate investment trusts or partnerships, all the investors pool their money together to purchase real estate. This is a combination of debt and equity deals, giving investors both growth and income potential.
Fundrise has changed the game by offering their starter portfolio with a $500 minimum balance. You can upgrade to one of their advanced plans at any time too!
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. 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.
The average Fundrise investors are in their 30s, and while the median initial investment is $4,500, you can open a starter portfolio for just $500.
How Much Should You Invest?
The experts at Fundrise recommend you allocate about 30 percent of your investable assets to alternatives like private real estate ventures.
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 could be right for you.
What Properties They Invest In
The function of Fundrise is 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 is on making significant improvements to the property to increase the 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.
When the refurbished properties are sold, you can expect to see sizeable returns. There is far higher demand for complete real estate developments. There are many more potential homebuyers for a fully renovated home than a rundown fixer-upper, and more renters for new luxury apartments near a metro area than for the previously vacant land.
How You Can Make Money
You can make money in a number of different ways with Fundrise. They offer the starter portfolio as well as three advanced portfolios. This allows you to decide whether you want to follow an income-oriented or growth-oriented approach.
These portfolios will consist of debt investments and equity investments. Debt investments mostly make you and the other investors the bank, extending a loan to a real estate developer. You will earn income from interest payments.
Equity investments are higher risk, but higher potential return. Fundrise aims to find real estate in thriving markets for sale. They purchase the property, make upgrades to force appreciation, and plan to sell it for a profit in the next few years. In the meantime, if the property is producing income from rents, that is shared among the owners or investors.
In return for all of this, Fundrise charges a fee of 1 percent per year. They do not charge any other hidden fees, and there is no front load fee.
Fundrise Portfolio Options
If you invest a 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 needed by you to start investing. This portfolio consists of 50 percent growth and 50 percent income-oriented holdings. If you want to upgrade to an advanced plan down the road, it is entirely free!
The Fundrise Supplemental Income Portfolio holds income-producing real estate. You can choose an option that will best meet your needs for supplemental income. 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 percent of Fundrise investors choose this strategy, with the average age of investors in their 30s and the average investment is $6,670.
The Fundrise Balanced Investing Portfolio offers a blend of 50 percent growth and 50 percent income-oriented investments. The goal for 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 high 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 30s, and average investment is $6,800. Current projects on the docket feature apartment reno’s 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 again later. This category will earn you returns on your investment via an appreciation in share 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 reno’s in Charlotte, NC; new home construction in Daly City, CA; and new commercial development in Chicago, IL.
Fundrise uses the funds you invest in purchasing 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.
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.
They do offer quarterly redemption periods, but liquidity is never guaranteed. Real estate does not sell overnight, and if there are many people looking to pull out at the same time, they may not have the cash on hand. You may also end up paying early withdrawal fees if you pull your money out early.
eREITs And eFunds
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 publicly traded on a stock exchange like a publicly-traded REIT.
Real Estate Investment Trusts (REITs) are corporations, trusts, or associations that invests directly in income-producing real estate and is 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 underlying real estate 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. Where eREITs are designed to generate income, eFunds were developed by experts for growth potential.
How To Get Started With Fundrise
Fundrise will guide you through a series of simple but essential questions to get a sense of who you are and where you stand financially.
- First, you need to provide your age and whether you’re actively working or retired.
- Next, you need to elaborate on your real estate experience. Maybe it’s homeownership, or apartment renting. Perhaps it’s none.
- 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 a specific dollar goal in a spelled-out time frame?
Whatever your goal, chances are reasonable, you’ll find something to suit you.
What Makes Fundrise A Good Investment
- The minimum for investors to get started with the Starter Portfolio is $500.
- Small retail investors are able to access private real estate investments.
- Since this is a non-traded REIT, it may be less correlated with the overall market.
- Fundrise has a transparent fee of 1 percent 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, as most private investment funds do.
- This is a 100 percent passive real estate investment.
- Fundrise gives you diversified exposure to real estate.
- Fundrise supports retirement accounts.
- Monthly redemption periods eliminate the temptation for panic selling.
So, is Fundrise a good investment in 2020? Ultimately, that comes down to whether or not this investment meets the criteria you are looking for. If you are someone who is looking to invest with a 5 to 10-year time horizon which is looking to diversify outside of the stock market, it is likely a great fit for you. If you are someone who is wary of the liquidity of this investment, you should probably stick to the stock market. At the end of the day, you can get started with just $500 and you can roll that money into one of the advanced portfolios at any time. If you are in doubt, we recommend starting small with $500 and easing your way into this investment.