We’ve all heard the word “diversification," and these days, a well-rounded portfolio includes real estate.
A few years ago, only the wealthy could afford to buy into real estate ventures. Fast forward to today, just about anyone can get in on it thanks to real estate crowdfunding.
New 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.
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 primarily 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 portfolios on Fundrise contain a mix of both debt and equity investments. There are no individual properties to invest in on Fundrise, only portfolios. It is open to all investors, meaning you do not need to be an accredited investor.
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.
What Makes Fundrise NOT A Good Investment?
- The minimum time horizon is 5 years, which may not be ideal for short term investors.
- Fundrise reserves the right to suspend redemptions as they see fit, which may be something investors are comfortable with if they prioritize liquidity.
- The operating history is somewhat limited, meaning this isn't a time tested investment yet.
- If you cash out early, you may incur some early redemption fees.
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. I have personally invested $5,000 with Fundrise and I will continue to add more money. However, I am comfortable with the characteristics of this investment.
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.