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If you’re thinking about investing in real estate, you may be a little reluctant since many platforms have a large financial barrier to entry. Fortunately, there are platforms that are designed for the average investor, like Fundrise. You might be surprised to learn that you can get started with real estate investing for as little as $10, with no need to manage the property. This Fundrise review will help you determine if this could be a good platform for you.
7 Things to Know About Fundrise
- Fundrise makes real estate investing easy. You can get started quickly without the need to research or vet specific properties or real estate deals. You’ll also avoid the need to manage or maintain properties.
- Fundrise has significantly lowered their minimum investment requirement. You can now start with as little as $10.
- As a Fundrise investor, you’ll own a share of a diversified portfolio of income-generating properties (through REITs), rather than investing in a single real estate property.
- Investors have access to a user-friendly dashboard that provides helpful reports and makes it easy to manage your investment.
- If you invest at least $5,000, you’ll be able to select from three different core strategies: supplemental income, long-term growth, and balanced investing.
- Investors earn dividends quarterly, which can be taken as cash or re-invested.
- Fundrise has a solid history and seems poised for continued growth.
The Fundrise Basics
Fundrise is an online platform designed to allow the average investor to buy into private commercial and residential properties. Essentially, you’ll pool your assets through the investment platform, so you don’t need a large amount of capital to get into real estate investing.
The company has been operating since 2012 and has its headquarters in Washington, DC. Fundrise has BBB accreditation with an A rating. In its short history, Fundrise has already become one of the leading real estate investment platforms in the industry.
The main products of Fundrise are REITs or real estate investment trusts. REITs generally invest in income-producing properties through buying and managing buildings or by holding a mortgage. Fundrise refers to its products as “eREITs”.
The company also offers “eFunds”. These allow investors’ pooled money to be used to buy land and develop housing before it can be sold to home buyers.
As an investor, you’ll purchase shares of eREITs or eFunds. This is through a limited liability company conducting the deals or by buying a Fundrise portfolio. Fundrise offers several portfolios depending on your investment strategy, including:
- Starter ($10 minimum)
- Basic ($1,000 minimum)
- Balanced Investing ($5,000 minimum)
- Supplemental Income ($5,000 minimum)
- Long-Term Growth ($5,000 minimum)
In each plan, Fundrise determines the mix of eFunds and eREITs and its underlying properties. It’s a totally hands-free investment, much different than owning and managing rental property.
There are also Advanced ($10,000 minimum) and Premium ($100,000 minimum) accounts. These provide investors access to more real estate projects with additional benefits and features. However, we won’t be focusing this review on the Advanced or Premium accounts because that’s not where most investors will startt.
Fundrise has also recently added some new products to its lineup. The platform now offers a Self Directed IRA, so you can invest with pre-tax dollars for your retirement planning, potentially reducing your taxable income. There is also Goal-Based Investing, so you can invest based on your specific financial goals rather than locations or types of investment. Finally, there is the Fundrise iPO, where you can buy shares in the company via an Internet Public Offering. You need to have an advanced plan and a minimum of $1,000 in your Fundrise account to be eligible for the iPO.
The results will vary depending on your chosen plan, but you can expect to receive payouts as quarterly dividends and appreciation in the asset value at the end of the investment term. You can choose to have the dividends automatically reinvested or deposited into your bank account as cash. You can change this setting at any time, so it’s really easy to turn your investment into an income-producing asset if you want to start receiving dividends as cash.
The main advantage of Fundrise is that there are no investor requirements. It is open to non-accredited investors, making it highly accessible. This makes Fundrise stand apart from many other online real estate platforms that are only available to accredited investors. To qualify as an accredited investor you need a net worth of $1 million or more (excluding your primary residence) or an annual income of $200,000 or more.
The minimum investments for Fundrise are also very reasonable, making it an ideal platform for anyone who wants to get started with real estate investing.
Fundrise has a redemption program with no penalties after a five-year holding period. So, you can sell your shares back to Fundrise for a small fee if you choose. The fee is calculated as a reduction of the share price value.
- First 90 days: 0%
- 90 days to 3 years: 3% reduction
- 3 to 4 years: 2% reduction
- 4 years plus: 1% reduction.
There is an annual investment advisory fee of 0.15% and annual asset management fees of 0.85%. Other fees may apply.
At 1%, the fee is very reasonable. It’s higher than some traditional investments but much lower than most alternative investments.
Fundrise has an easy-to-use platform, and the signup process takes just 10 minutes. Of course, you should read the investor disclosures before you start the signup process.
You’ll need to provide your contact details including your address and phone number. Fundrise also requires your Social Security number.
You will then need to choose whether you want to fund your account by linking to your bank account via an ACH transfer, manually entering your bank details, or via wire transfer.
Fundrise Past Performance:
Fundrise offers several different types of investments and portfolios, so your results will vary depending on your specific investment. However, since 2014, the returns produced by Fundrise investments have averaged between 8% – 12% per year. An annual return in the upper single digits is a reasonable target.
Of course, past performance does not indicate future results, but it does provide some reassurance that the company has the potential for a decent yield on your investment. However, there is one caveat if you want to cash out your gains. The money you invest will be used to purchase particular properties. So, you cannot receive money from a specific deal until that property is sold. As such, Fundrise is not a 100% liquid investment.
Fundrise has recognized this complication, so has added the possibility to cash out of a deal during a specified quarterly period. So, you can exit a trade during four windows throughout the year without needing to wait for the property to be sold. Still, this is ideally a long-term investment with a timeline of at least five years.
There are very few investments considered “safe” or providing a guaranteed return. The Fundrise eREITs and eFunds are about as safe as anything you can find within the real estate investment sphere. The eREITs are registered investments and must meet the same SEC requirements of exchange-traded traditional REITs. They are not directly correlated with stock market volatility.
The potential downsides are that you will not enjoy the same liquidity since they are not traded on the market and your front-end fees will be higher.
Like any other investment, you should do your own due diligence before investing and don’t invest money that you can’t afford to lose.
Fundrise Pros and Cons
As with any investment platform or company, there are both pros and cons.
- Low Minimum Investment: You can start Fundrise investment with just $10. This makes the platform far more accessible than other real estate investment companies.
- Low Fees: Fundrise also has a low fee structure. You can expect to pay just 1% in fees, which is pretty good compared to other alternative investments.
- Open to Non-Accredited Investors: Unlike many real investment firms, Fundrise is open to any investor in the US regardless of their net worth or income.
- Diversity: Unlike many private REITs, the Fundrise eREITs have a pool of numerous properties to even out returns.
- 90-Day Guarantee: If at any time in your first 90 days, you’re not satisfied with Fundrise, the company will buy back your investment at the original price. While this is subject to some limitations, it’s practically unheard of within the investment industry.
- Access to Commercial Real Estate: Fundrise provides access to commercial property. This is typically a high-dollar investment area, but Fundrise provides investment access with a very low minimum amount. This creates a passive investment in a potentially lucrative area.
- Quarterly Redemptions: Unlike many real estate investment platforms that lock you in until the specific property is sold, Fundrise offers an out. The eREIT program has a quarterly redemption plan, so you can cash out in four windows throughout the year if necessary.
- Take Dividends as Cash or Reinvest: You can use Fundrise as a source of passive income by taking the quarterly dividends as cash, or you can reinvest to grow wealth faster. All you need to do is change one setting to take a different approach.
- Transparency and Communication: Fundrise does an excellent job of communicating with investors in regards to new properties that are added to the portfolio and status updates each project progresses or completes.
- Multiple Options: With the three core portfolios, you can choose whether you want to invest for long-term growth, supplemental income, or take a balanced approach.
- Liquidity: Since Fundrise eREITs are not publicly traded, there are some liquidity issues. While there is the quarterly redemption program to redeem shares, there are no guarantees that they’ll be able to honor redemption requests. Additionally, there’s no secondary market where you can sell a Fundrise investment to others.
- Tax Consequences: The distributions are taxed as ordinary income. This makes there potentially higher tax consequences than if they were classified as a qualified dividend with a 15% tax rate.
- Relatively Short Track Record: Real estate crowdfunding is still new. Fundrise has a longer track record than most other platforms, but it’s still relatively short.
Is Fundrise the Right Choice for You?
Real estate is a great way to diversify your investment plan and portfolio. Fundrise provides an easy entry point into this market. The platform is easy to navigate and the minimum investment of $10 makes it easy for anyone to get started.
However, it should be noted that real estate crowdfunding platforms have yet to be tested during an economic downturn. Given the current economic uncertainty caused by the COVID 19 pandemic, you may prefer to wait and see how Fundrise weathers the storm (so far the results have been quite solid).
So, should the COVID 19 pandemic cause a housing crash, Fundrise may be forced to postpone some investment redemptions. This creates some unknowns, so if you are particularly risk-averse, you may need to delve a little deeper. (It should be noted that Fundrise is not showing signs of any problems as of August 2021).
Bear in mind that Fundrise is ideal for long-term investors. You will be tying up your investment cash for a while. Even if you take advantage of the quarterly redemptions, there may be a fee, depending on how long that you’ve held your investment.
Fundrise may be a good choice to add real estate for your portfolio, if you already have a diverse portfolio and are prepared to have your money sit for five years or more.
Editor’s note: I (Marc) have been investing with Fundrise since late 2018. My wife and I have an investment with the long-term growth core plan. So far, I’ve been happy with the investment and actually added more to my initial investment. I’m interested to see how it performs over the coming years, but so far I’ve been very happy.
How Does Fundrise Compare?
Fundrise is not the only online real estate investment platform. Crowdfunding has become increasingly popular in recent years, creating an opportunity for the average investor to gain access to investment possibilities.
In fact, in the last few years, there has been fierce competition within this niche. So, how does Fundrise actually stack up against other popular platforms? Many of the leading platforms are only open to accredited investors, so it’s important to compare Fundrise to real estate crowdfunding for non-accredit investors, like RealtyMogul and Streitwise, which both offer private REITs similar to Fundrise.
- Fees: When you add the management fee and advisory fee, Fundrise works out at 1% per year. This is far less than the 2% fee with Streitwise. However, RealtyMogul has comparable fees of 1% – 1.25%
- Minimum Investment: Fundrise has a minimum investment of $10, but both StreitWise and RealtyMogul require $1,000.
As we have mentioned above, real estate is a long-term investment asset class. This includes publicly traded and non-traded REITs and eREITs. There are opportunities for portfolio diversification, capital appreciation, and regular distributions, but these are never guaranteed.
REITs provide a more passive way of investing in real estate assets. You can pool your funds with many other individual investors and take part in direct access to a mix of commercial and residential properties. These projects such as apartments, office buildings, hotels, and even shopping centers are not the type that a typical real estate investor would be able to purchase individually. You can also invest in properties that are outside your geographic location with ease.
So, in short, Fundrise can be a good way to diversify into the real estate market without a massive amount of capital or the management headaches that would normally accompany this type of investment if you did it solo.
Of course, you need to consider that REITs do have ongoing fees and a front-end load. But, Fundrise does offer fairly low fees of just 1%. The company also has a unique accountability guarantee, so you won’t get stuck paying hefty fees regardless of your investment performance.