Fundrise Review – Investing In Real Estate Made Easy
Although it’s not the miracle asset people make it out to be, real estate is a solid place to invest your money if you know what you’re doing.
There’re just 3 problems:
- Price – Houses aren’t exactly cheap (let alone larger properties), meaning
- Credit – You need excellent credit in real estate. Banks won’t give you hundreds of thousands of dollars in the form of a mortgage unless they’re absolutely sure you’ll pay it all back to them. Plus interest, of course.
- Complexity – Real estate investing isn’t as simple as “buy house and collect rent checks”. It’s a business so you have to run it like one. That means working your tail off, understanding the industry, and hiring lawyers/accountants/brokers/etc.
But the digital realm is opening up real estate investing accessibility more than ever before. No longer do you have to be wealthy and connected thanks to companies like Fundrise.
What Is Fundrise?
Fundrise is a Washington, DC-based online real estate company, as well as the name of their real estate crowdfunding platform. Fundrise makes private residential and commercial property investment opportunities accessible to the average investor, rather than just those with lots of wealth.
They have both a web site and an iOS app. Both of them are quite intuitive.
Much of Fundrise’s competition bars access to all but accredited investors.
Fundrise doesn’t. Some of their products do require accreditation, but most don’t.
In case you’re curious, the SEC requires you to meet one of the following criteria to become accredited:
- Have a net worth of $1,000,000 or more, excluding the value of your primary residence
- Have made at least $200,000 in income ($300,000 combined income if married) each year for the last 2 years, with the expectation to make at least $200,000 this year.
How Does Fundrise Work?
Fundrise is a real estate crowdfunding platform. Real estate crowdfunding is the act of multiple investors pooling their money together to purchase a property.
You need no more than $1,000 to start investing on Fundrise.
Also, they offer a 90-day money back guarantee if you’re dissatisfied with the service.
Fundrise has two types of investments:
Fundrise’s Investment Types
Fundrise’s main type of investment is the eREIT, of which there are 9:
- Income eREITs 1, 2, & 3: Debt investments in commercial properties
- Growth eREITs 1 & 2: Multi-family commercial properties with appreciation potential
- Growth eREIT 2019: Brand new, focused on appreciation, no projects acquired yet
- East Coast eREIT: Debt and equity investments on the East Coast
- Heartland eREIT: Debt and equity investments in the Midwest
- West Coast eREIT: Debt and equity investments on the West Coast
These eREITs are a sort of mix between traditional REITs and pure crowdfunded properties. We’ll get to that later.
In addition to the eREITs, Fundrise offers 3 eFunds, which are funds that invest in the development and sale of urban residential real estate:
- A Washington, DC-based eFund
- A Los Angeles-based eFund
- An eFund that focuses on other major cities across the country.
These 9 eREITs and 3 eFunds have been mixed and matched into 4 investment plans so you don’t have to pick and choose each piece of your portfolio.
Fundrise’s Investment Plans
Fundrise has 4 main investment plans that they’ve found to cover all the bases. They are called
- Supplemental Income
- Balanced Investing
- Long-Term Growth
All plans pay you dividends in the middle of the month following the end of each quarter. For example, January-March earnings are paid out in mid-April.
Each one of these plans is centered around a different investment strategy/mindset to cater to as many investors as possible. If you aren’t sure what you want, Fundrise offers a short survey that recommends a plan based on your answers.
Read on to learn the differences.
Fundrise introduced their Starter portfolio to satisfy demand for a more introductory option.
The Starter portfolio has the following investment allocations:
- Income eREIT 3: 50%
- Growth eREIT 2019: 25%
- Growth eREIT 1: 25%
Income-producing properties tend to be more stable than growth-focused properties because growth-focused properties tend to be newer and therefore riskier. They don’t pay you income because they’re reinvesting the profits back into growth.
With that in mind, the Starter plan does a great job of evenly splitting growth and income opportunities while still spreading the growth eREIT risk among multiple eREITs.
Other Benefits of the Starter Plan
The Starter plan only requires $500 to get started. Every other plan has a $1,000 investment minimum, further cementing the Starter plan as a good introduction to Fundrise.
Are you looking to add another income stream to your life?
That’s precisely why Supplemental Income was built.
This plan mostly disregards growth opportunities in favor of more stable cash flowing real estate.
You can see this reflected in Supplemental Income’s portfolio:
- Income eREIT 3: 75%
- East Coast eREIT: 5%
- Heartland eREIT: 5%
- West Coast eREIT: 5%
- Income eREIT 1: 10%
Not a single growth eREIT to be found. The location-based eREITs probably include growth-focused properties, but the bulk of this plan creates stable income streams.
The main advantage here is the consistent income, rather than the irregular earnings when a growth-focused eREIT sells a property.
Fundrise also makes an effort to improve the properties in these eREITs to increase their value and thus their income potential.
To further increase stability, Fundrise has made most of this portfolio’s assets debt based. That means you aren’t collecting rent checks; rather, you’re earning interest on the mortgages.
Debt offers a lower ROI since you don’t own a slice of the property, but they’re much less risky because you’re entitled to payment before equity investors.
Balanced Investing sits directly in the middle of Supplemental Income and Long-Term Growth. It contains a mix of cash flow and growth-focused real estate for those who want more than just cash flow or just appreciation.
Its portfolio holds true to that philosophy:
- Income eREIT 3: 45%
- East Coast eREIT: 5%
- Heartland eREIT: 5%
- West Coast eREIT: 5%
- Growth eREIT 2019: 30%
- Income eREIT: 5%
- Growth eREIT: 5%
Investments are a blend of debt and equity, further contributing to the balanced nature of this plan.
This one leans only slightly more towards income-producing properties, probably because they’re more stable investments. Humans are risk-averse creatures, so even a “balanced” plan will err slightly on the side of caution.
Either way, you could consider Balanced Investing to be the most “diversified”” plan.
Long-Term Growth takes the opposite approach of Supplemental Income. This plan is all about equity investments in real estate with growth potential.
Take a peek at their portfolio to see what we mean:
- East Coast eREIT: 10%
- Heartland eREIT: 10%
- West Coast eREIT: 10%
- Growth eREIT 2019: 50%
- Growth eREIT 1: 20%
To identify growth properties, Fundrise analyzes demographic/cultural shifts, looks for emerging neighborhoods, and seeks out untapped property potential.
They improve the properties just like in the other plans, but the focus is on increasing the value for big gains upon sale rather than slightly boosting rental/interest income.
With this plan, you’ll earn higher returns on your investments down the line as properties appreciate in value and are then sold.
We could say this plan is the riskiest, but it’s not that risky compared to aggressive investing strategies in traditional investments.
Fundrise’s Fee Structure
Fundrise is inexpensive and accessible, but there are a few fees:
- .15% Advisory Fee – Covers various Fundrise features/admin stuff like project-level performance reporting, rebalancing, tax management, the dividend distribution system, tax management, and customer support.
- .85% Asset Management Fee – A flat fee that offsets operating expenses incurred by Fundrise.
- 0 – 2% Asset Origination/Acquisition Fee – Covers seeking out, underwriting, negotiating, and closing on debt and equity investments.
- Development and Liquidation Fees – Rarely seen, but Fundrise reserves the right to charge these.
Overall, the fees are quite affordable. Most other investments might charge at least 0.1% more on advisory fees and at least 0.15% more on asset management fees.
In addition, traditional investments tend to have fees that Fundrise doesn’t have at all, like IPOs or fund management fees.
Fundrise’s Advantages Over Publicly Traded REITs
Fundrise’s crowdfunding nature has a few advantages over traditional REITs, but you first must understand their similarities and differences.
Real estate crowdfunding and REITs both involve pooling resources from multiple investors. You don’t have to actively manage the property since someone else does it for you, making both types of investing a source of passive income.
The similarities stop there.
Yes, Fundrise does have those eREITs, but they’re different since they’re more of a hybrid between private REITs and real estate crowdfunding. Fundrise actively seeks out new properties rather than just holding on to current ones like publicly traded REITs.
Real estate crowdfunding involves the direct purchase of real estate via pooled resources from multiple investors.
Publicly traded REITs are corporations, or in other words, they’re stock; when you invest in one, you’re giving a corporation money to invest in their real estate portfolio.
Having trouble? Think of it like any other stock. When you invest in Apple, they use your money to build new electronics, aka the whole purpose of the company.
It’s the same with REITs, except for they deal in real estate instead of iPhones.
So how is Fundrise better than traditional REIT investing?
Accreditation Not Necessary
No longer do you need to be an accredited investor thanks to Fundrise. Some of their investments may require accreditation, but most don’t.
The average investor has a lot more investment opportunity these days.
Lower Investment Minimums
While we’re on the topic of accreditation, Fundrise has extremely low investment minimums considering the deals are all private.
Before Fundrise, you’d have to be able to buy a significant chunk (if not all) of a property in order to get in on the returns.
Fundrise only requires $1,000 for its core plans.
But if you’re just testing the waters, you need a mere $500 to sign up for the Starter plan.
Again, never has real estate investing been more affordable.
Lower And Fewer Fees
Piggybacking off the previous benefit again, Fundrise is made even cheaper through its fee structure.
It not only offers lower fees, but fewer as well.
See, because you’re investing privately, there are no fees for managing things like mutual funds and ETFs.
But one of Fundrise’s drawbacks also becomes a benefit by reducing fees.
In a public market, you implicitly pay a little extra for the liquidity. Since Fundrise is much less liquid, that additional convenience factor isn’t built in.
Higher Potential Returns
Although you’re investing in REITs on Fundrise, they still provide higher return potential than traditional, publicly-traded REITs.
No Market Volatility
Publicly-traded REITs are influence by the market due to their publicly-traded nature. Thus, they are subjected to the same market volatility as other publicly-traded assets like stock.
Investing on Fundrise is quite transparent. You know exactly where your money’s going. It even lists the types of projects each plan has on each plan’s page on Fundrise’s site.
Investing in publicly-traded REITs is transparent as well, but not on the same level as Fundrise. You may not know or understand where your money is going because you’re buying shares of a publicly-traded company with a wide range of properties under its ownership.
Who is Fundrise Best For?
All things considered, Fundrise is best for investors who check a few boxes:
- Not extremely wealthy
- Long-term mindset
- Need to diversify investments
- Desire real estate returns without managing the properties
- Willing to do their own research
- Willing to take on the risk of a new real estate investment model
If you can relate to most of those characteristics, consider creating a Fundrise account today.