Since their inception real estate investment trusts (REIT) have been reserved for people who have a lot of assets to manage.
This means that the average investor didn’t even have them as an option to diversify their portfolio.
As with many thing, the Internet made more and more people aware of this missed opportunity and started asking for an alternative.
Enter Fundrise. Their approach to real estate investing allows anyone to get in with as little as $500.
How Fundrise Works
It’s pretty simple – you can start off with the Fundrise Starter Portfolio with its low entry level or choose one of the Core Portfolio plans. That gives you the choice of four different plans. Your money is then invested in eFunds and eREITs that are made up of assets in real estate across America.
You have to choose the portfolio that best suits your requirements, and from there, it’s just a matter of deciding how you want to get your payouts. This will vary from plan to plan, but there are a couple of options here.
If applicable, you’ll receive dividends on a quarterly basis. The other form of income is asset appreciation, but that will only accrue to you at the end of the term. As the investments are real estate based, the property will have to be sold before you get your money.
Neither dividends nor appreciation can be guaranteed. Now that we understand how it works, let’s get this Fundrise review started.
- Self-Directed IRA: This makes it possible to use your money pre-tax and put it towards your retirement planning. You will have to choose eREIT offerings here, as these are the only ones that qualify.
- Goal-Based Investing: This is pretty new for the platform. Essentially, instead of choosing your type of investment or the geographical area that you want to invest in, you state your goals. The platform will then match the best investments for those goals.
- eREIT: This is a REIT that is not traded and that invests in a number of different commercial real estate properties. The advantage here is a significant saving when it comes to commissions, allowing you to maximize your returns.
- eFund: This is a fund that also invests in several commercial real estate properties. The focus is on growth instead of just providing an income. If you’re risk-averse, it’s probably not the best option for you.
There are a total of seven eReits and three eFunds to choose from. The eReits are as follows:
- Income eREITs I and II: These are focused on debt investments in the commercial sector.
- Growth eREITs I and II: The focus is again on properties in the commercial space with a view to growth in value over time.
- Balanced eREITs I and II: A middle ground approach between the income and growth options.
- East Coast eREIT: These include equity and debt investments situated on the East
- Heartland eREIT: These include equity and debt investments situated in the Midwest.
- West Coast eREIT: These include equity and debt investments situated on the West Coast.
The costs are something that can confuse the layperson, but let’s see if we can make things clearer. Your basic management fee is 0.85% per annum. For this kind of investment, that’s a pretty good deal. In this respect, Fundrise outperforms its peers.
That said, there are some other costs that need to be taken into consideration. These are not overt costs, but they can affect the profitability of your investment overall, so they’re worth thinking about.
- Shares might sell at a premium. When you’re investing in the product shares, you could end up paying an extra percentage as a kind of sales load. It’s not usually a huge difference – perhaps $10 instead of $9.50, but it adds up if you’re buying a lot of
- It costs money to make eFunds and eREITs a reality. These costs are typically between 0% and 2% and are borne by investors. The fund manager will pay these upfront, and then recoup the cost over time.
- In some cases with eFunds, a development fee might be levied. This is usually a maximum of 5% of the cost of the development without the land cost. If an independent developer is used, this cost is borne by them. If not, the investor pays.
- There could be a disposition fee charged when any of the eFunds sells a property. This would normally amount to around 1.5% of the proceeds, before tax but after the property-level debt has been paid. If a broker is used, this is borne by the broker.
Fundrise is an American-based company founded in 2010 and based in Washington, D.C. It has established a reputation as being the first company to make crowdfunded real estate investing a success.
The company is not small anymore, either – in 2015 they were managing real estate assets to the tune of $525 million. In the same year, they offered an average net investment return of 13%.
The company has proven that they have a good eye for investment opportunities and are a dab hand at investment management. They offer investors an opportunity to get a taste of real estate investments for a low buy-in.
While Fundrise is the currently the most popular platform for investing in real estate without owning it, there are other options for your investments.
Realty Mogul – With two funds that anyone can invest in, RealtyMogul is a top option for those looking to invest in REITs.
RoofStock – RoofStock is not a direct competitor to Fundrise, but they offer an interesting platform for people looking to purchase their own rental property.
PeerStreet – Working only with accredited investors, PeerStreet is not a platform for most people. They do have a solid offering for those that qualify.
- Low minimum investment: You only need $500 to get started on this platform. That’s a pretty low buy-in. It makes real estate investing a lot more accessible.
- Low fees: The asset management fee is reasonable at 0.85% per annum, a lot lower than what most of its competitors charge.
- No accreditation: Not all firms are open to investors regardless of income or their net worth. Even if you have $500, you can invest here.
- Diversification: The number of properties that the company has makes it possible to smooth out returns if some are performing badly.
- 90-Day Guarantee: One thing that sets this company apart is that they offer a 90-day money back There are conditions attached, naturally, but you can get your full investment back if you feel you’re not satisfied during this period.
- Easy access to commercial real estate investment: For the person on the street to have access to a commercial investment is rare. These cost millions of dollars and are out of reach for most people. Crowdfunding real estate, as it is done here, makes access possible without loads of cash.
- It’s a passive income: You don’t have to know the first thing about property management. All you do is to invest, and then leave the management to the professionals. No late night calls to sort out a flickering light bulb or harassing a contractor to finish the project on time.
- Quarterly distributions and redemptions: These are not guaranteed but can help to ease liquidity concerns periodically.
- Low liquidity: This is an investment for the long haul. These items are not traded publicly, and so you’re pretty much in it for the full term. In some cases, you might be able to redeem your shares on a quarterly basis, but it’s best not to count on this option.
- Tax issues: There are no breaks in terms of tax here. Every dividend will be taxed at the standard rate. This can prove annoying and expensive. Qualified dividends, on the other hand, are taxed at 15%.
Fundrise Review Bottom Line
Fundrise is bringing much needed real estate diversification to the portfolios of pretty much any level of investor.
If you are looking to spread your portfolio to higher interest non-stock investments then looking at Fundrise and other REIT investments is a great place to start.