Investing in real estate has long been recognized as a lucrative venture for those with deep pockets. However, for the average investor, accessing this market has proven challenging due to high capital requirements. But fear not, as Fundrise aims to level the playing field by making real estate investment more accessible than ever before. In this comprehensive Fundrise review, we will delve into the platform's workings and explore why it is worth considering as part of your investment strategy.
Fundrise Review: The Basics
Fundrise, initially established as the first private market platform for real estate investment, has since expanded to include venture capital and private credit. The platform primarily focuses on commercial properties, including office buildings, shopping centers, and apartment buildings. It also selectively invests in residential real estate projects, such as single-family homes and rental properties.
Fundrise offers both a free option and a paid membership called Fundrise Pro. The free plan allows investors to choose from three funds: Supplemental Income, Long-Term Growth, and Balanced Investing. For those seeking greater control over their investments, Fundrise Pro offers custom investment plans, direct investment options, and a broader range of funds to choose from.
Caption: Vanguard Real Estate Trend
Minimum Investment Requirements
One of the standout features of Fundrise is that it allows non-accredited investors to participate in real estate investment with an initial investment of just $10. However, the investment options for free-tier investors may be limited. Pro members and accredited investors gain access to a wider range of funds.
How You Make Money
As a Fundrise investor, you do not invest directly in specific real estate projects. Instead, you invest in eREITs (real estate investment trusts) or eFunds, which consist of a mix of debt and equity. Your returns stem from two sources: dividends and appreciation.
Dividends
Dividends are derived from rental income generated by properties and interest income earned from mortgages. Fundrise pays out dividends quarterly, offering investors the choice to receive payouts or reinvest them through their Auto Invest dividend reinvestment plan.
Appreciation
Real estate properties not only generate rental income but also appreciate in value over time. As the value of individual properties within an eFund or eREIT increases, the Net Asset Value per share also rises. Investors can realize gains from appreciation by selling their shares when their Net Asset Value has increased.
Fundrise Auto Invest (DRIP)
Fundrise offers a dividend reinvestment plan, known as DRIP, allowing investors to automatically reinvest their dividend earnings into their desired offerings. The reinvestment of dividends enables investors to benefit from compounded returns, leading to larger dividend payouts in the future. It's important to note that shares bought via auto investment must be held for a minimum of five years to avoid an early withdrawal penalty.
Historical Returns
Fundrise provides daily updates on actual investor performance on their website. These cumulative time-weighted returns take into account both appreciation and dividends, allowing investors to track and evaluate the performance of their investments.
Fundrise vs. REITs
Comparing Fundrise to traditional real estate investment trusts (REITs) reveals some key distinctions. REITs function by having individual investors own shares in a real estate asset, earning dividends and potential increases in share price. Fundrise, on the other hand, provides a less volatile investment with more stable returns, as it does not have publicly traded shares.
Furthermore, Fundrise eliminates many of the middlemen typically associated with real estate investments, allowing investors to have a more direct involvement. This approach enables Fundrise to invest in smaller commercial deals that often offer greater rewards than what larger REITs can pursue.
How Fundrise Chooses Investments
Fundrise employs a rigorous screening and underwriting process for each real estate asset added to its eREITs or eFunds. The company thoroughly evaluates the track record, financials, and experience of sponsors who acquire and manage the real estate assets. Additionally, Fundrise performs extensive due diligence and underwriting to identify potential risks and returns associated with each project. This meticulous approach ensures that only the most promising investments are included in Fundrise's portfolio.
Fundrise and IRAs
Fundrise enables investors to access self-directed Individual Retirement Accounts (IRAs) through its partner, Millennium Trust Company. The platform offers three types of IRAs: Traditional IRAs, Roth IRAs, and SEP IRAs. These IRAs provide tax-efficient investment opportunities beyond the traditional asset classes typically allowed in IRAs.
Fundrise Fees and Penalties
Fundrise charges a total of 1% in fees on investment portfolios. This fee includes a 0.15% advisory fee for managing the investment portfolio and providing access to the Fundrise eDirect investment platform. Additionally, Fundrise charges a 0.85% annual asset management fee. It's worth noting that Fundrise does not impose commissions or transaction fees, nor does it charge for features such as the DRIP plan. However, certain fees, such as development and liquidation fees, may be applicable in specific situations.
Four Benefits of Investing With Fundrise
- Accessible Real Estate Investment: Fundrise provides an easy entry point into the world of real estate investing, making it accessible to a wider range of investors.
- Quarterly Dividend Income: Investors receive regular dividend income, providing a consistent passive income stream.
- Lower Capital Requirements: Fundrise allows non-accredited investors to participate in real estate investments with relatively low initial capital.
- IRA Investment Opportunities: Fundrise offers the option to invest in an IRA, providing tax advantages for investors.
The Three Biggest Disadvantages of Fundrise
- Lack of Liquidity: Compared to publicly traded REITs, Fundrise offers limited liquidity, making it less suitable for investors in need of immediate access to their funds.
- Potential Loss When Selling Shares: Due to a 60-day processing period for selling shares, investors may experience losses if the value of their investment declines during that period.
- Limited Historical Data: Fundrise has not yet experienced a major market downturn, leaving some uncertainty about its performance during economic crises.
Who Should Invest in Fundrise
Fundrise is best suited for investors who already have an emergency fund in place and are maximizing their contributions to employer-sponsored retirement plans. It is an excellent option for individuals looking to learn about real estate investing, diversify their portfolios, or invest in a tax-efficient manner through IRAs.
Fundrise Alternatives
While Fundrise stands out as a leading real estate investment platform, several alternatives cater to different investor needs and preferences. Arrived, Cadre, CrowdStreet, and DiversyFund are notable alternatives that offer unique features and investment opportunities.
Fundrise Review: Final Thoughts
Before considering Fundrise, it is essential to evaluate your investment horizon and goals. With a minimum investment duration of five years and potential penalties for early redemptions, Fundrise requires a long-term commitment. However, for non-accredited investors seeking exposure to the real estate market and the opportunity to learn about real estate investing in a relatively safe manner, Fundrise provides an attractive option. Additionally, higher-net-worth investors may find value in Fundrise as a means of earning regular dividends and diversifying their portfolios. As with any investment decision, it is crucial to carefully consider your financial situation and objectives before investing in Fundrise or any other investment opportunity.
