Wondering how to make money with real estate investing? Our Fundrise review explores the advantages (and risks) of one of the most popular real estate investment platforms in the market.
Before the introduction of Fundrise and similar real estate investment platforms, commercial real estate investing was reserved for investors with deep pockets. Investing in commercial real estate requires a large amount of upfront capital, especially when your goal is to diversify your portfolio.
An investor who wanted to make it big needed to own multiple properties in various locations with multiple features (e.g. strip malls, apartment complexes, condos, office spaces). With money being a big barrier to entry, only the big guns played the real estate investing game.
Thankfully, platforms like Fundrise leveled the playing field. With crowdfunded real estate at its core, Fundrise allows almost anyone with $500 to buy into residential or private commercial properties with ease.
Our Fundrise review explores how Fundrise works, its pros and cons, tips, and what to watch out for so you can make an informed decision about where to invest your hard-earned cash.
Ready to try out real estate investing? Read our Fundrise how it works review below!
Table of Contents
What is Fundrise?
Fundrise was one of the very first real estate crowdfunding platforms when it launched in 2010. It was not only the first but also one of the few that emerged successfully.
Upon its launch, Fundrise began with services that catered only to accredited investors but eventually allowed unaccredited investors to invest in commercial real estate.
In 2015, the platform revolutionized real estate investing when it introduced its first eREIT (electronic Real Estate Investment Trust).
This new way of investing made commercial real estate investments accessible to the masses.
What is real estate crowdfunding?
To better understand our Fundrise review, readers need to understand the basics of real estate crowdfunding.
Real estate crowdsourcing works by pooling together investment capital from a lot of different investors and buying a real estate asset using those funds.
Investors then receive a portion of the earnings all throughout the holding period of their investment. This portion also includes any appreciation that occurred upon sale.
Before the invention of real estate crowdfunding, this process of pooling together investment funds was generally called “syndication”. Through syndication, money was collected privately and without open advertising.
Today, however, with the introduction of the JOBs act and new crowdfunding rules, money for capital may now be solicited openly and online.
What is a Fundrise eREIT?
You may think of eREITs as non-trade REITs, with the only difference being the fees. When an investor invests in an eREIT, he no longer has to go through a broker – he purchases directly from the platform itself.
This allows Fundrise to have lower fees compared to other firms. Instead of charging you a front-end load of 7% – 15%, Fundrise only charges a %1 annual asset management fee.
What is a Fundrise eFund?
Electronic Funds, or eFunds for short, invests in commercial real estate. It’s a type of fund that is exclusive to Fundrise and is designed similarly to a professionally managed mutual fund. Just like eREITs, eFunds cannot be traded publically.
Since eFunds are created as partnerships and not corporations, they are not taxed the same. Unlike Fundrise’s eREITs that are used to generate income, eFunds are set up for growth.
Is Fundrise a good investment?
Our Fundrise review found a couple of important insights about Fundrise’s performance through the years that may or may not sway you to invest. Fundrise’s latest public offering documents showed the firm manages roughly $500 million in equity assets under management with 63,271 investors.
Its six-year average platform portfolio has performed well, yielding a 10.4% return versus 7.4% for the Vanguard Real Estate ETF and 7.92% for the Vanguard Total Stock Market ETF. Remember, however, that past performance does not indicate good results in the future.
Charts of its performance also show that the platform offers steady returns when compared to the stock market. We believe that the platform will perform exceptionally well in 2020 and moving forward when the demand for real estate is exceptional.
How Fundrise works
Fundrise is a type of investment service that allows you to make direct investments in commercial real estate.
You may think of Fundrise as a private real estate investment trust (REIT) without the inclusion of fees associated with hiring a “middleman”. Since Fundrise allows you to directly invest, overhead expenses are reduced and fees are kept low.
Here is a summary of Fundrise terms.
|Min To Invest||Accredited Only?||Fees||Next Steps|
|$500||No||1%/year||Sign Up||Read Pros/Cons|
What happens when you invest in Fundrise?
When an investor invests in a Fundrise eREIT, he actually invests in a basket of properties like he would with an exchange-traded fund (but instead of investing in securities, he’s investing in real estate). As an eREIT owner, you receive a small percentage of income generated by the properties you invested in.
This includes rental income from rental properties or growth-oriented real estate developments.
eREITs, which are Fundrise’s main products, generally invest in real estate that produces income through holding mortgages or managing buildings.
What happens to your investment?
When an investor signs up for Fundrise, he invests in either a low-minimum Starter Portfolio or any of the three Core Portfolio plans.
Regardless of which option he picks, his money will be invested in a basket of eREITs and eFunds which consist of private real estate assets across the United States. The platform then tailors his allocation based on his specific investment needs.
Results vary greatly according to your plan, but your payouts in Fundrise will always come in two forms: your quarterly dividend distributions and appreciation in asset value which is determined at the end of the asset’s investment term.
Since Fundrise’s portfolios are naturally long term, you’ll find that appreciation in asset value isn’t guaranteed and doesn’t happen overnight.
What are Fundrise’s investment options?
Our Fundrise review will walk you through all the investment options possible within Fundrise.
The Starter Portfolio
The Starter Portfolio allows anyone to invest in eREITs for just $500. eREITs give you access to over 20 various properties across major cities in the United States.
Our review of the Fundrise Starter Portfolio discovered that the investment option comes with a .85% annual management fee and a .15% annual investment fee that is waived under specific circumstances.
Investors who choose to invest in the Starter Portfolio will hold a portfolio that consists of 50% income eREIT and 50% growth eREIT. Investors should expect to manage both of these investments for around five or more years, with the chance to liquidate once every quarter.
Investors who invest up to $1,000 will be upgraded to the portfolio. This type of portfolio includes around 7 eREITs and dozens of different properties.
The type of eREITs you invest in depends on your goals, but you’ll have to select between a passive income portfolio, a balanced portfolio, or a long-term growth portfolio.
The Fundrise website gives you information about each of your eREITs, including the properties you own and details about future growth and income.
The advanced account offers more complex strategies with a chance for higher returns. With a $10,000 minimum investment, the advanced account offers all of the core features plus the capacity to allocate directly to most of Fundrise’s funds.
Investors who have invested $100,000 or more will be upgraded to the Premium Account, which gives them access to private funds that become available periodically.
While the investments offered here are more long-term, they offer the highest returns. Premium account members also have priority access to Fundrise’s investments team.
Making Direct Investments
Fundrise allows you to make direct investments by investing in an eFund rather than an eREIT. Investors who invest in an eFund are investing in a real estate project, which means that they cannot expect liquidity until their project is completed.
To make direct investments, you’ll have to pay a .85% annual fee and a .15% portfolio management fee (waived in certain circumstances).
Becoming an eFund investor grants you access to the ‘first look’ program, which allows you to purchase a home before it makes its way to the market. Investors are allowed to use their eFund investment as part of their downpayment.
Fundrise also allows you to invest your IRA funds in several diversified real estate investments. IRA accounts allow you to save money for retirement (without taxes).
Investors may be able to reduce contributions on their tax return, or their earnings may even grow tax-deferred depending on the type of their IRA account (Simple, Traditional, SEP, or ROTH).
See Related: 10 Important Pros and Cons of Real Estate Investing
How to sign up for Fundrise
Our Fundrise review found out that you can set up an account in less than 10 minutes. All you need to do is to open a Fundrise account via mobile app or website, and then select your account level and plan.
Your choices depend on your goals and your total investment amount. You’ll select an account level (Starter, Core, or Advanced) and then select an investment plan (Long-Term Growth, Balanced, or Supplemental Income).
After you’ve set up your preferences, the platform creates a dynamic portfolio for you, with several projects that align with your investment profile.
After building your passive income portfolio in Fundrise, the Fundrise dashboard allows you to manage and monitor your investment with relevant insights and information.
You can read project updates, view real-time returns, set up auto-investing, set your account goals, make manual subsequent investments, and others.
All returns are deposited directly into your bank account. Investors may also choose to automatically reinvest any dividends they earn.
Fundrise features you should know
Fundrise is open to nonaccredited investors
As opposed to other online real estate platforms that are only open to accredited investors, many of the platform’s products are available to all types of investors.
Incredibly easy to use
Signing up for Fundrise takes less than 10 minutes (assuming you’ve already scoured through the investor disclosures). All you need to do is provide your phone number, address, Social Security Number, and choose your method of funding your account.
Low barrier to entry
You only need $500 to invest in Fundrise and get into private real estate deals. This makes it a great choice for first-time investors who want to experiment with growing their money.
Options for redemption
Want to sell your shares back? Fundrise allows all investors to sell their shares back to the platform for a particular fee. This fee is paid into the eFund or eREIT and is calculated as a reduction to the share price value.
The reduction is 0% if shares are sold back in the first 90 days, 3% if held at least 90 days but no longer than three years, 2% of held for three years but no more than four years, and 1% if held at least four years but no more than five years. Shares held for five or more years have no share-price reduction.
Fundrise uses non-traded REITs
You won’t be able to trade the eREITs in Fundrise on a public exchange as they are illiquid. While there are risks in investing in non-traded REITs, the rewards may be worth it. According to Fundrise, its average annualized return in 2018 was 9.11%.
See Related: 30 Top Real Estate Investing Terms to Know
Fundrise pros and cons
Our Fundrise review found several advantages and disadvantages of using the platform. Take these into consideration before making an investment.
- Low minimum and fees. You only need $500 to start with Fundrise and it charges only 0.85% asset management fee annually.
- Accepts non-accredited investors. As mentioned, the platform is open to any investor living in the United States, regardless of their network and income. This sets them apart from competing firms that are available to accredited investors only.
- 90-Day Guarantee. If you’re not happy with your Fundrise investments, you can sell them back to the platform for the original investment amount. There are conditions to this claim, however.
- Diversification. Fundrise eREITs give you access to a pool of properties that could even out your returns – this sets them apart from other firms that offer private REITs.
- Passive investment. As opposed to owning a commercial real estate, Fundrise makes passive real estate investing a walk in the park.
- Access to commercial real estate. Before platforms like Fundrise, commercial real estate investing was exclusive to only those who had lots of money. With Fundrise, you can invest in commercial real estate at an affordable rate.
- Potential for liquidity. While REITs are typically illiquid, Fundrise offers a quarterly redemption plan that offers periodic liquidity. Do note, however, that distributions are not guaranteed.
- Taxes. All Fundrise distributions are taxed as though they are ordinary income, as opposed to the typical 15% tax rate on qualified dividends.
- Liquidity. Once you make an investment in Fundrise, you’ll have to commit to it for the entire term. You won’t find a secondary market to sell the investments you made. However, this is padded by the platform’s quarterly redemption program that allows you to redeem your shares for a fee (with conditions).
Is Fundrise right for you?
Is Fundrise worth it? If you’re looking for passive real estate investing, Fundrise is one of the best options available. The platform is great for investors who are looking to diversify their asset classes with less correlation to the stock market.
While it’s an easy platform to navigate for investors of all skill levels, there are factors to consider before diving in. First, we don’t know yet how crowdfunded real estate platforms like Fundrise perform during a downturn in the market.
In the middle of a housing crash, the platform may be forced to postpone its redemptions for some investors. This is a factor to consider for those who are risk-averse, who may find other ways to invest in real estate to be less risky.
Fundrise users need to know that investing in the platform requires long-term effort. You may request to redeem your shares during certain periods, but this usually comes with fees depending on how long you’ve managed the investment.
Your personal experience of Fundrise may vary, depending on your investment goals. If you’re concerned about your money being tied up, it may be better to opt for a standard brokerage account which offers you wider access to several investments.
Investors who own a diverse portfolio of stocks and bonds may consider Fundrise as another way for them to add real estate to their portfolio if they’re okay with letting their money sit for at least five years.
See Related: 12 Best Apps for Real Estate Investors
Is Fundrise legit and safe?
If you’re wondering which investment type typically carries the least risk, we can safely assume that REITs are among the options that carry fewer risks (though they are not risk-free).
Know, however, that very few of today’s available investments can be considered completely safe and “risk-free”. You won’t find a legitimate investment method that offers a guaranteed return.
Real estate investments which are less liquid offer more protection from market downturns, compared to securities such as mutual funds or stocks.
Our review of Fundrise discovered that that the platform’s portfolios of eFunds and eREITs are some of the safest you’ll ever find in the real estate space. This is mainly because non-traded REITs and eREITs are not directly correlated with the fluctuations in the stock market.
This, however, comes with a couple of downsides: you won’t get the same liquidity, and you’ll have to dole out more for front-end fees than you would with exchange-traded REITs.
- Real Estate Crowdfunding Guide: What is it & How to Invest
- 5+ Proven Ways to Invest in Real Estate with Little Money
- 10 Best Real Estate Crowdfunding Options for Non-Accredited Investors