Fundrise Review 2021: Should You Use It?
Fundrise is a popular real estate platform that is crowdfunded. That aspect makes it easier for individual investors to invest in the real estate sector. It has become very popular in recent times, letting people invest in real estate without having to actually buy entire properties.. In this post, we will do a quick review of Fundrise. We will look at the fees, features, and discuss if you should try this popular real estate platform out. Let’s get started.
Fundrise: Key Aspects, Things to Know and FAQs
With its real estate investment trusts, which it calls eREITs, Fundrise is making private real estate investing more accessible to the average investor. Real estate assets also do a great job of diversifying portfolios.
What is Fundrise?
Back in the day, it was not possible for everyone to invest in mega real estate projects. This field was reserved for accredited investors only.
Who is an accredited investor?
“Accredited” is a term used by the SEC to describe investors whose net worth is over a million dollars or they make at least $200-300k per year. This is obviously a large amount of money and most people don’t earn so much. This led to many investors being kept away from the sector. However, drastic changes arrived when the SEC opened the door for crowdfunded major real estate investments.
How did Fundrise begin?
Ben and Dan Miller started laying the foundation for Fundrise in 2010 and launched the firm in 2012. The firm is currently headquartered in Washington D.C.That was just when the SEC started to show signs of making real estate investment more accessible to all. Since then, Fundrise has gradually eliminated barriers for entry into low-stakes, high-return real estate investment. Its platform makes it easy to find real estate deals to suit your investment needs.
What is the minimum investment for Fundrise?
At first, Fundrise only accepted accredited investors. However, now anyone can invest with Fundrise, as long as they make a minimum investment of $5,000. Fundrise utilizes its eREIT to accept all investors with the ability to make a single $500 investment. There is no major difference between REIT and eREIT. REITs allow investors to pool their money and invest in large commercial real estate, such as shopping malls, office buildings, and apartment complexes. Rather than buying your own rental property, you buy a piece of investment. While these investments usually tend to be in commercial properties, they can have single family homes at times as well. Always remember, commercial real estate is considered a long-term investment
What are the different investment options available on Fundrise?
Fundrise offers three different core investment plans: Supplemental Income, Balanced Investing, and Long-Term Growth. Each portfolio contains a different mix of eREITs and eFunds. eREITs work much like an exchange-traded fund (ETF). On the other hand, eFunds are private funds that focus on long-term growth rather than income. Each Fundrise portfolio invests in both eREITs and eFunds, meaning you’ll earn both quarterly dividends and income from asset value appreciation.
Fundrise’s eREITs are non-traded REITs, which means they are not listed on public exchanges such as the NYSE. This helps cut back on fees by removing the middleman, but it also makes the funds less liquid. If investors outside the Fundrise program aren’t able to buy shares in its eREITs, that means lower liquidity.
Income eREIT vs. Growth eREIT
Fundrise has two new investment options:
It focuses on debt investments in commercial real estate that generate steady cash flow. The current dividend on this fund is 4.99%, which is slightly above average for most dividend stocks.
The Growth eREIT
It focuses more on appreciating assets as a means to create wealth. What that essentially means is that it focuses on assets that are expected to appreciate considerably. This has resulted in a low dividend of just 1.78%.
What is the Fundrise iPO?
Fundrise comes with another investment option, its iPO or “Internet Public Offering”. Through that, users have the option to buy the company’s shares. There is a minimum investment of $1,000 in a Fundrise portfolio to participate. In addition, your iPO investment is limited to 50% of your real estate principal invested. So, if your Fundrise portfolio has $1,000, you can only have a maximum of $500 for the iPO.
How to redeem your Fundrise investment?
Fundrise shares are non-traded shares so it’s more difficult to sell them when compared to a normal stock. However, if you want to redeem them, you’ll have to submit a redemption request. This can be done on Fundrise’s website. Liquidity can be claimed after a 60 day waiting period. However, withdrawal before the sale of the real estate attracts penalties from Fundrise.
Fundrise has an asset management fee of 0.85% plus a 0.15% advisory fee. That works out to a total 1% annual fee. Other fees may apply, though you have to dig through complicated offering circulars to find them. Fundrise also carries out promotions at times that waive advisory fees for new customers. Currently, there is no such promotion running.
Fundrise portfolios are distributed across four tiers. Ranging from the Starter Portfolio all the way up to its Premium Portfolio. For each investment strategy, Fundrise will invest your money in a set of eREITs and eFunds.
Although you can start for as little as $500, Fundrise usually recommends its clients to upgrade to one of the core plans. These plans provide not only passive income, but also great diversification and customization. Indeed, annual returns look quite strong. Of course, every year is different, and past performance does not guarantee future performance. Nevertheless, there should always be a demand for real estate; thus, there’s no reason to think returns won’t remain strong.
How does Fundrise select projects to fund?
When it comes to online real estate crowdfunding, Fundrise has a lot of competitors. However, it is the first organization that offers a lot to average investors as well. If you have $1,000, you can participate using this process:
Fundrise has several levels of screening before they decide to fund a real estate project. Developers approach them with proposals.
After basic screening, a full 50% of these submissions are rejected, because they don’t meet Fundrise’s standards.
All of these proposals are examined carefully by a dedicated internal team. Only a fourth of the proposals make it to the final scrutiny level. Ultimately, a mere 1% of the received proposals are funded by Fundrise. Fundrise pre-funds all selected real estate proposals, before making them available to its stable of user investors. This is a lot of risk for Fundrise to take on, but this risk also cuts both ways.
Can you really make money with Fundrise?
You can make money with Fundrise through rental income, which you’ll get in quarterly dividends. The other way to earn returns is when the properties appreciate over time and then are sold. The average return for Fundrise investments in 2019 was 9.47%. This assumes you reinvest dividends back into Fundrise.
Is Fundrise a pyramid scheme?
No, Fundrise is not a Pyramid/Ponzi scheme. Fundrise uses your investment to purchase real estate, and your returns are based on the performance of that real estate.
Will Fundrise ever go public?
Fundrise is one of the leasing real estate crowdsourcing platforms that has raised over $40 million to date in 2020. The company has come up with an innovative way to raise capital through a Fundrise Internet Public Offering (iPO). As far as becoming a publicly traded firm, there has been no confirmation or denial from the company’s end.
What happens if Fundrise goes out of business?
In such an event, assuming that the Manager was also deemed bankrupt or insolvent, the shareholders would have the opportunity to replace the Manager for cause under the terms of the Fundrise eREIT and eFund operating agreements.
How is Fundrise taxed?
The dividends you receive from Fundrise will be non-qualified dividends. That means they’re taxed at regular income tax rates rather than at the 15% rate used for qualified dividends. Fundrise’s plans are a lot like a real estate ETF.
So that was our brief review of Fundrise. Hopefully, you have a better idea of the online real estate crowdfunding firm and going forward, you can make a more informed decision about investing in it.