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Fundrise Review

Fundrise Review

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Considering real estate as an investment opportunity? See whether Fundrise is the best low-cost private market investment platform for you.

Fundrise Review

Introduction

While stocks and bonds trading are often referred to as “standard assets” and form the bulk of investments, real estate has long been considered an “alternative asset.” This is because it's a historically difficult investment opportunity – and not only due to its cost.

Still, it's a lucrative market. BiggerPockets likens real estate investments to teaching yourself calculus – and that's a fitting analogy.

And thanks to investment platforms like Fundrise, it's no longer as difficult as it once was.

Better yet, you don't have to be an accredited investor (which, in the U.S., means earning more than $200,000/year) in order to invest in real estate with Fundrise. In fact, many of their eREIT opportunities are available to investors who aren't accredited.

This means that just about anyone can afford to invest through Fundrise, thanks to their real estate crowdsharing model. Fundrise actually developed and patented the idea of online real estate investment opportunities in 2011, two years before anyone else. That already puts them streaks ahead of their competition.

The crowdsharing investment model isn't the only thing Fundrise pioneered, however. While REITs (Real Estate Investment Trusts) have been around since the 1960s, Fundrise was the first to bring them into the online sphere – hence “eREIT.”

Most of the eREITs available through Fundrise don't trade on the public exchange, making them illiquid. They're more difficult to sell, but can also be more rewarding in the long-term.

eFunds are another online real estate investment opportunity exclusive to Fundrise. Here, the collective funds from several investors are pooled to buy land, develop housing, and then sell to home buyers.

Fundrise offers four portfolio options: Starter, Supplemental Income, Balanced Investing, and Long-Term Growth. Each portfolio is comprised of both eREITs and eFunds (percentages predetermined by Fundrise), making diversification immediately simpler to achieve.

That's a lot of information in a short space of time, but if you're looking to invest in real estate, it's important to understand how.

Quick Facts

  • Integrated portfolio diversification with private real estate investments
  • Investment opportunities with minimums as low as $500 to $1,000
  • Management and advisory fees totaling +/- 1% (other fees may apply)

Fundrise is Best For

Fundrise is best for the following types of investors:

  • Long-term investors, as the assets you're investing in are illiquid. You'll likely need to hold onto them for least five years, as there are early exit fees in some cases (you can view their redemption policies here).
    • Investors who want to diversify away from stocks and bonds.
      • Those who don't feel the need to choose individual properties themselves, nor be involved with the property's management.
        • Those willing to take the risk of investing with a model that hasn't been tested through significant real estate downturns yet.
          • Those who are able and willing to do research. Each product comes with its own offering circular that describes fees, Securities, Exchange Commission, and more. Expect to read 200 or more pages per Fundrise product.

Pros

While there's a lot to consider when it comes to using Fundrise to invest in real estate, their having pioneered the online crowdfunding market means they've had more time to work out the kinks. As such, the company has a lot going for themselves and their investors.

+Portfolio Diversification

Diversification is imperative to a successful investment career. Doing so helps to balance the risk and rewards of your investments: when one area is performing negatively, another area's positive performance can off-set your losses.

By investing in real estate, you're already diversifying away from stocks and bonds. But thanks to the portfolio set-up, Fundrise further automates your diversification by predetermining how your package is split between eREITs and eFunds. As mentioned earlier, each of Fundrise's four portfolio options offer a different combination of these.

Fundrise currently offers seven eREITs. We'll briefly introduce each so you can get a better idea of the diversification benefits.

  • Income eREITs I and II focus on debt-based investments in commercial property
  • Growth eREITS I and II focus on commercial properties that are set to appreciate value over time, with a particular emphasis on multifamily buildings
  • East Coast eREITs focus on debt and equity property investments situated on the East Coast
  • Heartland eREITs focus on debt and equity property investments situated in the Midwest
  • West Coast eREITs focus on debt and equity property investments situated on the West Coast

Each eREIT category has a number of active projects, which are displayed on the landing pages. As an example, here's a screenshot for the Heartland eREIT (early March 2019). There are currently 15 active projects. By hovering over each segment of the pie, you can see where those projects are located.

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eFunds, on the other hand, focus on developing residential real estate, with the goal of selling this property. The major aim is to tap into the growing demand for urban housing, particularly by millennials. At present, the demand outweighs the supply, making it a smart long-term investment opportunity that Fundrise has recognized and capitalized on.

Fundrise currently has three eFunds. Two of them focus on Los Angeles and Washington, D.C., two of the more popular areas with the highest demand. The third has a nationwide scope, while still focusing on major cities.

+Low Investment Account Minimums

As we explained in our introduction to this review, real estate has traditionally been an expensive investment opportunity. But with Fundrise's low minimums, it's possible to invest in private real estate deals without having to be an accredited investor.

At $500, the Starter Portfolio has the lowest minimum investment. The Supplemental Income, Balanced Investing, and Long-Term Growth plans all have a minimum of $1,000.

+90-Day Money-Back Guarantee

Fundrise promises to “buy back your investment at the original amount” if you're not satisfied with their services. Of course, you need to request a redemption within the first 90 days to qualify.

While this lets you test the waters a little, you should bear in mind that Fundrise investment opportunities are typical in the 5-year range.

Certain restrictions to the redemption process may apply as well, such as a 60-day waiting period.

+User-Friendly Platform

Assuming you've already read the fairly lengthy investor disclosures (and you absolutely should), the sign-up process will only take you about ten minutes, if that. All you need to do is choose a portfolio plan and provide your address, contact number, and Social Security number.

The final step is to choose whether you'll be using a wire transfer, ACH transfer (linking your bank account to your Fundrise account), or manually entering your banking information to fund your investments.

Cons

There's still one more factor to consider when it comes to Fundrise – and unfortunately, it's not a particularly good one. In fact, it's something of a major contention point we have with the company.

-Fee Transparency

Fundrise's pricing breakdown seems immediately attractive. Their displayed total annual costs rest at 1% – 0.15% in investment advisory fees, plus 0.85% in asset management fees. This is comparatively cheap considering traditional investments such as stocks and bonds total 1.37% to 6.45% annually.

Over and above this, you can save 23% to 40% in total up-front costs. You'll only pay 0% to 2% up-front for asset origination and acquisition. Fundrise compares this to the stock and bonds traditional investment costing of 20% to 30% for auction efficiency premia, 5% to 7% initial public offering, and an additional 0% to 3% for asset origination and acquisition, for a total of 25% to 40%.

However, it doesn't stop there. Some of the additional costs you may run into are somewhat difficult for all but the most discerning investor to see -unless you spend several hours (or even days) going through their offering circulars with a fine-toothed comb.

To be fair, Fundrise isn't alone in this regard. Other online real estate investment platforms similarly publish offering circulars that take up hundreds of pages each, with extra fee details buried among the rest of the information. Considering investors should absolutely be apprised on these fees, we'd prefer to see them displayed in a more upfront manner.

Unfortunately, as mentioned before, real estate investment is an area where interested parties are going to have to accept that a significant amount of research is necessary before taking even a small initial step.

Is Fundrise Right For You?

No honest review is going to outright state that a particular investment platform is or is not right for all their readers. The only exception would be scam sites – and Fundrise certainly isn't a scam.

But to help you better decide whether or not Fundrise is right for you, here are a few more points that you'll need to consider:

Potential Costs

As mentioned in the previous section, our main contention with Fundrise is their lack of fee transparency. This is a brief look at costs to keep in the back of your mind:

  • Sales loads – while not exactly a traditional sales load, there is a possible difference between the net asset value and selling price. For example, an eREIT share with a net asset value of $9.50 could be sold to you at a premium of $10.
    • Organizational and offering costs – these costs are by no means unique to Fundrise, as you'll run into them with any real estate deal. Organizational and offering costs are used to reimburse managers for bringing the eREIT or eFund into existence. Fundrise states that they run to a total of 0% to 2% of investors' collective money per project.
      • Potential eFund development fee – while not guaranteed for each eFund, some do carry this extra cost. This occurs when Fundrise develops the related project themselves instead of using an independent developer. Excluding land, the development fee would be used to cover up to 5% of the project's total development costs.
        • Disposition fee – using a traditional broker, the disposition fee would instead be the broker's fee and be taken out of the gross proceeds from the sale of an eFunds property. Fundrise is cutting costs for themselves as well as investors by planning to act as their own listing agent. This does, however, mean that after the property-level debt has been paid, a further 1.5% of the gross proceeds would be claimed by the company as their disposition fee.

Untested Model

As mentioned earlier, crowdfunded real estate investment hasn't yet been tested through a market downturn. This just means that there's more potential risk. If there's another housing crash (like the one from 2006 to 2009), Fundrise may have to postpone fulfilling some portfolio redemption requests.

Tying Up Your Funds

Because real estate investment (especially private investments that aren't publicly traded) is a long-term game, you should consider how long you can afford to wait before redeeming your portfolio.

Fundrise isn't overly clear on redemption fees, and if too many investors are requesting portfolio redemption at the same time, your payout will likely be delayed.

Conclusion

Although there's still a lot of research and risk involved in real estate investments, Fundrise has made huge strides in making the market more viable for the average investor.

If you have the patience to wait between five and seven years to see the benefits of your investments, Fundrise may be the way to go. In fact, they even have a retirement option for investors with a really long-term vision.

Fundrise uses Millennium Trust Company as their third-party custodian for IRAs opened through them. All you need is the standard minimum investment of $1,000 to get started. Just bear in mind that you'll be charged an extra $75 annually per eREIT. However, the maximum fees are capped at $125/year if you invest in multiple eREITs.

All told, Fundrise offers an exciting opportunity for non-accredited investors to join the real estate market.

Related:  Fidelity Review

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