Fundrise is a real estate “crowdfunding” platform that allows everyday investors to access real estate markets and deals that they couldn’t invest in on their own.
Through Fundrise, you can invest in either professionally managed residential real estate called eFunds or a diversified portfolio of commercial real estate called eREITs.
In this review, I’ll cover the basics of investing in Fundrise, why so many investors love the platform and investment opportunities, and why I haven’t put my money with the company… yet.
The best way to think of Fundrise is as a private real estate investment trust (REIT) without all the fees. Although Fundrise is not publicly traded, they allow you to liquidate your investment up to four times per year.
So, how can you invest in Fundrise? Right now they offer three ways:
With the starter portfolio, you can invest in eREITs for a starting investment of just $500. You’ll gain access to over 20 different properties in major cities throughout the country.
You’ll pay a .85% annual management fee to Fundrise, but you won’t pay the additional .15% portfolio management fee until the start of January, 2018.
If you choose to invest, you’ll be in a 50/50 blend of the income eREIT and the growth eREIT. You should expect to hold onto both investments for five or more years, but you will have the chance to liquidate once per quarter.
Goals Based Portfolio
If you invest at least $1000, you can upgrade to a Goals Based Portfolio. Fundrise’s goals based portfolios include up to 7 eREITs, and dozens of properties. You can select between a balanced portfolio, a passive income portfolio or an aggressive growth portfolio. Your mix of eREITs will depend on your goals.
You can find more about each eREIT, the properties they own, leverage and gain perspectives on future growth and income right from the Fundrise website.
Right now, you cannot customize your portfolio beyond setting your goals.
As with the starter portfolio you’ll pay a 0.85% annual management fee and a 0.15% portfolio management fee.
If you choose to invest in an eFund rather than an eReit, you’re actually investing in a real estate project. You cannot expect a liquidity event before the project completes. Right now, you can invest in a Washington DC fund or a Los Angeles Fund.
To invest in these funds, you’ll pay a .85% annual fee, and a .15% portfolio management fee (which is waived in select circumstances, but not many).
One unique feature of becoming an eFund investor is the “first look” program. If you live in the area, you can purchase a home before it goes onto the market. You can use your investment in the eFund as a part of your down payment.
I don’t want to oversell the first look program, you will have to buy your house at the market rate, but I think this is a good program to consider. Housing markets in major cities are on fire right now. If you ever want to buy, it makes sense to “peg your down payment fund” to a comparable investment in your city of choice.
Self Directed IRA
Recently, Fundrise released a Self Directed IRA program for people looking to shelter their income for the IRS. You will pay a $75 annual fee for the service, but you can invest in any of the portfolios offered by Fundrise.
Why Most Sane People Love Fundrise
I’ve spoken to numerous people who have invested in Fundrise, and they all rave about the experience. These are the three features that most real investors love.
Transparency - Fundrise makes it easy to understand what you’re investing in. It helps that you can look at a picture of the property, find where it is on a map. You can also dig into the financials of every single property. Have a question? Customer service will respond to emails and phone calls.
Lack of liquidity - Logically, most people want money easily accessible, but having money “locked” into an investment is a great way to keep your money growing. Fundrise has seen phenomenal returns, and part of their success comes from “forcing” their investors to stay the course.
Competitive Advantage - Fundrise is a company that prides itself on it’s competitive advantage. They invest primarily in projects that have between a $5 million and $100 million market cap. These are too large for most private investors, but they get overlooked by banks who cannot accurately rate the risk profile of the developments. In some cases, Fundrise has an advantage because banks face such high costs due to burdensome regulations.
Why I’m Not So Sure
I learned about Fundrise more than two years ago. At the time, they still allowed individuals to invest in particular properties. At the time, investing online in properties I’ve never seen made me nervous. The introduction of the eREIT (and the added benefit of diversification) eased my fears, but there is still a risk.
My primary qualm is the level of leverage that Fundrise considers sustainable. While most would consider a 78% leverage ratio conservative (and it is), many of the properties are development projects. If demand for housing in any major city falls, the leverage could doom the profitability of the investments.
Most of the properties purchased are not done with a buy and hold forever mentality. Rather, the eREITs want regular liquidity events to enable growth.
In my personal real estate investments, I only take on debt when I can profitability hold a rental property for the long haul. I’ve been trapped underwater once, and it is not a good time. Certainly, the 100% passive nature of Fundrise should assuage my concerns, but I can’t shake them.
However, the low entry price of just $500 does limit downside risk. I would recommend Fundrise as a great starter platform for getting started in real estate. As always, before committing large amounts of capital do your own due diligence first.
What do you think of Fundrise? Have you ever tried it?
Fundrise is a real estate investment platform that allows you to start investing for just $500.