The upfront and ongoing costs associated with purchasing a rental property, from the down payment and closing costs to the cost of repairs and reserves, can be substantial. Forget about it if you don’t have tens of thousands of dollars to spare.
Due to this, Fundraise is a fascinating business opportunity. Fundrise democratizes access to real estate investing by requiring only a ten dollar down payment from first-time investors. The benefits of using Fundrise don’t stop there, and in most cases, they improve.
Characteristics of Fundrise
One of the most well-known platforms for crowdfunding real estate is Fundrise. Fundrise entered the crowdfunding industry first. It was founded in 2010 and made public in 2012. Fundrise does not require accredited investors; you can participate with as little as $10.
As you investigate investing with Fundrise, take note of the additional information below.
Fundrise provides access to private real estate investment trusts (REITs), which hold a portfolio of properties and real estate-backed debt.
Fundrise calls these digital real estate investment trusts “eREITs,” and it pools your investment dollars across them. In general, the more money you put in, the more options you’ll have on where to put it.
Real estate investment firm Fundrise
The properties in which Fundrise invests are both commercial and residential and are located in cities across the United States.
Apartment buildings, single-family rentals, commercial structures, and mixed-use developments are all included. That way, even a small amount of money can be spread out across several different assets.
Debt Investments Fundrise
Fundrise’s holdings include both direct property and debt collateralized by real estate. The income from debts and the appreciation potential of assets both contribute to the portfolio’s overall diversification.
Fundrise is a crowdfunding platform that allows you to invest at one of five different tiers depending on how much money you put in.
Basic and Beginning Levels
At the $10 “Starter” level, Fundrise set your allocation as it sees fit. When you reach the $1,000 “Basic” level, you get access to a couple of additional features, such as their goal tracking tool and investing through a self-directed IRA.
Investors who contribute at least $5,000 are upgraded to the “Basic plan,” which gives them more control over their portfolio. You have the option of investing in either their Supplemental Income, Long-Term Growth, or Balanced portfolios.
This is because, as you may have guessed, they either place a premium on consistent dividend payments or on great growth potential. Although it took me a while to find it, it is possible to invest directly in individual REIT funds.
When you reach the “Advanced” tier and deposit $10,000, you’ll be able to select from a variety of “Plus plans,” which are essentially add-ons to your overall investment strategy.
Access to “more complex real estate tactics that may fluctuate over time as different market opportunities reveal themselves” Even though it may not be clear, examples of such opportunities could include the construction and sale of new homes.
For these, Fundrise provides separate “eFund” investment alternatives, which can be invested in directly once you reach the Advanced level.
Private real estate funds for authorized investors are available to those with $100,000 or more to invest. Higher potential rewards and risks are typical of these types of real estate investments.
Completely Passive Investment
There is no physical work required on your part because you are investing in real estate through a third party rather than purchasing a property.
Also, the value of workers in real estate investment cannot be overstated. Finding promising real estate opportunities, investigating them thoroughly, securing funding for them, improving or repairing them, advertising for renters, screening applicants, collecting rent, and evicting problem tenants are all part of the job.
You can start investing with Fundrise immediately after linking your bank account. This is the final statement.
Fundrise is the owner and manager of a number of real estate investment trusts and funds. But Fundrise’s eREITs and eFunds are governed in different ways.
There are a variety of properties held by each eREIT. These can also have a regional concentration, like the West Coast eREIT.
Some eREITs, such as the various Income eREITs and Growth eREITs, are tailored toward more narrow investment objectives. Individual eREITs can be funded at the Core or a higher level by the investor’s choosing.
A little complication arises from the fact that in addition to eREITs, Fundrise also provides access to eFunds. The Interval Fund is the organization’s general pot of money, from which specific initiatives might be funded on an as-needed basis. Investors at the Advanced level can also access the tailored eFunds offered by Fundrise.
Why does it seem so important to argue over words? Well, the rules Fundrise applies for early cashing out of shares vary from investment to investment. When compared to eREITs, eFunds might be simpler to liquidate.
Investing over the long term
It’s simple to acquire shares, but what about selling them? The reality, however, is not so cut and dry. In order to liquidate shares, you must redeem them through Fundrise as there is no secondary market for doing so.
To avoid losing your money, Fundrise recommends only investing money you can afford to leave in the market for at least five years. Shares are subject to a 1% penalty if redeemed prior to the expiration of the five-year holding period.
In the case of certain stocks. Since the Interval Fund is a flexible investment vehicle that can be directed to where it will do the greatest good, the fund’s management is willing to forego the 1% penalty normally associated with selling shares. In my case, for instance, Fundrise puts 42% of my money in the Interval Fund.
No matter how you slice it, real estate is a long-term, illiquid investment. Don’t put money in the market unless you can afford to lose it for the next five years.
Distributions per quarter
Quarterly, all investors in Fundrise receive dividend payments. The dividend reinvestment plan (DRIP) feature they offer is extremely convenient. For a lower dividend yield but higher potential long-term gains, consider the Supplemental Income investing strategy.
In 2021, for instance, it offered a dividend of 4.96% and an appreciation of 13.02%, for an annualized return of 17.98%. The dividend yield on the Long-Term Growth plan was 2.92 percent, but the plan generated a 25.12 percent total return.
Put money into your IRA
Investments through a self-directed IRA are now available through a partnership between Fundrise and Millennium Trust Company. A third-party custodian is required for all self-directed IRA investments, including those in real estate.
The price of this is $125 per year. If you invest at least $3,000 in fresh money with Fundrise this calendar year, the annual charge for the following year will be waived. If your account balance is over $25,000, they’ll never charge you a fee again.
Investors in both rental properties and real estate take on a higher risk profile legally speaking. Renters have an advantage in landlord-tenant law because of the prevalence of lawsuits and the skewed landlord-tenant rules in most states and municipalities.
Owning real estate outright exposes you to the risk of having financial obligations extended to include other possessions and investments. Buying real estate with an LLC name is not a foolproof defense, though.
Landlords are frequently named as defendants in civil proceedings, and it is up to you to convince the court that you should be dismissed from the case. This usually entails showing that you treat your limited liability company like any other firm and have never commingled any of the funds within it.
Consider the experience of a landlord who has been sued multiple times. Criminal penalties for landlords are being introduced in an increasing number of municipalities and states. That means you risk going to jail for any missteps you make as a landlord.
If you invest in real estate via crowdfunding, you won’t have to worry about any of these things.
Benefits of Fundrise
When compared to both traditional real estate investing and alternative crowdsourcing investment platforms, Fundrise offers numerous benefits.
- Putting in less money is risky. It’s not easy to find venues where you may put down only $10 and have access to real estate assets.
- Widespread variety. Spread that $10 across a diversified portfolio of thousands of homes and businesses, and you’ll have a solid foundation on which to build your wealth. This category incorporates apartment complexes, commercial structures, and single-family homes.
- Investors on a tighter budget might take advantage of this opportunity. Investors with low incomes or net worths of less than $1 million are not excluded.
- Good Financial Stability. Consistently high payouts, typically between 4% and 5% per year, are available through the Supplemental Income strategy.
- Financial Investments in an Individual Retirement Account. With Fundrise, a self-directed IRA may be used to make real estate investments with no effort.
- Reduced uncertainty. Fundrise has never experienced a lost quarter going back five years.
- Investing in property without actively managing the process. Investment in real estate typically necessitates considerable study and work on the investor’s part. Neither is required to invest in Fundrise.
- Disclaimer of all Responsibility. When you put your money with Fundrise, you won’t have to worry about losing it to lawsuits or facing criminal charges.
Drawbacks of Fundrise
All investments have some degree of danger and potential loss. If you’re thinking about investing in Fundrise, you should be aware of the drawbacks.
- Unsatisfactory Flow of Funds. Fundrise usually redeems shares on a quarterly basis, but you must request to do so. Compare this to the speed with which you can sell stocks.
- There will be a penalty for early redemption. The Fundrise eREIT imposes a 1% penalty on any shares sold within five years after purchase (but not Interval Fund shares).
- Other Costs Each Year. Fundrise fees might total up to 1% each year of your investment. That’s the equivalent of paying 0.85% in yearly asset management fees and 0.150% in annual advice fees.
- Not as profitable as publicly traded REITs. Investment returns for Fundrise investors lagged behind the S&P 500 and public REITs from 2017 to 2021.
- The Use of Expected Profit Margin Margin Has Ended. Prior to 2016, Fundrise would announce the return range they were shooting for with each investment strategy. The disclosed ranges provided a sense of transparency and certainty, albeit an ill-founded one, because it is impossible to predict the future performance of an investment.
How Fundrise Compares
Compare Fundrise in comparison to a few of these well-liked choices as you research real estate crowdfunding investments.
|Fundrise||Streitwise||Arrived Homes||Roofstock One|
|Underlying Investment||Residential & commercial real estate||Commercial properties||Single-family rental properties||Single-family rental properties|
|Ownership Type||Shares in pooled funds||Shares in pooled funds||Direct ownership in single properties||Shares in pooled funds|
|Ease of Selling Shares||Moderate||Difficult||Difficult||Difficult|
|Availability||All investors||All investors||All investors||Accredited investors only|
|Built-In IRA Option||Yes||No||No||No|
Don’t forget that you’re free to put money into several different crowdfunding avenues. To get exposure to several real estate investment strategies, I have funds with Fundrise, Streitwise, Groundfloor, and Arrived Homes. Every one of them helps spread out my investment risk.
S&P 500 and Public REITs in comparison to Fundrise
Check out how Fundrise stacks up against other crowdfunding platforms as well. When evaluating Fundrise, it’s important to see how it stacks up against other publicly traded REITs and the overall stock market.
The above chart displays actual Fundrise account results in real time for more than 330,000 users. Then, compare Fundrise’s returns to those of public REITs and the S&P 500 using the following chart, which spans the years 2017 through 2021:
|Year||Fundrise||Public REITs||S&P 500|
Take into account volatility and risk if the fact that Fundrise underperformed both publicly traded alternatives disturbs you. There was still a return of 1.15% in Fundrise’s weakest quarter throughout that five-year period. When compared to public REITs, the S&P 500’s worst quarterly drop of -19.60% seems rather robust.
In addition, investing in real estate outside of stock markets offers superior diversification away from equities. This disconnection between the two asset classes is a major factor in why I feel comfortable investing in both real estate and stocks.
Investment through Fundrise is simple since it eliminates the complexities of direct property ownership. You benefit from almost all the positives while avoiding the majority of the negatives.
When I need a balance to my stock portfolio, I turn to real estate crowdfunding portals. As someone who hopes to retire early, I need as many sources of passive income as possible so that I don’t have to rely solely on the meager returns supplied by bonds in the twenty-first century.
To that end, in my offbeat investment portfolio, I favor real estate investments over bonds because of the income they produce.
Fundrise is perfect for my needs because I can start off investing aggressively for growth, then change my strategy to generate more income and take less risk as I get older. In order to invest without having to lift a finger, you can set up automatic transfers and the reinvestment of dividends.
Not all of your portfolio’s money should be invested in Fundrise, but doing so adds another layer of diversification without compromising results. Real estate investment trust (REIT) mutual funds and exchange-traded funds (ETFs) are good options if you require access to cash quickly.