Disclosure: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Forex Prime Investments.
Investing in the real estate market might seem like something best left to the pros. After all, you’ve got the stock and bond markets to invest in. That should help you keep a diversified portfolio, right? Maybe not, according to Fundrise.
While traditional investing practices have been limited to asset classes like public stocks and bonds, Fundrise changes all that. Now you can learn how to invest in real estate like the pros. This platform is an option worth considering if you’re interested in building a diversified investment portfolio.
So, let’s find out how Fundrise works, who it’s right for, and how to start investing.
What Is Fundrise?
Fundrise is a crowdfunded real estate investing platform that was founded in 2012 by two brothers (Ben and Dan Miller) in Washington, D.C. Fundrise’s first project was a $325,000 raise from 175 investors (minimum of just $100) in the H Street NE Corridor in D.C.
They’ve come a long way since then – as of 9/30/2022, Fundrise has over 371,000 active investors with $7 billion total asset transaction value and over $226 million in net dividends earned by those investors.
Today, you don’t invest directly in real estate property – you purchase eREITs or eFunds – private real estate portfolios across the United States in accordance with your investment goals. Some Fundrise investment funds are designed for income, others for equity growth.
Some prefer this approach over investing directly in real estate because you avoid the problem of taxable events. When you directly own physical real estate, like a vacation rental property, you’ll realize a capital gain when you sell. You don’t have that with a fund approach.
Additionally, crowdfunded real estate allows you to diversify your risk across multiple properties.
Fundrise differs from other crowdfunded real estate marketplaces because you invest in funds, not directly into properties. This is also why you don’t need to be an accredited investor since you’re investing in a fund and not in a private placement.
As Fundrise has continued to grow and evolve, it’s added totally new asset classes in the form of private credit and pre-IPO technology company stocks. As mentioned, these opportunities are available to small investors for an investment of as little as $10. With a few hundred dollars, you can spread your portfolio across multiple investment classes.
Fundrise is one of the few real estate crowdfunding options for non-accredited investors. Very few companies offer the same investment opportunities in a single platform.
How Does Fundrise Work?
Generally speaking, the Fundrise platform is easy to use and has a very intuitive user interface. Most new users can sign up in a matter of minutes, which involves submitting personal information, such as bank account information (to transfer funds) and your social security number.
Once an account has been created, Fundrise users will be able to choose the amount of money they would like to transfer—currently, the minimum amount of investment required to open an account is $10.
Once an account has been established, Fundrise users will be able to choose from one of three distinct portfolio options (each of which is both managed and directed by Fundrise itself). These include the supplemental income portfolio (which focuses mostly on revenue-generating properties), the highly-diversified balanced investing portfolio, and the long-term growth portfolio (which focuses mostly on equity growth).
The portfolio that makes the most sense for you will depend on your investment horizon, risk tolerance, and general financial goals. In general, the growth-seeking funds will have higher potential returns (and higher volatility), while the income-generating funds will be much more stable.
In addition to choosing from the three portfolios mentioned above—each of which also has corresponding individual retirement accounts (IRAs)—users will also have the option to directly select different investment opportunities.
By using the “Fundrise Pro” feature, investors can hand-pick their own investments while also gaining access to extensive industry research. The cost of using Fundrise Pro is $10 per month or $99 per year. New users are also eligible for a 30-day free trial.
What is an eREIT?
An eREIT, short for electronic real estate investment trust, is a type of online investment available exclusively on Fundrise. An eREIT focuses solely on commercial real estate assets, so you’re investments will be in properties such as apartments, hotels, shopping centers, and office buildings. Similar to an ETF (exchange-traded fund) or mutual fund, eREIT investments give you the chance to easily diversify across many properties at a relatively low cost.
Fundrise offers a range of eREITs for its real estate investors. Each eREIT has a corresponding objective of either income, growth, or both income and growth. eREITs with an income objective focus on potential cash flow, and eREITs with a growth objective focus on properties with the potential for appreciation, or increasing in value. eREITs with an income and growth objective take a balanced investing approach, focusing on both cash flow and appreciation potential.
Fundrise eREIT options as of January 2022 include:
- Income eREIT: This eREIT focuses on debt investments in commercial real estate assets. Its objective, not surprisingly, is income. It’s available to investors with a Core account or above.
- Growth eREIT: This eREIT focuses on commercial real estate with the potential to appreciate. Its objective is growth, as the name indicates, and it’s available to investors with a Core account or above.
- Heartland eREIT: This eREIT is one of Fundrise’s options that focus on a specific region of the U.S. (in this case, the Midwest). It has a broad definition of the Midwest, however, with properties in Dallas, Texas; Dever, Colorado; and Las Vegas, Nevada. Its objective is both income and growth, and it’s focusing on both residential multifamily and commercial real estate investments. It’s available to Core account members and above.
- Development eREIT: This option has an income objective and is focused on multifamily and commercial properties that are in various stages of renovation and development. To find out availability, you’ll need to inquire with Fundrise.
Fundrise eREITs have no brokers or selling commissions. Since eREITs cut out the middlemen and are sold directly to the investor, they also have lower fees compared to other REITs. What does that mean for you, the investor? You pay significantly less to invest your money in real estate.
One thing to keep in mind, though, is that since eREITs are non-traded — meaning they aren’t publicly traded on the stock exchange — they generally have less liquidity than REITs, which are publicly traded. Said simply, this means cashing out your eREITs is a little more difficult. As with any investment, make sure to do your due diligence before you invest.
You can compare Fundrise vs. REITs side-by-side to better understand how Fundrise differs from traditional REITs.
Account Types
Fundrise can accommodate both private investment accounts and IRAs. Private investment accounts are designed specifically for regular, taxable investment accounts. They can be opened with an investment as little as $10.
IRA accounts are available for both traditional and Roth IRAs. They require a minimum initial investment of $1,000. IRAs have an annual account fee of $125, which is waived in any year in which you contribute at least $3,000 or for any IRA account with a balance of greater than $25,000.
IRA accounts are held with Millennium Trust Company, LLC, as the custodian of assets in each retirement account opened through Fundrise.
Fundrise Fee Structure
One of Fundrise’s biggest points of pride is that—due to its drive to be a tech-driven platform—the fees it charges are relatively limited. The total fee is 1%, which consists of a 0.85% fee for the asset management fee and 0.15% for the advisory fee. This figure is well below the industry average; however, some users have complained that there are other fees that may apply, such as liquidation fees.
The Fundrise platform features something called a “redemption program,” which essentially allows its users to sell their open positions (or “shares”) directly back to the company. If the user’s position is less than five years old, they will need to pay an additional 1% when utilizing the redemption program (naturally, this affects a position’s true return).
It’s also important to note that Fundrise reserves the right to temporarily suspend the redemption program during times of extreme uncertainty, such as the very beginning of the COVID-19 pandemic.
Who Should Consider Investing in Fundrise?
In general, Fundrise is ideal for individuals who want to become real estate investors without the expense, volatility, and delays that tend to come with alternative options. It is a platform that caters to individuals who are fairly comfortable using technology and also don’t have a strong need to have their investments managed by one specific person.
The low minimum investment for the starter portfolio ($10) makes the platform especially appealing to people who are not qualified investors or are simply trying to learn more about real estate investing. However, that doesn’t mean that Fundrise is used exclusively by new investors—there are plenty of qualified investors who utilize the platform, as well.
How much can you earn with Fundrise?
As the saying goes, past performance is not indicative of future results. However, from 2017 to 2021 — Fundrise investments saw average annualized returns of 10.63%, 8.81%, 9.16%, 7.31%, and 22.99% respectively. To compare, the S&P 500 — a benchmark for U.S. stocks — saw average returns of 21.61%, -4.23%, 31.21%, 18.02%, and 28.47% for the same years.
As an investor with Fundrise, you can earn passive income through a combination of interest payments, property income, and the potential appreciation in value of the properties themselves. The timing and exact amount of your return will vary depending on your selected plan and the investments within your portfolio.
It’s important to keep in mind that Fundrise investments are illiquid (not easily converted to cash) in nature and are designed to be long-term investments held for a least a few years. According to Fundrise, its investments are designed to grow over a minimum five-year timeframe.
However, Fundrise does have a redemption plan where you can sell shares monthly. You’ll have to wait a minimum of 60 days after submitting your request to redeem your shares, though. Also, early withdrawals may be subject to a liquidity penalty of 1% of the proceeds, depending on the length of time you owned the shares.
You can expect potential returns for your investments to be paid out either via quarterly distributions or, for any appreciation in asset value, at the end of the asset’s investment term (which is typically at least five years). All distributions will be deposited right into your bank account unless you opt into the Fundrise Dividend Reinvestment Program (DRIP). This will reinvest any dividends earned back into open offerings — without fees — instead of being deposited into your bank account. Be aware that these reinvested dividends are taxed the same as if you actually received the cash.
What are the Pros and Cons?
Pros:
- You do not have to be an accredited investor
- Begin investing with as little as $500
- Low investment management fees of up to 1% per year
- Three different investment goals – Supplemental Income, Balanced Investing, and Long-term Growth – are designed to meet your own investment goals and risk tolerance
- A solid track record of investment growth, ranging from 8.76% to 12.42% since 2014
- Opportunity to redeem your investment after just 90 days, which is extremely unusual in the crowdfunding industry
- Fundrise pays distributions quarterly
- Now offers portfolios invested in high-tech growth companies and private credit in addition to real estate
Cons:
- Given that it’s a real estate investment, expect to hold investments for at least five years.
- Innovation Fund started only late in 2022 and currently holds equity positions in just two companies
How to sign up for Fundrise
If you want to sign up for Fundrise, the process is simple. You can open a Fundrise account on Fundrise.com or through the Fundrise app.
To get started, you’ll need to choose one of the account levels we described earlier: the Starter, Basic, Core, Income, Advanced, or Premium. Each one gives you a description of the type of investor it’s best for, so you’ll get a good sense of which is right for your situation.
Then you’ll need to provide personal information like your name, email, Social Security number, and citizenship and residency. You can also choose between an individual, joint, or trust account as well. To finish, set up funding for your account by linking to your bank.
