Fundrise Review 2018 – Real Estate Investing Online

fundrise review

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If the rollercoaster ride of ups and downs in the stock market is too much to bear, private real estate investing might be an attractive alternative.

Fundrise is an online platform that makes private market real estate investing accessible to the general public.

Not too long ago, private market real estate investing was accessible to accredited investors only. However, new regulations have opened the doors of this market to the general public via the power of crowdfunding.

By pooling assets from many investors, a private real estate project can be financed with the goal to return an attractive yield to investors while providing a new source of capital to real estate developers.

For as little as $500, you can access a diversified portfolio of private real estate assets via Fundrise.

Fundrise Spotlight

FUNDRISE SPOTLIGHT

fundrise logo

InvestorMint Rating

4.5 out of 5 stars

  • Minimum Investment: $500
  • Promo: Zero advisory fees in 2017

via Fundrise secure site

Fundrise Vs Stock Market

Fundrise enables investors to diversify assets into higher return potential private real estate investments similar to the models used by institutional investors.

Historically, investing for the long-term meant allocating some portion of your assets to stocks and some to bonds.

But what choices do you have if stock market volatility concerns you yet low savings yields fail to generate enough passive income to pay the bills?

For accredited investors, alternative investments were the answer but the general public historically had little choice but to funnel money into the stock or bond markets, or deposit savings into a bank account.

Fundrise burst open the door for individuals, who do not qualify as accredited investors, to get access to investment opportunities that were previously off limits.

fundrise traditional vs modern portfolio theory

The traditional approach to investing relies on Nobel prize winning research, called Modern Portfolio Theory.

Fundrise subscribes to main tenets of this investing philosophy but opens up new opportunities to allocate some assets to private real estate as opposed to selecting stocks and bonds only.

The allocation of assets to investment alternatives beyond stocks and bonds is not a new, unproven theory. Major institutions and endowments have been practicing this investment approach for years. For example, the Yale endowment has increasingly allocated to alternatives over time.

fundrise yale endowment

Fundrise calls this “big idea” of introducing Alternative Investments to individual portfolios to replace some portion of stocks and bonds Modern Portfolio Theory 2.0.

The goal is to diversify investors’ assets into higher return potential private real estate investments by applying similar models to those used by institutional investors.

So, no longer are alternative investments accessible to a very few privileged individuals and institutions but the playing field is leveled to accommodate anyone who wants to invest and has the minimum $500 available to get started.

Fundrise Promo Deal

  • Zero advisory fees through the end of 2017

What Is Your Money Invested In?

Fundrise offers two main products: an eREIT which is similar to a conventional real estate investment trust, albeit sold online and providing access to private market real estate deals as opposed to public market real estate opportunities, and an eFund, which is a tax efficient investing vehicle.

Fundrise has two private market real estate investment products you can invest in called:

  • eREIT
  • eFund

eREIT

The big difference between a conventional Real Estate Investment Trust, or REIT, and an eREIT is the latter provides you direct access to diversified private market commercial real estate assets that are professionally managed.

Unlike traditional real estate investing that results in high transaction costs when paying brokers hefty selling commissions, Fundrise lets you bypass those intermediaries when investing in apartments, hotels, retail, and office buildings.

The direct-to-investor model is possible because Fundrise leverages technology to keep costs lower.

If passive income is a high priority for you, the eREIT is an attractive alternative because the goal of the eREIT is to provide investors with consistent quarterly cash flow distributions.

You also get the bonus of a possible additional payout when the investment term concludes.

Where the eREIT shines is by providing diversification that would otherwise be inaccessible to local real estate investors. An eREIT investor enjoys exposure to properties in multiple states compared to a local real estate investor who takes on greater risk depending on the economic cycles of a local market.

fundrise ereit time horizon

Typically, eREIT investments take about 5 years to come to fruition though it could be sooner or later depending on other factors, including market conditions.

Here is a snapshot view of what you can expect with an eREIT:

eREIT Description
Fees 0.85%
(annualized asset management fee)
Minimum $1,000
Distributions Paid Quarterly
Tax Documents 1099-DIV
(annually)
Diversification Diversified Across Multiple States & Properties

Although your assets are locked up for a longer time period and nowhere near as liquid and accessible as they might be in a stock and bond portfolio, Fundrise claims the return potential is greater than a traditional portfolio by as much as 33% over a 20 year period.

fundrise hypothetical growth potential

eFund

An eFund is another alternative investment Fundrise offers. It is designed as a tax-efficient investment vehicle and provides access to a professionally managed, diversified portfolio of for-sale housing units.

The way it works is that Fundrise purchases property for the development and sale of homes in high-growth neighborhoods in core U.S. cities.

Homes are built with first-time homebuyers in mind as well as move-up and active adult homeowners.

After the homes have been built, interested homebuyers are solicited and Fundrise’s national investor network earn returns from profits on sales.

Features of an eFund include:

eFund Feature Description
For-sale Housing You get to invest in single-family home building in core U.S. cities serving millennials and first-time home buyers.
Diversified Each eFund invests in a wide variety of real estate assets.
Passive Growth The goal is to grow wealth over the long-term as assets appreciate in value.
Direct-to-investor By leveraging technology, investors save as much as 40% according to Fundrise.

The opportunity Fundrise intends to tap into with eFunds is the underserved market of millennial homebuyers.

With a pent-up demand for affordable housing among millennials who are looking to move from rental accommodation to homes they own, Fundrise is looking to create a win-win by supplying new home buyers with opportunities while creating attractive investment returns for investors.

The goal is to target core U.S. cities where there is a preference for a walkable, urban lifestyle, an attractive buy versus rent tradeoff, and education and cultural shifts in favor or new buyers.

fundrise affordability gap graphic

Fundrise Investment Goals

Fundrise caters to investors who seek to maximize income, diversification and growth via three products, called Supplemental Income, Balanced Investing, and Long-term Growth respectively.

Fundrise offers investors three primary investment goals from which to choose:

Investment Goal Description
Supplemental Income Maximum Income Potential
Balanced Investing Maximum Diversification
Long-term Growth Maximum Growth Potential

SUPPLEMENTAL INCOME

Supplemental income investment goals are designed for investors who are seeking additional passive income, have a moderate time-horizon, and are likely planning for retirement in the near future.

fundrise projected growth 10k

fundrise projected annual return

The projected annual returns for a Supplemental Income investment goal total 9.1%-10.1% with income returns expected to comprise most of the return.

Some examples of properties that make the Fundrise Supplemental Income list include:

Los Angeles Cash Flow Acquisition Loan

The investment is an existing retail property with income and upside potential that has a senior secured loan with full recourse guarantees.

Condo Unit Long Island City, New York

The 2-unit condo Fundrise Income eREIT is a senior loan with an investment cost approximately equal to 80% of the total project cost. It features a margin of approximately 40% between the investment cost and projected sales price.

All in all, over 39 assets feature in the Supplemental Income category and as new assets are added, you will automatically benefit from greater diversification.

BALANCED INVESTING

Balanced investing is an investment goal designed for investors who prefer maximum diversification, have a moderate to long-term time horizon, and may be newer to investing outside the stock market.

fundrise balanced projected growth 10k

The projected value increase over a 20 year time period is higher than what Supplemental Income investors can expect.

Over that time period, the projected growth of $10,000 is $74,101.

fundrise balanced projected annual return

That translates into a projected annual return of between 10.0-11.1% based on just north of 4% appreciation and the balance coming from income returns.

A wide variety of assets feature in the Fundrise Balanced Investing Plan including:

  • 324-Unit Suburban Austin Multifamily Development
  • Colorado Springs Stabilized Multifamily Acquisition
  • San Diego Carlsbad Construction Loan

And over 39 other assets feature with varying degree of risk, which are broken down as follows:

LONG-TERM GROWTH

The long-term growth investment goal is intended for investors who want to maximize returns over the lifetime of an investment, have a long-term investment horizon, and are comfortable with larger valuation swings from one year to the next.

The projected value of a $10,000 investment in the Long-term Growth investment over a 20+ year period is $78,683.

fundrise long term growth projected growth 10k

fundrise long term growth projected annual return

This corresponds to a growth rate annually of between 10.3% and 11.4% with gains coming about equally from income and appreciation.

The long-term growth real estate portfolio is made up of a diversified grouping of assets including:

  • Jacksonville, Florida Stabilized Multifamily Acquisition
  • Seattle, Washington Mixed Use Multifamily Acquisition
  • Brand new DC Luxury Mixed-Use Recapitalization

Where Are Fundrise Assets Located?

The geographic breakdown of assets held in the eREIT and eFund across funds is highly diversified to lower risk of any one asset suffering from a regional economic downturn.

Supplemental Income Plan Geographic Allocation

Location % Allocation
East Coast eREIT 18.22
Heartland eREIT 18.22
West Coast eREIT 18.22
Washington DC eFund 4.44
Los Angeles eFund 4.44
Income eREIT 32.00
Growth eREIT 4.44

Balanced Investing Plan Geographic Allocation

Location % Allocation
East Coast eREIT 14.29
Heartland eREIT 14.29
West Coast eREIT 14.29
Washington DC eFund 14.29
Los Angeles eFund 14.29
Income eREIT 14.29
Growth eREIT 14.29

Long-Term Growth Plan Geographic Allocation

Location % Allocation
East Coast eREIT 12.89
Heartland eREIT 12.89
West Coast eREIT 12.89
Washington DC eFund 17.78
Los Angeles eFund 17.78
Income eREIT 8.00
Growth eREIT 17.78

Fundrise Account Features

Fundrise investors can take advantage of a range of features on the online platform, including auto-investing, dividend reinvestment, and real-time updates.

Automating your investing at Fundrise is made easy through an Auto-Invest feature which lets you schedule recurring contributions to your portfolio.

If you don’t need passive income, you can also choose to reinvest dividends so that you can compound growth over time.

And an especially nice feature at Fundrise, which any traditional real estate investor will be pleasantly surprised to learn, is that you get real-time updates.

Fundrise Pros and Cons

Fundrise charges low annual fees, has a low account minimum and provides access to a diversified portfolio of private real estate assets in both taxable and retirement accounts. However, tax treatment is less than ideal as you will pay ordinary income tax rates on dividends, unless they are sheltered in an IRA.

Fundrise Pros Fundrise Cons
Low Fees: Annual fees are 1% which includes a 0.85% management fee and a 0.15% advisory fee. Taxation: Dividends will be taxed at ordinary income tax rates, but dividends can grow tax-free in IRA accounts.
No Sales Commissions: Unlike traditional private real estate investments, no sales commissions or transaction costs are applied to investments. Access To Cash: When you invest in an eREIT or eFund, you will generally be locked in for the term of the investment just as you would if you bought a property yourself so you won’t have access to your cash until the investment term has concluded.
Low Minimum: You can get started for as little as $500. Developer Creditworthiness: It is not clear how creditworthy real estate developers who need financing are and why they choose funding from Fundrise versus a traditional bank.
No Accredited Investor Status: You do not need to be classified as an accredited investor to use the Fundrise platform.
Diversified Real Estate Investments: Assets are allocated across multiple states and a variety of risk profiles to cater to investors seeking income, diversification and growth.
Taxable & Retirement Accounts: You can invest in taxable and retirement IRA accounts using Fundrise.
90 Day Guarantee: If you are not happy with your investment, Fundrise will buy it back within the first 90 days – subject to some terms and conditions.
Quarterly Distributions: For income-seekers, quarterly distributions are offered, though not guaranteed to provide greater liquidity.

Fundrise Fees

Fundrise charges 1% annually of assets under management, which is broken into an investment advisory fee and an asset management fee.

Fees Annual Amount
Investment Advisory Fee 0.15%
Asset Management Fee 0.85%
IRA Account $75

Traditional real estate investors will be pleasantly surprised to learn that Fundrise charges no sales commissions or transactions fees.

An advisory fee is applied to cover the costs of the online platform, automating distributions, automatic rebalancing, issuing tax forms, and handling investor concerns.

The annual asset management fee covers the operating costs of overseeing the portfolios, including sales, financing, accounting, construction and marketing.

Fundrise Tax Considerations

When you invest in real estate, the tax impact differs compared to standard stock and bond market investing, where you can often enjoy preferential tax treatment.

A REIT must distribute most of its earnings to shareholders. The Fundrise eREIT is no different and is required to distribute 90% of its earnings to investors, who receive a Form K-1 annually that reports income earned.

A K-1 is typically a tax form that partners who may have an LLC together receive each year. A Fundrise eREIT is a partnership too that issues these forms to investors.

Dividend payments are taxed at ordinary income tax rates, though it is possible to open an IRA via the Millennium Trust Company to allow dividends grow tax-free. You will be charged a $75 annual fee for the IRA.

You should be aware that even if you elect to choose the Dividend Reinvestment Program (DRIP) whereby dividends are automatically reinvested to purchase more shares, the taxation remains the same.

Fundrise Account Types

Type Capability
Taxable YES
IRA YES

Fundrise Summary

If the thought of rolling up your sleeves to paint and refurbish a fixer-upper gives you shivers up your spine, or the prospect of heading to a real estate investment class to learn how to profit from property investing doesn’t float your boat, Fundrise is well worth exploring.

You don’t have to get your fingers dirty by searching endlessly for good property deals, reviewing legal contracts, or paying closing costs. The hard work of sourcing private real estate deals is done for you by Fundrise.

And if you have waded through the muddy waters of private real estate investing in the past, you will be pleased to learn that Fundrise charges no sales commissions or transaction costs. Simply pay 1% annually to Fundrise and with as little as $500 you can get access to a diversified portfolio of property assets covering multiple states.

Whether income, growth, or diversification are your priorities, Fundrise has investments tailored to your financial goals and needs.

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