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2019 Fundrise Review: Passive Investing in Commercial Real Estate

real estate investing

Fundrise allows individual (non-accredited) investors to passively invest in commercial and residential real estate through eFunds and eREITs (Real Estate Investment Trusts). You can start investing with as little as $500 with very low fees. 

PROS

  • 8.7% – 12.4% historical returns
  • High investment diversity.
  • $500 minimum investment.
  • High ROI
  • Investing is relatively simple and cheap
  • Low barrier to entry

CONS

  • Illiquid investment (investments of about 5 years)
  • Unknown future performance and returns
  • You’ll have to pay regular income tax on your earnings.

I’ve been investing with Fundrise for about a year and a half, and I’ve been very happy with the experience so I want to share it with you. I’m really passionate about building passive income streams and  helping others to do the same. By creating passive income you can free up more of your time and ensure that you still have money coming in the door if you lose your job, want to take time off to travel, or plan to retire early. Diversifying your portfolio into different types of investments is crucial for long term success; it mitigates your risk of losses if something happens with one investment, and gives you the opportunity to see large gains if an investment does particularly well. Real Estate investing is one of the best ways to grow wealth, but it isn’t always accessible to every investor since it requires a larger amount of capital.

Fundrise allows non-accredited investors to start investing in real estate with as little as $500. You can automate it so every month you invest a little bit, or just put in a one time investment and watch it grow. The Fundrise team invests in both commercial and residential real estate all over the United States.

Disclaimer: I am actually invested in Fundrise and I like it so much that I am now an affiliate. If you sign up for Fundrise through one of the links I may be compensated a small referral fee at absolutely no cost to you.

What is Fundrise

 

 There are many crowdfunded real estate investing companies out there, but Fundrise has been one of the most successful and trusted, and it’s one of the only ones open to non accredited investors. (An accredited investor is defined in U.S. securities law as having a net worth of more than $1 million, not including the value of their home, or an annual income of at least $200,000 for individuals or $300,000 for couples.) 

Founded in 2010, Fundrise disrupted the real estate industry in 2015 when they introduced their eREIT (electronic Real Estate Investment Trust.) The way they set up the eREIT is very similar to investing in a mutual fund. Every quarter investors receive dividends from the eREIT. A Real Estate Investment Trust is a company that owns or finances income-producing real estate.

Fundrise pools the money investors put in and purchases, renovates, rents, or sells commercial and residential properties. 

 

What is Commercial Real Estate

 

The four main types of real estate are commercial, land, industrial, and residential. Commercial is a broad category which includes everything from office buildings to apartment complexes to retail spaces. Residential real estate includes anything with 1-4 units, but anything larger than that is considered commercial since its primary goal is creating income for the owners. Commercial real estate is a great way to provide fairly passive income to investors and owners. It also tends to appreciate in value, because its price is based on the amount of income it can generate. This means that any improvements done to the property will increase its value. This is called ‘forced appreciation.’    

Who Should Consider Fundrise

 

If you’re interested in investing in real estate but don’t have the funds or expertise to get started, Fundrise may be a great option for you. Traditional real estate investments can require hundreds of thousands of dollars, extensive knowledge of the region, and significant investment of time as well. 

Fundrise is also a good option if you’re looking to diversify your portfolio. If you have all of your money in the stock market, you might want to look into some other types of investments to mitigate your risk. 

Investing in Fundrise is not like the stock market; the investments grow over a longer time frame and aren’t as easy to buy and sell. Therefore, investing in Fundrise is best for long term growth. 

 

What are the Minimum Requirements

to Invest in Fundrise

 

When you sign up for Fundrise, you are required to make an initial investment of $500. This gives you access to the Fundrise Starter Portfolio, which is a mix of eFunds and eREITs. Every quarter you will receive dividends as well as any appreciation in the value of the shares you’ve bought.  

If you invest $1,000 or more, your account will be upgraded to the Core Portfolio. Once you reach this level you can choose from three different investment plans: 

Supplemental Income: This plan focuses on dividends and building a passive income stream. The long term gains are lower.

Long-Term Growth: If you’re looking for the best long term portfolio growth, this plan is designed for you. This plan focuses more on appreciation and less on dividends.

Balanced Investing: This plan creates a balance between dividend payouts and share appreciation.

 

How do you Make Money With Fundrise

 

There are two ways you make money when investing with Fundrise. 

Quarterly dividends: After the end of each quarter, you will receive dividend distributions, which are from rental income generated by the properties Fundrise has invested in. You can either have the dividends deposited directly into your bank account, or if you want to compound your investment you can have them automatically reinvested back into Fundrise.

Appreciation in the value of your shares: When Fundrise sells properties, you receive proceeds from the sale. Appreciations are paid out at the end of investments, which can each take a number of years. These investments are illiquid, meaning you can’t sell them easily. Fundrise does offer a quarterly redemption plan though. 

How Does Fundrise Choose the Properties They Invest In

 

 Since Fundrise crowdfunds the capital they need before making an investment, they are able to move a large amount of cash at once. This allows them to take strong ownership positions which reduce investment risk. 

Fundrise goes through a very stringent screening process with each potential investment. They claim that only 1% of projects which submit for investment make it through the process. They focus on shorter term projects which last 1-3 years, and “Fundrise investors must get paid back their principal and any owed returns before the company is able to realize any profits.”  

Fundrise actually funds the project before they put it on the platform, which ensures they think its a good deal. 

 

Historical Returns and Performance

 

 The average annualized returns from investment in Fundrise have been between 9.11% and 12.42% over the past five years. Although this is very high, it’s important to remember that past performance is not a guarantee of future returns. 

 

fundrise performance

What are the Fees?

 

Fundrise charges a 1% management fee which is broken down as follows:

0.85% annual asset management fee (this goes towards the operating costs of the projects)

0.15% annual investment advisory fee (this can be waived in some circumstances)

Fundrise also charges a 0 – 2% acquisition fee each time they purchase a new asset. Within each particular eREIT you choose to invest in there can be other fees as well. 

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