If you’ve ever looked into buying a rental property, you know how much cash you need to cough up in down payments, closing costs, repair costs, cash reserves, and more. You simply can’t do it without tens of thousands of dollars.
That makes Fundrise an intriguing proposition. With a minimum investment of only $10, Fundrise opens up real estate investing to the masses — no experience or hefty down payments necessary.
And with a few exceptions, Fundrise’s perks just get better from there.
Key Features of Fundrise
Fundrise ranks among the best known real estate crowdfunding platforms on the market. Founded in 2010 and launched to the public in 2012, Fundrise entered the crowdfunding market early.
You can invest in Fundrise with as little as $10, and you don’t need to be an accredited investor. Here are some other important points to note as you explore investing with Fundrise.
Types of Investments
Broadly speaking, Fundrise offers private REITs (real estate investment trusts), which own a mix of properties and real estate-secured debts. When you invest in Fundrise, your money spreads among these “eREITs” as Fundrise calls them. The more money you invest, the more flexibility and control you have to choose specific investments.
Fundrise Real Estate Investments
Fundrise investments include both commercial and residential properties, in cities all over the country. These properties include apartment complexes, single-family rental properties, commercial buildings, and mixed-use properties. That makes for broad diversification, no matter how little money you invest.
Fundrise Debt Investments
In addition to owning properties directly, Fundrise also owns debts secured against real estate. This further adds to the diversity, as debts generate income, while properties add long-term growth potential.
The Fundrise platform offers five different investment levels, based on the amount you invest.
Starter and Basic 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 additional features, such as their goal tracking tool and investing through a self-directed IRA.
If you invest $5,000 or more, you graduate to the “Core plan” and gain more flexibility over your investments. You can choose between their Supplemental Income, Long-Term Growth, or Balanced investing strategies.
As you probably guessed, these emphasize either stable dividend income or higher potential gains based on your investment goals. You can also allocate money directly to specific eREIT funds, although I had to look closely to figure out how to do it.
At the $10,000 “Advanced” level, you gain access to “Plus plans,” optional add-ons to the broad investing strategy you’ve selected. These give you access to “more sophisticated real estate strategies that may vary over time as different market opportunities present themselves.” Vague as that sounds, these include investment opportunities such as building new homes to sell. Fundrise offers separate “eFund” investment options for these, which you can invest in directly at the Advanced level.
If you invest $100,000 or more, you can access private real estate funds for accredited investors. These real estate projects often come with higher risk and return potential.
100% Passive Investment
Because you’re investing indirectly in real estate, rather than buying a property yourself, you don’t have to take on any of the labor.
And real estate investing labor is significant. It includes finding good real estate deals, doing due diligence on them, arranging financing for them, upgrading or repairing properties, advertising vacancies, screening tenants, collecting rents, and evicting bad tenants.
To invest with Fundrise, you just connect your bank account and transfer funds. The end.
Fundrise owns and operates over a dozen REITs and funds. But the rules differ between Fundrise’s “eREITs” and their “eFunds.”
Each eREIT owns a handful of different properties. These sometimes focus in a specific geographical area, such as the West Coast eREIT. Alternatively, some eREITs are designed for a specific investing goal, such as the multiple Income eREITs and Growth eREITs. Investors at the Core level or higher can pick and choose individual eREITs to fund.
Where it gets slightly more complicated is that Fundrise also offers eFunds, which work differently than eREITs. The catch-all bucket fund is their Interval Fund, which they use to fund projects flexibly based on need. Fundrise also offers targeted eFunds, only available to investors at the Advanced level.
Why all the fuss over terminology? Well, Fundrise imposes different rules for cashing out your shares early, depending on the type of investment. eFunds may be easier to cash out than eREITs.
Buying shares is easy, but what about selling them?
It turns out that isn’t quite as simple. There’s no secondary market for selling shares, so in order to do so, you have to redeem them with Fundrise.
Fundrise explicitly tells you to only invest money you plan on leaving invested for at least five years. If you redeem shares within five years, they charge you with a 1% penalty when buying them back.
On some shares, anyway. They waive the 1% penalty when selling shares in their Interval Fund, a flexible fund that puts money where it’s needed most. As an example, Fundrise allocates 42% of my own investment into the Interval Fund.
Regardless of the granular details, real estate is an illiquid, long-term investment. Only invest money you plan to leave invested for at least five years.
Fundrise pays out dividends quarterly to all investors. They also make it easy to reinvest dividends automatically through a DRIP option.
The Supplemental Income investing plan offers the highest dividend yield, at the sacrifice of higher potential long-term returns. For example, it paid out a 4.96% yield in 2021, plus 13.02% appreciation, for a total annual return of 17.98%. The Long-Term Growth plan paid a lower 2.92% dividend yield, but produced a higher total return of 25.12%.
Invest Through Your IRA
When you invest in real estate (or anything else) through a self-directed IRA, you need a third-party custodian to oversee your investments. This comes with an annual fee of $125. However, Fundrise waives the next year’s annual fee if you invest at least $3,000 of new money in the current calendar year. They also waive the fee permanently for accounts maintaining a balance over $25,000.
Landlords and real estate investors take on more legal liability than most. People just love to sue landlords, and most states and cities tilt their landlord-tenant laws in renters’ favor.
When you own property directly, that liability can bleed over into your personal assets. And no, just buying properties under an LLC name doesn’t give you a bulletproof legal shield. Litigants typically name you personally in landlord lawsuits, and it’s up to you to prove to the judge that your personal name should be removed from the lawsuit. That generally involves demonstrating that you never commingled assets, and operate your LLC like any other business.
Take it from a landlord who’s been sued several times.
Increasingly, some cities and states are even adding criminal liability for landlords. That means that if you make a mistake as a landlord, you could potentially serve time in prison.
None of which are risk factors when you invest via real estate crowdfunding.
Advantages of Fundrise
Fundrise comes with a slew of advantages, both over investing directly in real estate and over other crowdfunding investment platforms.
- Low Minimum Investment. There aren’t many places where you can invest in real estate assets with just $10.
- Broad Diversification. You can spread that $10 over a diversified portfolio of thousands of residential and commercial units across the country. These include multifamily properties, office buildings, residential real estate, and more.
- Available to Retail Investors. All investors can participate, not just accredited investors with high incomes or a net worth over $1 million.
- Relatively Stable Income. The Supplemental Income strategy offers consistently strong dividends, usually in the 4% to 5% range.
- IRA Investing. Fundrise makes it easy to invest in real estate with a self-directed IRA.
- Low Volatility. Going back five years, Fundrise has not had a losing quarter.
- Passive Real Estate Investing. Generally speaking, real estate investing requires some knowledge and labor. You don’t need either when investing in Fundrise.
- No Liability. You don’t need to worry about asset protection, lawsuits, or criminal liability when you invest in Fundrise.
Disadvantages of Fundrise
No investment comes without risks or downsides. Make sure you fully understand Fundrise’s disadvantages before investing.
- Low Liquidity. You have to request to redeem shares, which Fundrise typically does quarterly. Contrast that against selling stocks instantaneously.
- Early Redemption Fee. If you sell shares within five years of buying, you pay a 1% penalty on Fundrise eREIT shares (but not Interval Fund shares).
- Other Annual Fees. Fundrise charges annual fees that add up to 1% of your investment. That breaks down to an annual advisory fee of 0.15% and an annual asset management fee of 0.85%.
- Returns Underperform Public REITs. From 2017 through 2021, Fundrise’s returns trailed both the S&P 500 and publicly-traded REITs.
- No More Estimated Returns. Fundrise used to publish a range of returns that they aimed for, at each investing strategy. While you never know what an investment will return in the future, the published ranges created a sense of transparency and reassurance, albeit a potentially false one.
How Fundrise Stacks Up
As you explore real estate crowdfunding investments, compare Fundrise against several of these popular options.
|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|
Bear in mind that you can invest in more than one crowdfunding platform. I have money invested with Fundrise, Streitwise, Groundfloor, and Arrived Homes, because each brings its own unique approach to real estate investing. Each one adds to the diversification of my portfolio.
Fundrise vs. Public REITs and the S&P 500
Don’t stop at comparing Fundrise to other crowdfunding investments. You should also consider how Fundrise has performed compared to publicly-traded REITs, and the stock market at large.
Here’s a comparison chart of Fundrise’s returns from 2017-2021, versus public REITs and the S&P 500:
|Year||Fundrise||Public REITs||S&P 500|
If it bothers you that Fundrise underperformed both publicly-traded alternatives, consider volatility and risk. In Fundrise’s worst quarter during that five year span, it still yielded a positive return of 1.15%. The S&P 500’s worst quarter dropped -19.60%, and public REITs returned an even worse -25.42%.
Besides, investing in real estate outside of stock exchanges provides better diversification from stocks. That lack of correlation is one of the core reasons I invest in both real estate and stocks, and sleep soundly even when one asset class outperforms the other.
Fundrise offers an easy way to invest in real estate indirectly, without the headaches of ownership. You get most of the advantages, and avoid the worst of the disadvantages.
I particularly like real estate crowdfunding platforms as a counterweight to my stock investments. As someone planning on retiring young, I want as many passive income streams as possible, without settling for the limp returns offered by bonds in this century. So in my own quirky portfolio, I replace bonds with income-generating real estate investments.
Fundrise fits that bill, and allows me to invest aggressively now for maximum growth, then switch my investing plan later to higher income and lower risk. You can set up auto-invest transfers, and automatic dividend reinvestment for hands-free investing.
While you shouldn’t put every penny of your portfolio in Fundrise, it offers one more way to diversify, without sacrificing strong returns. But if you need quick liquidity, stick with REIT mutual funds or ETFs that you can sell instantly.