If you’re currently in a position where you want to put some money away each month – or you simply have a lump sum that you want to invest, then you’ll know first-hand that leaving it in a basic savings account will earn you virtually nothing.
In fact, you’ll be lucky to earn more than of 1% per year – meaning that when you factor in inflation, you’re actually losing money in real terms.
With that being said, one of the most sought-after investment vehicles for everyday investors is that of the safe and solid real-estate markets. The key problem in this respect is that purchasing and owning a house outright is not an option for many of us. Even if it was, you would be pigeon-holing yourself into a single asset, rather than diversifying across multiple properties.
The good news for you is that the likes of Fundrise now allows everyday consumers to invest in real estate projects at an amount that you can afford. With an initial minimum investment of just $500 – this gives you a very real chance of investing in the property arena without breaking the bank.
If you’re keen to find out more about how the platform works, then be sure to read our comprehensive Fundrise review. Within it, we’ll cover everything from how Fundrise works, what you can invest in, how much you’ll need to start with, how much you are likely to make, and of course – how risky the investment is.
Let’s start by getting an overview of what Fundrise actually is.
Fundrise at a Glance
|Fundrise Real Estate Crowdfunding – Visit|
|Product Type||Real Estate eREITs and eFunds|
|Potential Return||Average return in 2018 was 9.11%|
|Fees||Around 1% (Asset Manage Fee 0.85% & Advisory Fee 0.15%)|
|Property Types||Commercial, Residential, Single Family|
What is Fundrise?
Launched in 2012, Fundrise is an online crowdfunding platform that allows everyday consumers to invest in real estate projects throughout the US. The overarching concept to the platform is that the sought-after real estate industry is no longer reserved just for institutional investors.
On the contrary – and as we will discuss further down, Fundrise offers a range of investment plans that starts with an initial lump sum of just $500. As such, even if you only have a small amount of money but you still want exposure to US properties, Fundrise should be able to help.
In terms of the underlying product itself, Fundrise is behind what is known as a Real Estate Investment Trust (REIT). This is where multiple investors each have a share in a group of real estate ventures, albeit, at an ownership percentage proportionate to their investment. REITs are hugely popular in the institutional investment space, with a number of providers trading publicly on the major stock exchanges.
This is typically a win-win situation for institutional investors, as it means that the underlying asset is somewhat liquid. However, in the case of Fundrise, its REITs cannot always be cashed out on-demand, so your investment is going to be illiquid. Don’t worry, we’ll cover accessibility to your investment later in our review.
Moving on, investors at Fundrise can typically choose from one of four investment plans. This covers its Starter, Supplemental Income, Balanced Investing, and Long-Term Growth Plans – all of which come with their own risk levels and thus – potential returns.
By investing in a particular plan, Fundrise doesn’t actually allow you to choose a specific investment on a DIY basis. This is different from other real estate crowdfunding platforms operating in the market, which usually allow you to put your money into specific properties or real estate ventures.
To illustrate just how popular the platform now is with US consumers, Fundrise claims to have acquired more than 500,000 members since its inception in 2012. Moreover, this covers close to $2 billion in real estate investments throughout the US. Finally, Fundrise is authorized by the Securities and Exchange Commission (SEC), subsequently ensuring that the platform has a watchful eye over its investment dealings.
So now that you have a general idea of what Fundrise actually is, in the next section of our review we are going to explore what a REIT is.
What is a Real Estate Investment Trust (REIT)?
In its most basic form, a Real Estate Investment Trust – or simply a REIT, is a financial instrument that allows investors to inject capital into a company that invests in real estate ventures. The company will not only invest in conventional homes, but also commercial properties such as office blocks, shopping centers, hospitals, and more.
As these investments yield income in the form of rent, REITs produce gains from both appreciation and fixed monthly/annual rent.
The appeal of REITs to investors is that they are backed by solid hard assets. In other words, if the REIT provider is investing in safe and secure markets domestically, then the risks are low.
Moreover, a lot of REITs in the US are now publicly traded. This allows investors to cash out their investments in the same way that they would with a traditional stocks and shares portfolio.
However – in the case of Fundrise, it is crucial to note that you would be investing in a non-traded REIT. In layman terms, this means that your portfolio is highly illiquid, insofar that you will not be able to cash your investment out on-demand.
This is why Fundrise labels its products as an eREIT, which in reality, operates in the same way as a non-traded REIT.
With that being said – and as we will cover in more detail further down, the platform does offer a redemption program. This is where you have the option to sell some, or all, or your shares back to Fundrise. However, this does come at a cost if you plan to sell your shares after 90 days of making an investment, or before 5 years of holding the investment.
As such, if you are looking for an investment vehicle that allows you to cash out at any given time, then you might be best suited for a highly liquid asset like stocks and shares.
How Does Fundrise Work?
As we briefly noted earlier, Fundrise does not operate like other real estate crowdfunding platforms in the market, not least because you will not be choosing individual properties or projects yourself.
On the contrary, you are simply injecting capital into Fundrise, which will then pool your funds with other members of the platform, with the view of investing in real estate projects that it believes represents a viable medium-to-long-term investment.
Crucially, the specific investments that Fundrise makes on behalf of its members can vary quite considerably. This could be anything from:
- Stable homes, family housing units, or commercial properties that generate consistent, long-term rental incomes
- Purchasing properties and larger real estate ventures that it believes are undervalued, with the view of making renovations. Fundrise will then look at selling the property at a higher market value, or renting the property out
- Focusing on properties or family housing units that are based in markets with high appreciation growth
- Purchasing mortgages in the open marketplace and collecting interest from the investments
For those unaware, each of the above investment strategies will come with its own risks and rewards for you as an investor. While you won’t have a say on the specific properties that Fundrise decides to invest in, the platform does allow you to choose a specific investment plan. The plan that you opt for will need to mirror your long-term investment goals, as well as your tolerance to risk.
We have outlined how each plan works below.
Plans available at Fundrise
Before we unravel the four plans available at Fundrise, there are two key points of consideration that need to be made.
Firstly, Fundrise offers a Standard and Plus option on each of its plans. The Plus option will provide you with greater diversification, with more than 80 real estate projects active at any given time. The specific differences between the Standard and Plus options will vary depending on which investment plan you go with, so do bear this in mind.
Secondly, and as we will explain in more detail further down, some of the plans are blended with both eREITs and eFunds. In a nutshell, an eFund will see Fundrise use a percentage of investor funds to purchase land, develop properties on the land, and then sell the properties in the open marketplace. Although the returns on eFunds can be much higher than a conventional eREIT, the underlying risks are also greater.
This is because property development projects are much more susceptible to a downturn in the US economy. If the developer in question did run into financial difficulties before the project is completed, then Fundrise stands the very real chance of losing some, or all, or its investment into that particular venture.
Nevertheless, let’s explore the four plans available at Fundrise.
The Starter Portfolio
When you first open an account with Fundrise, you will automatically be put on to its Starter Portfolio. You can get started with just $500 on this particular plan, although you are somewhat limited in your ability to diversity.
In fact, the Starter Portfolio will allocate 50% of your funds into properties that generate income, and 50% into eFund projects. The entire focus will be on commercial properties in the US, which typically comes with a somewhat lower exposure to risk.
Outside of the Starter Portfolio, the remaining three plans are known as ‘Core’ plans, as they give you a lot more flexibility in how you decide to approach your potential returns. You can upgrade to a Core plan at any time, albeit, you will need to invest a minimum of $1,000.
Supplemental Income Portfolio
The Supplemental Income Portfolio is best suited to those of you that wish to concentrate on real estate ventures that generate fixed income. By investing in cash-flow generating real estate, you stand the chance of receiving regular dividend payments, meaning that the focus will be on consistent income, as opposed to appreciation gains.
This is similar to investing in highly established blue-chip stocks that no longer have the potential to experience high growth in the form of increased share value, so instead focus on rewarding investors via stable dividend payments.
Nevertheless, Although the platform notes that the Supplemental Income Plan can consist of up to 65 individual projects in a single portfolio, at the time of writing this amounts to just 20. 83% of this figure is based on debt instruments, while the remaining 17% is equity-oriented.
When it comes to the projected annual returns provided by Fundrise themselves, the platform notes that investors should expect dividend income of between 7.4% and 8.1% annually, while appreciation is estimated at just 1.5% and 2.7%.
However – and as is the case with any of the investment projections listed by Fundrise, there is never any guarantee that these figures will be realized.
In terms of the portfolio split, 40% of this will be allocated into its Heartland eREIT, with 60% going to its income-generating eREIT. This split could include anything from stabilized apartments that have a high occupancy rate, or apartments that require renovation before they hit the rental market.
Others include new apartment development projects, so all in, the portfolio comes with a good blend of income-generating ventures.
If you’re looking to take a more balanced approach to your real estate investments by holding a portfolio that contains both income-generating properties and properties that are situated in high-growth markets, it might be worth going with the Balanced Investing Plan. This particular plan is actually the most popular with members at Fundrise, with 43% of investors choosing it over the other three.
Much of the asset appreciation strategy utilized by Fundrise is based in emerging US housing markets. Notably, the company will look to buy properties in less developed areas at a discounted price, with the view of yielding higher-than-average growth. Moreover, the Balance Investing Portfolio will also see Fundrise purchase slightly worn properties, with the view of renovating them, before selling the property at an enhanced profit.
Of the housing projects currently in the Balanced Investing Portfolio, 72% of this represents debt instruments, with 28% as equity. Moreover, there is a wide split when it comes to the specific eREITs. For example, 40% is allocated to the Heartland eREIT, 40% to its Growth eREIT, and the remaining 20% in its Income eREIT. When it comes to the projected annual returns as per Fundrise, the team estimates annual dividends of between 3.8% and 4.3%, and appreciation growth of 5.2% and 6.2%. As such, this particular portfolio will be slightly more susceptible to a turn in the wider US housing market in comparison to the Supplemental Income Portfolio.
Long-Term Growth Portfolio
The final investment plan available at Fundrise is that of its Long-Term Growth Portfolio. As the name suggests, the vast majority of the portfolio will be invested in high growth properties. This will likely see the team focus on specific housing markets that have recently, or are projected to, outperform the wider US real estate market.
Furthermore, the investment team will also place a much stronger emphasis on properties that are undervalued because they are in need of improvement. Once the property has been renovated, Fundrise might then decide to flip it straight on, or depending on the specific housing market, allow the property to enjoy further appreciation. Although 75% of the portfolio is allocated to high growth REITs, the remaining 25% will be allocated to cash-flow generating properties.
As a result, Fundrise estimates that investors will be looking at annual returns in the region of just 1.3% to 1.4% in dividends. However, appreciation gains are projected to sit between 8.1% and 8.6%. This amounts to a collective annual gain of between 9.4% and 10.%. This particular portfolio option presents by far the most risk for you as an investor.
The key reason for this is that high growth markets are at the most risk if the wider US housing market takes a turn for the worse. Moreover, as much of the focus will be on emerging or underdeveloped markets, there is less certainty that Fundrise will be able to find the required buyers when it comes to eventually selling the properties on.
So now that you have a good idea as to what each of the four investment plans offers, in the next section we are going to explore how much Fundrise costs.
Fundrise Fees: How Much Does it Cost to Invest?
Based on the historical annual returns that the platform has made for its investors – as well as the projected returns associated with each investment portfolio, Fundrise is actually very competitive in its pricing.
Here’s a breakdown of what you will need to pay.
- Advisory Fee – 0.15% Per Year: The advisory fee charged by Fundrise is used to pay for facilitating day-to-day functions on its platform. This could include anything from facilitating deposits and withdrawals, to paying for its customer support team. You will pay a mere 0.15% per year for this, which amounts to $15 annually for every $10,000 invested.
- Maintenance Fee – 0.85% Per Year: Whether it’s a mutual fund, ETF, or index fund – any financial vehicle that requires a managed strategy will always come with an annual maintenance fee. In the case of Fundrise, this covers the costs associated with choosing and managing real estate investments on behalf of its members. You will pay 0.85% in maintenance fees, which amounts to $85 annually per $10,000.
All-in-all, you will pay an annual fee of 1%, which is based on the current market value of your investment at Fundrise.
How and When do I Make Money at Fundrise?
If you have read our Fundrise review up to this point, then you should now know that your income opportunities will consist of dividends, appreciation, or a combination of the two.
Once again, the exact split will be dependent on your chosen investment portfolio. The timing of when you receive your gains will also depend on whether it is in the form of income or appreciation.
We have broken down the two-income avenues in more detail below.
In a nutshell, cash-flow generating properties will usually see you receive your respective share of the rental or interest income every three months. For example, this could be a condominium complex that is rented out to everyday tenants on a condo-by-condo basis – or a large shopping center that receives rental income from individual stores. Either way, the amount that you will receive will be proportionate to your investment into that particular project, and based on the previous quarter.
Although the exact rental payments are likely to be fixed for a specific period of time, it is important to remember that you could receive less than what the investment is projected to pay. This could be for a number of reasons. For example, if your portfolio has invested in a large housing unit, but a number of tenants have fallen behind on their rental payments, this will have a direct impact on the dividend payment you receive.
What we really like about the dividend policy at Fundrise is that your gains can be sent straight to your bank account as and when they are distributed. However, you also have the option of signing up for the Reinvestment Plan. In fact, we would highly recommend this, as it will allow you to enjoy the benefits of compound interest. This has the much-desired effect of seeing you earn ‘interest on the interest’, subsequently allowing you to grow your money faster.
If you do opt for the Reinvestment strategy, then your dividends will be allocated to your chosen investment portfolio plan. Furthermore, you will not need to pay any fees when you reinvest your dividend payments back into Fundrise, albeit, the gains will still be liable for tax.
At the other end of the spectrum, any gains that you make when the underlying real estate appreciates in value will not be realized until the property is sold. In layman terms, this means that you don’t get paid until Fundrise gets paid. This is only likely to be the case when the platform eventually decides to sell the real estate investment. For example, this could be anything from a housing development project that has been completed and thus – has now found a buyer, or a property renovation project that has since been flipped.
The key point to note here is that there is no one-size-fits-all answer as to how long this could take. For example, if the team at Fundrise believes that a property is located in a high growth market, and as such, is likely to continue enjoying high appreciation gains, then it is unlikely to be motivated to sell it in the short-term.
This means that you need to view your appreciation gains as a long-term investment. This is especially true if you are investing in the Long-Term Growth Portfolio, which allocates 75% of its projects into growth properties. Once again, if you are looking for an investment plan that will allow you to realize your profits at the click of a button, then you will be best off considering other options.
On the flip side, Fundrise does offer you the chance to cash your investment out early via its Redemption Program. As we will uncover in the next section, this will come at a cost.
Fundrise Reception Program: Can I Withdraw my Investment Early?
First and foremost, it is important to note that Fundrise makes it somewhat unclear as to the exact rules surrounding early redemption. As such, we have decided to break down the fundamentals in layman terms.
Before we delve into the costs of redeeming your investment early, we like the fact that Fundrise offers a 90-day money-back guarantee. In a nutshell, if you decide that you no longer want to keep your funds with Fundrise, and you make the request within 90-days of opening your account, then the platform will give you your original investment back – no questions asked.
Take note, the specific amount will mirror the amount that you originally invested, meaning that you won’t benefit from any of the income or growth gains that your investment might have yielded. Nevertheless, the key point is that you will not be charged any fees to do this. However – and as we will cover shortly, you will be charged a fee if the redemption request is made after the 90-day period.
If you decide that you want to cash your investment out, and the request is made after the 90-day period, or before the 5-year fee-free period, then you will be charged a fee.
Here’s what you will pay if you made the request between:
- 90-days and 3 years: 3%
- 3 years and 4 years: 2%
- 4 years and 5 years: 1%
- 5 years+: 0%
The respective fee that you pay on your investment will be based on the current share value of your holdings.
Before you can start the official process of redeeming your funds, you will initially need to bypass a notice period. While previously this was set at just 15 days, Fundrise now requires you to wait 60 days before you can make a withdrawal request.
To get the ball rolling, you can start the notice period via your account settings page.
This segment of the Fundrise early redemption clause is without a doubt the most important. In a nutshell, your redemption request will be executed on a case-by-case basis, meaning that there is no guarantee that you will be able to redeem your money out on-demand. This is due to the characteristics of a real estate investment, insofar that properties are an illiquid asset. For example, Fundrise is not going to sell a property just because a single investor wants to redeem their money.
On the contrary, Fundrise will have a pre-defined reserve pot that it uses to honor early withdrawals. However, whether or not they have the required funds to do this at any given time will depend on a number of factors. Notably, if waves of investors request an early withdrawal concurrently, this will make it difficult for Fundrise to facilitate the redemption.
Ultimately, while it is hoped that you are able to redeem your investment as and when you need to, there is no such guarantee in place to realize this. As such, you need to think long and hard about whether or not a REIT is right for you, especially when it comes to accessing your funds. In reality, you should only invest with Fundrise if you are happy to keep hold of your investment for at least five years.
How do I get Started With Fundrise? Quickfire Step-by-Step Guide
Like the sound of what Fundrise offers for your long-term investment goals and want to get started today? Checkout our quickfire step-by-step guide below to find out what you need to do to get the ball rolling.
- Step 1: Open an account with Fundrise – Head over to the Fundrise homepage and click on the GET STARTED button.
- Step 2: Enter your personal and financial information – Fundrise needs to know who you are as an investor, so you’ll need to enter your personal information. This will include your full name, home address, date of birth, residency status, social security number, and contact details. You will also need to provide Fundrise with some information about your prior experience of investing – and in particular, with REITs.
- Step 3: Choose your investment plan – You will now need to choose which of the four available investment plans you want to go with.
- Step 4: Deposit some funds – Once you’ve selected your preferred investment plan, you will now be instructed to deposit some funds. If opting for the Starter Portfolio, this requires a minimum investment of $500, while the other three plans will require a minimum of $1,000.
- Step 5: Choose how you want your dividends paid – To complete the process, you now need to decide whether you want your dividends paid to your bank account as and when they are distributed, or whether you want them reinvested into your chosen portfolio. Don’t worry, you can change this at any time via your account settings.
Conclusion: Is Fundrise Safe? What are the Risks?
On the one hand, injecting money into a Fundrise portfolio is a relatively safe investment. The overarching reason for this is that your investment is backed by tangible assets – real estate.
The general consensus within the investment space is that real estate is one of the safest asset vehicles available to investors. While property prices will always rise and fall in the short run, the US housing market has grown considerably throughout the history of time.
However – and as is the case with any investment vehicle, there is never any guarantee that you will make money. In fact, depending on the type of investment portfolio that you opt for at Fundrise, the underlying asset could be heavily affected by a sudden downturn in the US real estate market.
One such area, in particular, that is considered a higher risk is the property development arena. Fundrise will allocate some of its investment funds to new real estate projects, that, if the underlying developer ran into financial difficulties, could lead to a substantial loss for its investors.
Nevertheless, the platform is backed by a team of experienced real estate stakeholders that utilize a highly stringent risk-averse approach when it comes to choosing projects. Moreover, the platform is registered with the SEC, and the website itself carries a number of safeguards to keep your personal and financial information safe.
Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.
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