Fundrise is an investment platform that facilitates investment in a crowdfunded real estate portfolio. Founded in 2010, the company has its headquarters in Washington, D. C.
Fundrise’s business model aims to democratize real estate investing by allowing anyone — with just $500 — to invest in a diversified portfolio of real estate investment properties.
Being a private company, Fundrise markets itself as a viable alternative to investing in the stock market. The stock market, Fundrise argues, generates an average annual return of 8.2%, whereas the annual rate of return for Fundrise investors averages at 12.3%.
Fundrise’s relatively high return is possible, in part, because they negotiate the price of every real estate acquisition with a view towards keeping prices low and returns high.
Who Should Use Fundrise
Fundrise is open to any US resident with a valid social security number and at least $500 to invest.
Though the bar to becoming a real estate investor on Fundrise’s platform seems low, there’s a catch, so don’t dive in just yet. There are some aspects of investing with the company that needs to be examined keenly.
It will interest you to know that Fundrise is best suited for a certain kind of investor. If you meet the criteria below, Fundrise may be a good match for you.
Fundrise Is Good For You If
- You want to invest in real estate but don’t have thousands of dollars to buy your own properties. With Fundrise, you can pool your money together with other investors and buy shares in an investment property. For example, if a building costs $40,000, for a $1000 investment, you can be 1/40 part-owner of that building.
- You don’t mind tying your money up for three to seven years in a real estate investment that might make a 12.3%. Fundrise is not a publicly-traded company. You can’t cash in your stocks and get out of your investment as you would with a publicly-traded company. An investment with Fundrise is for the long-haul — three to seven years. If you put your money into Fundrise, make sure it is money you’re comfortable being without it for a very long time.
- You don’t want to invest in the stock and bond markets and prefer investing in private companies. For good reasons, some people like to have a mix of public and private investments. Fundrise may be an excellent private investment if you’re not concerned about the time it’s going to take to recoup your investment.
- You are not averse to the risk of investing in an unregulated private company. The Securities and Exchange Commission and other governmental regulatory bodies heavily regulate Publicly-traded companies. Private companies like Fundrise and others don’t have that same level of regulation or reporting requirements because they are not public companies. Some people may regard that as risky. If you’re not concerned about such risk, then perhaps Fundrise might be an excellent place to invest.
If you read the preceding section, you will know that the catch to Fundrise’s relatively low entry barrier to real estate investing is that your investment gets to be tied up for many years. You can get out, but there’s a penalty for doing so.
Given Fundrise average return compared to the competition and other investment options out there, it is up to you to decide if it is a wise idea to tie your money up for three to seven years.
How To Redeem Your Shares And Get Out Of Fundrise
Real estate investment usually has a long-term outlook. However, if, for some reason, you want to redeem your shares and get out of your Fundrise investment, you can. There is a penalty for redeeming shares, however, and they are as follows:
- None for the first 90 days
- 3% penalty if you owned shares for less than three years.
- 2% penalty if you owned shares for three to four years.
- 1% penalty if you owned shares for four to five years.
- No penalty if you held your shares for over five years.
How To Start Investing On Fundrise?
Investors can start investing on Fundrise with the completion of a simple online application form. Applicants will provide their name, address, social security number, date of birth, and everything else they will provide when opening a regular bank account.
Fundrise then verifies the information to confirm the applicant’s identity. Once all the information is verified, the investor will electronically agree to Fundrise’s terms and conditions. After that, Fundrise opens the account.
Investing With Fundrise – What To Know
When you invest in Fundrise, you are buying shares in two Fundrise-owned limited liability companies: eREIT and eFund. These two are the companies that hold the real estate projects in your Fundrise portfolio.
The distribution of investment in either an eREIT or an eFUND is determined by the tier of your investment account.
Fundrise has three tiers of accounts for investing: Starter, Core, and Advanced. They all have different requirements to start investing.
- Starter – The Starter account is the most basic of Fundrise’s Investment accounts. It requires a $500 minimum to start, and investors can diversify their investments over ten different properties.
- Core – This tier requires at least $1,000 to start. With a core account, investors can invest in up to forty properties. The Core account lets investors select one of three Fundrise plans that best match their investment objective. It allows for more diversification across a wide variety of eREITs. It is one of the most popular account types on the platform.
- Advanced – This account is the highest level account, and it requires at least $10,000 to open. Investors who have this account can invest in eighty plus properties, and they can take advantage of more sophisticated tools and strategies to maximize their return.
Fundrise Fees
One of the things to pay keen attention to as a Fundrise investor is their fees. With the “Starter account,” for instance, Fundrise charges 0.85% in asset management fee and 0.15% in investment advisory fee.
Fundrise waives the 0.15% investment advisory fee under certain circumstances. It is not clear what the “circumstances” are. The fee waiver appears to be discretionary on the part of Fundrise Advisors and may apply to individual clients to the exclusion of others.
Fundrise may also charge a “development fee” for “additional” asset management work.
Performance-based Fees For Fundrise Advisors
Fundrise charges a performance-based fee when they reach an 8% preferred return threshold. This fee is on the “Fundrise Opportunity Fund,” which is an investment option that is available only to accredited investors.
What this means is that once investors get their 8% return on a liquidated asset, Fundrise distributes the rest of the proceeds: 15% to Fundrise Advisors and 85% to the investors.
There is a whole dossier explaining their fee structure. It is imperative that you look at how much you’ll be paying to invest. It makes no sense to invest if you’re going to lose a significant portion of your investment in paying fees.
Fundrise IPO
Right now, Fundrise is a private company, and investing with them implies that your investment is illiquid: meaning you can’t get your money out when you need to, at least, not without a penalty. Fundrise does plan to provide liquidity in the future through a potential stock market IPO or a sale of the company.
They do not, however, plan to pay dividends like other publicly-traded companies. Therefore, investors in a Fundrise IPO should be prepared to hold their investment indefinitely with the hope that the company experiences a liquidation event.
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Who Can Invest In Fundrise IPO
Account-holders who have been on the platform for at least one year are eligible to invest in the company’s IPO.
I should note that an IPO does not mean an investor is automatically going to make money. In fact, investors may potentially lose money. Holding your investment until the company goes public is something that requires additional study and scrutiny on the part of the investor.
Conclusion
If you want to invest in real estate, is Fundrise the best platform to use? I can’t make a conclusive determination. It depends on your investment goals and the returns you are seeking. I will note that Fundrise’s is a relatively new company with an untested business model. It will be interesting to see how they fare in a housing market crash or an economic downturn.
With that said, investment is generally a risky business, and it seems like an attractive proposition to invest with a private company that produces a return that’s more than the average return on the stock market.
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