Fundrise Review: A Low-Cost Introduction To Real Estate Investing
Unlike other real estate investments, Fundrise gives you a low-cost way to enter this market and open the potential to earn greater returns. Here’s an in-depth look at all Fundrise has to offer.
- People interested in real estate investing
- DIY investors
- People who don’t have a lot of cash to get started
So, let’s dive into what makes Fundrise stand out.
What is Fundrise?
Founded in 2012 by Ben and Daniel Miller, entrepreneurs from Washington D.C., Fundrise was created with one question in mind: “Why does an investment company have the right to invest but the public doesn’t?” For the Millers, it was time to even the playing field and give communities the right to invest in themselves.
Their online platform, which has a minimum investment of just $500, allows non accredited investors to buy into their properties, cutting out the costly middlemen that prey on the real estate market.
How Fundrise works
Fundrise makes loans to buyers of commercial real estate—such as apartment and office buildings—and bundles those loans into investments, called eREITs. These are Fundrise’s proprietary version of real estate investment trusts. Fundrise then sells shares of the eREITs to the investing public through their website.
You use the Fundrise app or website to select a portfolio of property investments that reflects your goals and desired strategy. Like any other online shoppers, investors can browse through different eREITs until they find one they like.
All you need is a free account, which is easy to sign up for. Fundrise asks for your country of residence, and you’ll need a Social Security number to complete your setup.
When you find an investment you want to invest in, all it takes is a couple of clicks and you’ve entered the real estate business. Fundrise has the lowest minimum ($500) of any of the crowdfunded real estate startups
In the past, only accredited investors (people who are worth at least $1 million or who make at least $200,000 a year) were allowed to participate in the real estate market, but the Jumpstart Our Business Startups Act of 2012 allows stock to be sold to the general public, including both accredited and unaccredited investors, over crowdfunding sites.
Once you’ve invested, you make money typically from quarterly payments (these are taxed as income), but each property differs in length and returns.
Unaccredited investors are still limited in the investment world
Fundrise may open up the world of real estate investment to a larger group of people, but for some, they still can’t offer much.
If you’re an unaccredited investor, offerings are extremely limited. Most real estate companies that work with Fundrise opt to use Regulation D Rule 506, which, in the simplest terms, means that only accredited investors can invest in their property for security reasons.
Accredited investors, on the other hand, have the opportunity to take advantage of the $500 minimum and can invest in many different projects instead of putting a large chunk of money into just one.
Although Fundrise gives you control over certain aspects of your portfolio, they still have a middleman — themselves.
What’s a middleman? It’s someone who manages the interactions between the investor and the company they’re investing in. For example, if you’re looking to buy a house you’ll most likely go through a real estate agent instead of the owner. The real estate agent would be the middleman, receiving a hefty commission on the sale.
Fundrise has an honorable goal in trying to eliminate the middleman, but business isn’t just built on good intentions. They still have to make money.
Fundrise does cut costs by allowing you to manage your own portfolio, but they don’t necessarily cut out the middleman entirely. Their fees pay their fund managers who help keep track of Fundrise’s investments and in doing so make sure your investments are safe.
Investment advisory fee
As with other investment platforms, with Fundrise you need to pay special attention to fees, which can eat into your returns. Fees total 1%, so for every $10,000 invested, you’d pay $100 in fees. Hopefully, your returns exceed 1% or you wouldn’t make any money on your investment.
You’ll pay a 0.15% annual investment advisory fee, which covers the professional advisory service baked into the platform.
Asset management fee
For the funds in Fundrise’s standard portfolios, you’ll pay an annual asset management fee of 0.85%.
Fundrise is a little different from other investing platforms in several ways.
Low investment minimums
Fundrise requires a low investment minimum, which makes it far more accessible for more people.
No accreditation required
You don’t have to be a big real estate developer with millions in the bank in order to start earning returns on real estate investments. Fundrise opens that door to “regular” people who are willing to put in the work to research their options but don’t have a ton of cash lying around.
Your investment dollars fund diversified portfolios at Fundrise, whose team is constantly searching for and evaluating new properties. New assets are added to existing portfolios, with the intention of strengthening them and balancing risk.
Since Fundrise’s focus is real estate, it’s hugely important that the company is transparent with its investors. That why they offer info on their investment strategy, risk tolerance, and timeline given current market conditions.
Fundrise discloses what you can expect from the company and its advisory fees are clearly expressed (although other costs may surface depending on investment).
My experience using Fundrise
I appreciate the dedication to transparency you see at Fundrise, and their website and investor dashboard is clean, clear, and easy to use. It’s a relief to be able to invest smaller amounts of money and the fact that you don’t need to be an accredited investor is a huge plus.
They also provide a lot of investor education, which I think is important for new investors. It’s still important that you do your research, though, both inside and outside the platform, so that you know exactly what you’re getting into and can forecast some trends out to the five- and ten-year marks at least.
Who should use Fundrise?
You’ll want to have a long-term outlook if you choose to invest with Fundrise. Real estate, while it can provide attractive returns, requires time for them to materialize, so you’ll have to be patient while you wait for values to appreciate. Especially during abrupt economic downturns, when Fundrise may suspend redemptions.
Are you ready to research? Fundrise is better suited for investors who aren’t afraid to roll up their sleeves before diving in. You should know what you’re getting into before committing for the long-term. Fundrise provides a lot of information about its properties, plus investor education, to help you as you learn.
Who should not use Fundrise?
Just as importantly, who is not a good candidate for investing with Fundrise?
Investors without any margin
By this I mean, you should not use Fundrise if you can’t afford to lose your investment. Real estate investing as a whole is inherently risky. Crowdfunding adds even more potential risk as investors on crowdfunding sites don’t tend to be real estate tycoons, but come from more modest means.
Returns are not guaranteed, and since real estate as an investment depends on so many interconnecting factors, you should be prepared for unexpected drops in the values of your investment.
There are too many places where something can go wrong along the way, and unless you know the ins and outs of real estate, or have someone like that middleman that does it for you, it’s difficult to know what you’re getting yourself into.
Outcome predictions are just that—predictions. How much money you’ll get back is based on past performance, and in the crowdfunding world, which is still new, there simply isn’t enough of a history to provide an accurate picture of what might happen.
Maybe inflation will increase the rent and, in turn, the business costs and investors will be left paying larger fees. Or maybe the project will fail altogether and interest in the property will be low. This may be unlikely, but not impossible.
Remember to always proceed with caution when you consider investing in real estate. The past doesn’t always predict the future.
Pros & cons
- Low investment minimum — You don’t need millions (or even thousands) to start, just $500.
- Diversify your portfolio — Fundrise allows you to expand beyond simple stocks and bonds.
- Easy to get started — The Fundrise website is simple and easy to use.
- Long-term — Don’t expect to dip in and out with this method, you'll be stuck investing for five years or more.
- Investment risk — Past performance doesn’t guarantee future results, and with the crowdfunding world in its infancy, it's hard to look at past performance at all.
Fundrise vs. Streitwise vs. Crowdstreet
Fundrise isn’t the only real-estate-focused investment platform. How does it stack up to its competitors?
Fundrise StREITwise CrowdStreet
Investment minimums $500 $1,000 Varies; usually $25,000 and up
Costs and fees 1% in fees 2% asset management fee Most offerings require you to be accredited
Investment options eREITs/eFunds Non-traded REITs Varies; direct and indirect
Support Online support, live chat Online support, live chat
Streitwise is focused pretty exclusively on non-traded REITs (meaning REITs you can’t find on the New York Stock Exchange, for example).
They promise 2% in total advisory fees and a minimum investment of $1,000. Like Fundrise, Streitwise permits unaccredited investors — but it is NOT a crowdfunded site, so your returns may be a little easier to predict. And speaking of returns, their historical average return is a whopping 9.8%!
CrowdStreet, on the other hand, is aimed toward more experienced and higher net worth investors, with minimums that range from $25,000 to $100,000 depending on the investment.
You must be an accredited investor to use the platform. Their investment options range beyond the REITs and eREITs of the other two companies to include direct investment in property, making them one of the largest and most diverse commercial real estate marketplaces.
If you’re looking for an investment opportunity that allows you to manage your own investments at a low cost AND you’re in a financial position to take on the risks as well as potential rewards of investing, then, yes, Fundrise could be the perfect platform for you.
On Fundrise’s website, you can enter your email address to immediately explore available investment opportunities.