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Detailed Fundrise Review 2020: crowdfunding real estate investment with Fundrise

Our Fundrise Review - Updated 30th June 2020

It appears like today's American dream is to make money by investing in real estate. We all have an acquaintance or uncle who became a millionaire real estate developer. Some of the biggest challenges to this success is the amount of money you need to purchase a single piece of real estate.

The total expense for an person to buy a piece of residential or commercial real estate can be enormous. On top of that, house prices are rising. Because you need more money in advance, investing in real estate is becoming extremely difficult.

The positive thing is that there are other options to invest in real estate instead of direct ownership. One of these options, which is growing in popularity, is investing in crowdfunded real estate. This is where developers from all over the world put funds together to invest in real estate ventures.

Fundrise is by far the most well-known crowdfunded real estate site. We will include the ins and outs of this investment in this analysis.

What's Fundrise?

Fundrise is a new platform for investment in real estate that was established in 2010. As with other crowdfunded real estate sites, people from all over the world pool money together to invest in real estate. Fundrise includes a mix of both debt and equity assets in its portfolios.

All of the investments offered on this site are portfolio-based, so you are not able to pick and choose projects to invest in individually. There are several different ventures in each portfolio, and then buyers purchase shareholdings in the portfolio. This allows you diversification through a range of various real estate projects.

Fundrise vs. Conventional REIT

Traditionally, investors have been able to overcome the challenges of owning physical real estate by engaging in REITs (real estate investment trusts) or other public exchange investment vehicles.

These investment vehicles are large pools of real estate split into millions of shares. Shares of these REITs are traded on the major stock exchanges. You can buy and sell those shares just like a stock!

One of the downsides of this publicly traded real estate investment is that they often have high fees that you have to pay in advance, and you may need a certain net value or income to buy.

Here's another thing, the connection. One way for investors to pursue diversification is by engaging in various types of securities. Usually, these are commodities such as stocks, bonds, real estate and even precious metals. Although publicly traded REITs offer the ability to quickly diversify asset classes and own real estate, these assets are strongly correlated with the overall market.

Typically speaking, if markets are doing well, public-traded REIT investments are as well. If markets do not do well, public-traded REIT investment are as risky.

The point of engaging in various types of assets is to have assets operating in different ways at different times. The stocks in your portfolio may be performing poorly, but the value of gold in your safe is rising.

What Are You Investing In?

Fundrise helps you to invest through the eREIT and the eFund. The short explanation for these investments is that they are non-traded, which means that they are not listed on a public exchange like a traditional public-traded REIT.

eREIT and eFund are also investments that you buy directly from Fundrise. This cuts off the middleman and reduces the overall payments.

What Are the Fees?

Fundrise charges a fee of 1% per year.

They do not charge any other hidden fees and there is no penalty for frontloading for Fundrise. One of the main advantages of investing in Fundrise is a small and straightforward fee structure relative to other real estate investment trusts.

If you invest in Fundrise, you pay a 0.85 percent annual asset management fee and a 0.15 percent annual investment advisory fee for a sum of only 1 percent.

Is Fundrise Secure and Regulated?

Fundraise reports with the SEC and is audited on an annual basis. These reports of the financial statements are disclosed in Form 1-K. In addition, Fundrise provides a 90-day guarantee of satisfaction.

Some limitations apply, but if you are dissatisfied with your purchase in the first 90 days, Fundrise can buy it back at the original price you paid. Fundrise is for U.S. investors only, but international investors can participate through some U.S.-based companies. The minimum investment expected to get going is $500.

Investment Liquidity

An asset has high liquidity if it can be converted quickly and easily into cash. Resources like stocks are highly liquid, as they can be traded on a stock exchange in a matter of seconds. Real estate is a low investment in liquidity. This is because real estate doesn't change hands as quickly as a stock.

When Fundrise invests in a real estate project, it is typically a long-term investment of five years or more. It is important to understand that as an investor you should be prepared to leave the money invested in the long term.

Fundrise has underlined that this platform is designed for investors with a minimum time horizon of five years. If you're a short-term trader, it's not for you!

Fundrise provides a monthly redemption period where customers have the opportunity to cash out each month after a minimum of 60 days of waiting. Nevertheless, it is important to understand that Fundrise does not guarantee liquidity.

In order for Fundrise to generate the best return for investors, they need to remain as fully invested as possible. If Fundrise keeps 20 percent of the fund in cash for redemption, this ensures that 20 percent of the fund receives a return of 0 percent or close to that.

Portfolio Options

Starter Portfolio

The Fundrise Starter Portfolio is designed for new investors who would like to give Fundrise a chance.

The minimum account threshold is only $500 to start investing. This portfolio consists of 50 percent growth and 50 percent revenue-oriented holdings. If you want to upgrade to an advanced plan, it's completely free!

Supplemental Income

Next, there's the Fundrise Supplemental Income Portfolio. This contains profits from real estate.

Investors can receive returns mainly by cash-flow distributions stemming from real estate. Fundrise produces dividends by rent and interest payments in proportion to the share of the fund.

Balanced Investing

The Fundrise Balanced Investing Portfolio offers a blend of 50 percent growth and 50 percent income-oriented investments.

The balanced investing portfolio invests in a combination of eREITs and eFunds on offer by Fundrise. The purpose of this strategy is to balance the income-generating real estate, as well as the value-appreciating real estate.

Long-Term Growth

Finally, we've got the Fundrise Long-Term Growth Portfolio. The goal of this strategy is to achieve returns primarily from the valuation of assets.

This portfolio seeks to buy high potential real estate development for growth and earn returns mainly from selling of the underlying assets. It involves the acquisition and rehabilitation of land in order to market the asset for profit at a later date.

How to Make Money With Fundrise

Fundrise is a 100% passive investment. You just invest your money, and it's put to work immediately. With Fundrise, you make money in one of two ways: asset appreciation and dividends or distributions.

The eREITs at Fundrise will pay quarterly dividends or what Fundrise calls distributions. Such returns consist of interest payments on loans and rental payments. The value of your interest in the whole eREIT shall be determined by the amount of your dividend payment.

Investors may expect to receive dividends from Fundrise on a quarterly basis, but it is important to remember that Fundrise does not promise such dividends.

It is important to remember that there is no guarantee of returns on the stock market either. Fundrise can raise, decrease or cancel dividends at any time, just like a publicly traded company.

In terms of asset appreciation, Fundrise can purchase properties with a high potential for value growth. This is often a house in a booming city where population growth beats the national average.

The goal is to buy property ahead of a major trend and capitalize on the development of the neighborhood. Once the property is purchased, Fundrise will often renovate the property and make improvements to increase the sale price and the value of the property. As a result, investors mainly make money from the sale of the land.

Fundrise Dividends/Distributions

Fundrise will automatically deposit dividends or distributions into your bank account on file unless you choose to engage in the dividend reinvestment program.

If you want to boost your gains with Fundrise and get compound interest, you can apply for a dividend reinvestment program or DRIP. Fundrise offers this dividend reinvestment plan free of charge as a favor to investors.

Compound interest is the impact of earning interest along with your interest. You will make additional dividends by reinvesting dividends since you have a larger investment.

Over time, the compounding of these dividends will result in an exponential increase in your portfolio.

Pros and Cons Of Investing With Fundrise

Pros

  • The minimum to invest in the Starter Portfolio is $500.
  • Since this is a non-traded REIT, there is less overlap with the overall market.
  • Small retail investors are able to access private real estate investments.
  • Fundrise has a transparent fee of 1% per year.
  • They do not have the minimum net value or revenue threshold as most private investment funds do.
  • Fundrise offers you a diversified exposure to properties.
  • This investment enables you to gain compound interest, with the possibility of regularly reinvesting quarterly dividends.
  • Fundrise funds some retirement accounts.
  • This is a 100% passive investment in real estate.
  • Monthly payout cycles remove the temptation to market panic and selling.

Cons

  • Fundrise can not guarantee liquidity.
  • Dividends or distributions are not a given.
  • Distributions (dividends) shall be taxable as ordinary income.
  • This platform has a limited history of service.

Fundrise Review: The Verdict

Fundrise is a great platform for passive investors looking to gain access to private real estate markets. This is also perfect for investors seeking to diversify groups of assets and have less exposure to the overall stock market.

Since you can only liquidate your positions on a quarterly basis, you may be less likely to deliberately trade in and out of positions. You can also automate your dividend reinvestment plan, causing compound interest to build up on your portfolio.

Fundrise is best suited to buyers with a 5 year time horizon. Real estate is not a highly liquid investment, so new developers need to take this into account.

Although Fundrise provides a 90-day satisfaction guarantee, you should not invest if you have a short-term investment mindset.

Fundrise main features and highlights

Bottom line
Fundrise is best suited to buyers with a 5 year time horizon. Real estate is not a highly liquid project, so new developers need to take this into account. Although Fundrise provides a 90-day satisfaction guarantee, you should not invest if you have a short-term investment mindset.
Fees: 1% per year
Min Deposit: $500
Target returns: 7.9 – 12.8% anual returns
Sectors:
  • Commercial Real Estate
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