There’s no two ways about it:
Investing in anything – be that stocks, real estate, or a new car – can be challenging when you don’t have a ton of spare financial assets to throw around at will. Even if you do manage to scrape enough together to place a few investments, you can face further challenges when it comes to protecting and supporting your portfolio through productive diversification.
By relying on traditional methods of investing in capital markets, you may be plum at out of luck if you intend to overcome these challenges in the short-term (or even the long-term, if your investments don’t pan out). However, if you’re willing to branch out and dip your toes into the real estate investment market, you may find innovative new ways to diversify your portfolio with your limited initial resources.
Within a crowdfunding market that has emerged and evolved since recent deregulation, Fundrise remains one of the preeminent platforms for investing in real estate assets without the need to directly own or maintain every aspect of said real estate assets. Through its several core features, you’ll be able confidently leap into the private real estate market through their well-vetted REITs.
Fundrise remains at the front of the pack for this reason (and many more). If you’ve ever considered branching out into new types of investment or are simply looking for a place to break into the market to earn some supplemental income, Fundrise can make it happen. Try it out today and you’ll surely begin to feel the power that comes with leverage over a diversified asset portfolio.
At its core, Fundrise is a technology startup company (founded in 2010) that was among the groups to successfully crowdfunded investments into the American real estate market. Fundrise’s core service continues to run on a similar business model, wherein users invest their financial resources into a variety of hand-picked real estate ventures across the country (most in major cities or suburbs).
Fundrise primarily bills itself as a kind of stock market alternative by asserting that “modern portfolio theory” calls for an investment portfolio made up of more than stocks and bonds alone. Fundrise asserts that private market real estate investments are the answer to this diversification dilemma and that now, through their platform, average investors can leverage an opportunity to financially benefit from this previously gated investment class.
To this end, Fundrise gives its users differentiated options based upon their desired level of risk tolerance and return on investment pace. Using Fundrise’s monitoring tools and knowledge base, users are able to inform themselves and make wise decisions regarding their current investments, as well as future opportunities. Even those with lower-than-average accreditation or financial assets as low as $500 can get a slice of this real estate pie through Fundrise’s pointed use of REITs.
In many ways, Fundrise’s crowdfunding business model speaks for itself when it comes to performance history. Though past results are not a perfect indicator of future success, Fundrise can certainly be said to be on the road towards ongoing productivity given their average annualized returns of 8.76%, 11.44%, and 9.11% in 2016, 2017, and 2018, respectively. Even their annualized dividend yield is outpacing other forms of investment (such as public real estate ETFs and bond ETFs) at around 5.19%.
All in all, Fundrise has a great deal to offer its users in terms of investment opportunities, especially when it comes to tapping into a fresh and productive market with limited financial resources.
A Primer on REITs
Fundrise (and other competing crowdsourcing real estate investment platforms) commonly advertise their focus on REITs, a term which may not be familiar to those who have never ventured outside of the traditional stock and bond market. If you’ve considered joining Fundrise or any other type of real estate investment platform, you should fully familiarize yourself with this term’s parameters and situational implications.
In essence, a REIT (an abbreviation for “Real Estate Investment Trust”) is a type of company that is positioned to generate income through its real estate holdings and investments. This income often derives from rent payments or interest on the property’s debt. Unique to this company type, though, REITs are able to forgo company taxes if they maintain certain investment and dividend payout levels.
Since their inception in the 1960s, REITs have become a popular method for individuals to leverage their limited resources into a lucrative income stream. Due to their structure, REITs are prized for their ability to cut out one type of taxation to provide each investor with a larger return on investment. There are several different types of REITs as well, including public and private RIETs as well as mortgage and equity RIETs.
Fundrise makes use of a unique type of RIET called an “eRIET” (which they pioneered) to hold and apply user investments in their chosen real estate projects. Investments into these eRIETs actually represent shares into the associated real estate holdings company, allowing users to gain returns even before the project is completed.
Fundrise Key Features
Unique Real Estate Investment Vetting
Among its several outstanding features, Fundrise has gained a fair amount of acclaim for its pioneering methodology when it comes to vetting prospective real estate opportunities. This process begins when developers propose their real estate assets to Fundrise, at which point the developer and their assets undergo intense screening. This is an effort to ensure that the prospective assets meet Fundrise’s strict investment criteria (which are succinctly geared towards their users’ advantage).
After passing the initial review, Fundrise begins the underwriting process by sending out one of their own specialists to review the assets on-site. If the developer’s on-site details pass muster, then Fundrise’s investment committee is able to give final approval to acquire the site through equity or fund it through debt (depending on the circumstances).
Taken together, this process ensures that every “I” is dotted and every “T” is crossed before users ever get an opportunity to invest in a given real estate project. This process provides both security and stability to Fundrise’s users, who are able to trust that Fundrise is providing them with trustworthy investment opportunities by sticking to a strict set of criteria.
Efficiency and Trust through eDirect Investments
Fundrise is also quick to promote their proprietary eDirect Technology. Though more a methodology in its broad scope, eDirect provides an innovative model for leveraging modern technology and regulation parameters in order to maximize each user’s returns.
eDirect’s first and most obvious incarnation comes in Fundrise’s several technology-based components. For example, Fundrise uses contemporary cloud-based software in order to provide real-time asset management through their web-based investment platform. When placed in the user’s hands, these technologies coalesce into an unmatched degree of freedom and efficiency to make and manage investments on one’s own terms.
Though it mostly acts behind the scenes, another valuable component of eDirect is its reliance on public-facing regulatory transparency. In other words, all of Fundrise’s portfolio components are made up of qualified offerings that are regulated and routinely audited by the Securities and Exchange Commission (SEC). With this in mind, new and veteran users alike can grow in confidence each year their investment remains active, safe in the knowledge that they’ll be on even playing ground when their investment’s horizon approaches.
Productive Knowledge Base
It sure would be great if we could know all about real estate investing from the get-go. But of course, a seasoned investor must begin as a novice and work their way up through hands-on experience and research. Fundrise makes the second half of this equation a little bit easier through its in-house knowledge base. This digital archive is highlighted by a “Investing 101” subsection that allows new real estate investors to get up to speed on the core mechanics of the domain.
Along the way, a new user (or even an experienced investor, for that matter) may run into a term that they are unfamiliar with. Rather than spend hours on Google trying to find that terms precise meaning, Fundrise gives you the power to learn the trade lingo efficiently through their digital investing glossary. Each term features its own encyclopedia-like page the defines the term and places it into context within the larger real estate investment schema.
Also, those who are ready to take the next step and delve into more in-depth theories surrounding the real estate investment market can do so in Fundrise’s “Advanced Investing” subsection. This collection currently includes 33 articles that will help you gain an acute understanding of everything from RIET tax efficiency to the identification of so-called geographical “opportunity zones”.
Opportunities to Upgrade or Pull Out at No Cost
Once you’ve settled into Fundrise’s investment platform and acquainted yourself with its normative fees, you’ll be faced with a decision – stay on and become a long-term real estate investor or jump ship to find a platform that better suits your goals and budget. Whichever direction you head in, Fundrise makes it easy to do so by charging you nothing to withdraw within the first 90 days or upgrade to their Core plan.
This 90 day guarantee has some teeth behind it, making it financially prudent to leave Fundraise if it doesn’t immediately click with you. If you initiate this guarantee offer through their customer service team, Fundrise will immediately buy back your initial investment and credit it all back to you for no added cost. As such, your introductory period can be as stress-free on your bottom line as possible.
Fundrise’s free upgrade offer is pretty remarkable in its own right. With this upgrade, new users are more able to diversify their portfolio to meet time-based benchmark ROI goals. Whether you are looking to gain a bit of supplemental income, grow your investment long-term, or strike a balance in between, this free upgrade will empower you to take that step forward. All you’ll need to do is invest $1,000 with Fundrise for this offer to become available to you.
Investment Options to Meet Your Needs
The aforementioned investment options deserve their own emphasis, as well. Specifically, Fundrise deserves some recognition for its ability to succinctly create three core service packages designed to meet the needs of short-, middle-, and long-term investors. Each of these portfolio options relies on a different balance of dividend and appreciation evaluations, allowing you to take on risk and financial investments in line with your preferences and budget, respectively.
For example, Fundrise’s “Supplemental Income” plan makes use of the highest dividends rate (5.4% max) in order to maximize a user’s cash distributions per quarter. On the other end of the spectrum, though, the “Long-term Growth” relies more heavily on appreciation rates (up to 10.6%) in order to give an investor more room for exponential growth over time. Between these three plans, you’ll surely find an option that will allow you to jump into the private real estate investment market with confidence.
If Fundrise were problematic in any one category, it would almost certainly be its fees. While the platform can proudly advertise that new users only need $500 to make their first investment, the overall cost of business on Fundrise is a bit more…opaque, to put it lightly. Most of these added costs come in the form of unavoidable fees, causing some users to balk at how often they are nickel and dimed simply for maintaining their investment.
For example, a given REIT may incur four or more fees in a condensed period of time. One may be a “quarterly asset management fee” with a rate around 0.85% of the assets held in the REIT. Based on their documentation, Fundrise can even raise this rate to 1% without notice. An investor may also be subject to an “origination fees,” which appear on a variety of different on-platform transactions to offset some costs incurred by RIET managers within the overarching lending structure.
Special servicing fees may also come into play down the line for any assets deemed to be “non-performing.” The investor (that’s you) doesn’t have control over the performance of a given asset, so this fee may be levied upon without any method for recourse. Fundrise’s “disposition expenses” fall into a similar category, as they are charged when Fundrise decides to sell one of the equity investments within your RIET.
In their hundreds of pages of circulars, Fundrise asserts that these myriad fees are designed to create a structure where investors are locked in for the long-term, thus creating a sense of stability for the RIET. While a higher-than-average volume of fees can be expected in such a drawn out investment model, Fundrise’s fee structure goes a step too far (especially when you consider how difficult it is for a well-read investor to know precisely when a given fee will kick in).
Fundrise Accreditation Requirements
In essence, an “accredited investor” is an individual whose existing financial resources indicate that they will be able to sustain their investments over their expected lifespan. By the SEC’s definitions, such an individual must have an income of at least $200,000 over the previous two years. An individual can also meet this definition by holding at least $1 million in net worth.
As is common in long-term investment systems, Fundrise gives preference to accredited investors because of their ability to meet necessary financial obligations, both up front and over time. However, Fundrise does offer some opportunities for non-accredited individuals to invest in the private real estate market. This is often accomplished through a RIET, where non-accredited investors are more able to have their inherent risk mitigated trough crowdsourced capital.
So, by definition, Fundrise does not require accreditation in order to get through the figurative front door. This platform’s $500 initial investment requirement speaks to this same idea (given that it incentives individuals with fewer financial assets overall). However, accreditation will open up more flexibility for a given investor on Fundrise, making it a desirable title to hold when leaping into the private real estate investment market.
Fundrise Pros & Cons
As might be expected, one of Fundrise’s biggest advantages is its ability to empower prospective investors with little money or experience to try their hand in the private real estate investment market. Fundrise’s $500 minimum investment makes this clear from the get-go, given that most other platforms charge a whopping $5,000 for a ticket to ride. Fundrise’s immense digital knowledge base also makes it easy for an investing novice to learn about this unique investment class at their own expediated pace.
Also, Fundrise makes it fairly easy to differentiate your portfolio composition based upon your goals for income and risk acquisition. Those looking to make some money with side investments will be able to do so with a high dividend, low appreciation package while those looking to maximize their earnings over a 10, 20, or 25 year period can do so by opting for a high-appreciation package with a basis in equity.
Unfortunately, Fundrise’s overarching opacity when it comes to fee payments sticks out like a sore nose. While an investor with days’ worth of spare time can parse through every page of disclosure information, those who are looking to get up and running in short order will be alarmed at how often they are required to pay extra to satisfy Fundrise’s complex business structure.
Also, though some novice investors prize its simplicity, some veteran investors may see this platform’s use package-based REIT as a bit too limiting. To be specific, those packages don’t have a ton of wiggle room for specifying precisely what kind of real estate you prefer to invest in. Instead, those using Fundrise will need to settle for only having control of the geographic region in which their investment is applied.
Considerations before Using Fundrise
With all of the positives, negatives, and features taken into consideration, you may feel informed enough to commit to investing with Fundrise. But before you make that great leap forward, keep following considerations in mind in order to ensure a fully satisfying investment experience:
- You’re In It for the Long Haul – When Fundrise describes the private real estate investment as being a marathon, not a 500m dash, they’re precisely right. Once you put money on the table and commit to a certain type of investment, your financial resources connected to the investment will be tied up for the foreseeable future. While you can acquire share payouts on a quarterly basis, you may find this method to be financially imprudent due to the fees tacked onto such a transaction. So, before signing on the digital dotted line, be sure that you’ll have plenty of financially resources to support yourself and your other ventures during the course of your investment.
- Risk is Always Present – All forms of investment involve some degree of risk and the private real estate market is no different. Those who choose to seek this revenue stream should do so with the full knowledge that they may eventually lose the value of their principle investment if the markets turn against their favor. Because Fundrise (and other platforms in its mold) did not exist at the time of the last housing crisis, it is further unclear how these crowdsourced investment schemes would survive in a rapidly deteriorating market environment.
The Final Verdict
At the end of the day, Fundrise presents an interesting opportunity for investors looking to diversify their portfolio by mixing a bit of the previously-inaccessible private real estate market. Fundrise’s features make this experience efficient and stress-free, for the most part, especially when it comes to selecting a balance of dividends and appreciation components that’s right for you.
Fundrise’s opacity regarding its fee structure is a considerable drawback though, one that any prospective user should read into further before deciding to join this platform. But with this aside, Fundrise is certainly a productive investment platform that may open the doors to further income growth opportunities for an individual investor. Their introductory offers are among the best in the industry, so don’t miss out on them when you try out Fundrise for yourself.