Fundrise pioneered crowdfunded real estate with the introduction of the first eREIT, short for electronic real estate trust, in 2015. This introduced average people to the world of commercial real estate investing for as little as $500.
Since Fundrise launched its first eREIT in 2015, they’ve expanded their offerings and become one of the most well-known crowdfunded real estate companies.
My Fundrise review is going to explain how Fundrise operates, what you’re investing in, minimum investment requirements, how you make money with Fundrise, if Fundrise is a good investment, and more.
Fundrise Review 2020 – Crowdfunded Real Estate Investing for All
What is Fundrise?
Fundrise is an online investing company that allows average people – as in those who aren’t considered super-wealthy – to get started in commercial real estate investing. That means you don’t have to be an accredited investor to invest with Fundrise.
Fundrise uses a crowdfunded approach to real estate investing that pools small amounts of money to fund large scale projects.
Fundrise mainly specializes in non-traded eREITs and eFunds (pooled money used to buy and develop land that’s sold to home buyers). Non-traded funds are not traded on a public exchange and highly illiquid, meaning there’s no guarantee that there will be buyers for investors who want to sell their shares.
On the upside, both eREITs and eFunds are inherently diverse because you’re investing in a collection of real estate investments, not just one real estate development at a time.
Fundrise has recently introduced some new types of investments that I’m excited to explain in more detail further down in my Fundrise review, including self-directed IRAs and the Fundrise iPO.
What are the minimum requirements to invest with Fundrise?
You can start investing with Fundrise for only $500. That amount will invest you in the Fundrise Starter Portfolio, which currently includes 50% West Coast eREIT and 50% Income eREIT II.
With a $1,000 investment, you will be upgraded to Fundrise’s Core Plan, which gives you access to three different portfolios:
- Supplemental Income: This focuses on earning dividends for a steady stream of income.
- Balanced Investing: This is earning income through dividends while additionally setting you up for long-term returns.
- Long-Term Growth: This is for the long-term investor, potentially offering the highest returns.
Fundrise also has an Advanced Plan for users investing at least $10,000. It includes the ability to allocate directly to most of Fundrise’s funds. The Premium Plan requires a $100,000 minimum investment, and investors can also access private funds and gain priority access to Fundrise’s investments team.
Each plan comes with Fundrise’s referral program, which waives advisory fees when you invite a friend to invest with Fundrise. I’m going to break down the fees a little further down in my Fundrise review.
How does Fundrise work?
Starting to invest with Fundrise is incredibly simple, and that’s part of the company’s model – they want to make real estate investing more accessible.
It only takes a few minutes to set up your Fundrise account. You’ll need to choose an account level, and depending on that level, select an investment plan (long-term, supplemental income, or balanced).
You will link your funding source – Fundrise uses ACH transactions from a linked bank account. Then Fundrise allocates your investment across your estate portfolio. You can add funds to your Fundrise account whenever you want, and there’s a $100 minimum additional investment.
How you earn returns on your Fundrise investment
You can earn returns in a couple of different ways:
- Dividends: This is your share of any income generated from the projects in your portfolio. These are quarterly cash payments that are distributed to your bank account or reinvested. Dividends fluctuate and are not guaranteed.
- Appreciation: Money earned when the value of your shares increases over time, through both equity and debt investments. Typically a more substantial portion of your returns, but it takes a longer time– Fundrise asks you to leave your investment for at least 5 years.
Fundrise investments are seen as highly illiquid because you need to be willing to sit on your investment for at least 5 years. There are redemption penalties if you request to redeem your shares early. Below is the discount structure for redemptions:
The 90-day introductory period for new accounts allows you to try out Fundrise and request redemption on your investments without paying any advisory fees or redemption penalties.
What you’re investing in
I mentioned earlier in my Fundrise review that they specialize in eREITs and eFunds, but I want to explain more about what those are.
Fundrise portfolios include a diverse mix of real estate projects including new apartment developments, commercial developments, apartment renovations, and single-family homes. Below shows you an idea of some Fundrise’s current projects:
How you’re invested in each project depends on your portfolio. For example, the Supplemental Portfolio includes investments in 35 different projects, including:
- New apartment development in Los Angeles
- Commercial development in Union City, CA
- Stabilized apartments in Springfield, MO
- Home construction in Washington, D.C.
- Commercial renovation in Pittsburg, PA
In the Fundrise app, you can see exactly what’s in your portfolio, including ratings, whether it’s debt or equity, and projected returns. The goal in providing you with all this information is to give you full transparency, so you can understand what you’re investing in as well as the potential risk.
Here’s an example of an active Fundrise investment in Georgia for an apartment renovation. You can see the key facts about the project:
And how the project is being funded– 24.7% or $24,350,000 coming via Fundrise.
More Fundrise investment options
Funrise has partnered with Millennium Trust Company to provide users with a self-directed IRA to add real estate to your IRA portfolio. Currently, IRA accounts are only able to invest in Fundrise’s eREIT products.
The Fundrise iPO lets investors buy an ownership stake in Fundrise itself. You’re purchasing shares of Fundrise’s parent company, Rise Companies Corp. The Fundrise iPO is different from an IPO – notice the little “i” in Fundrise’s iPO.
IPO, or initial public offering, is a new stock issuance. The Fundrise iPO stands for internet public offering. It’s a primary offering, meaning shares aren’t listed on a public exchange or publicly traded. You have to go directly to Fundrise to purchase shares of its iPO.
More to know about the Fundrise iPO:
- You need to make a minimum investment of $1,000.
- You’ll need a Core Account or higher.
- This investment needs to be funded with new money, not money from your Fundrise account balance.
- Maximum Fundrise iPO investment is limited to 50% of your real estate principal invested. For example, if you have $5,000 invested already in one of Fundrise’s portfolios, you can only invest $2,500 in the Fundrise iPO.
Understanding Fundrise’s fees
Fundrise says it’s able to reduce some of the costs of real estate investing because they’ve eliminated most intermediaries by bringing the process in-house. Getting rid of those middlemen lowers overhead costs, and Fundrise says they pass those savings on to their investors.
However, there are still fees associated with crowdfunded real estate investing, and some of them are difficult to see unless you’re willing to read through Fundrises’s circulars. Circulars are abbreviated prospectuses that explain a new securities offering – they are legal documents and required in many cases.
Here’s a breakdown of Fundrise’s fees:
- Annual advisory fee: 0.15%.
- Annual asset management fee: 0.85%.
- For IRA investing: Fundrise’s IRA custodian, Millennium Trust Company, charges an annual fee of $125.
- Organizational and offering costs: This is the cost of bringing the eREIT or eFund into existence, and Fundrise says these run 0% to 2% of the money raised by investors. These are reimbursed to the manager out of the eREIT or eFund in monthly installments that do not exceed 0.5% of the fund’s total proceeds.
- Potential development fees on eFunds: Up to 5% of total development costs, excluding land. There may also be a potential disposition fee when an eFund sells a property, which is 1.5% of the gross proceeds, after repayment of property-level debt.
These are common real estate fees and not unique to Fundrise.
Fundrise is crowdfunded real estate investing
Crowdfunding is raising capital from a large pool of investors to buy or fund a real estate project. Lots of people investing small amounts of money means large sums of money can be raised surprisingly fast.
Investors receive a distribution of earnings and their portion of appreciation once the property has been sold.
Real estate investments are considered securities, so they are regulated by the SEC (Securities and Exchange Commission).
Platforms like Fundrise gives companies access to capital that wouldn’t have existed without securities-based crowdfunding. And for investors, crowdfunding allows them to become shareholders in previously inaccessible investment.
Before 2012, real estate developers would use equity investments to fund their projects. In a way it’s like crowdfunding, but it was only open to banks, insurance companies, pension plans, and wealthy individual investors. And, the process of soliciting investments had to be done privately.
The JOBS (Jumpstart Our Business Startups) Act of 2012 opened the door for crowdfunded real estate platforms like Fundrise to solicit funds openly and even advertise their offerings. The JOBS Act specifically created an exemption that allows small and medium-sized companies to use crowdfunding to raise capital for their projects.
Fundrise review: Pros and Cons
Fundrise review final word: Is Fundrise a good investment?
Honestly, it’s really hard to say at this point because it depends on the investor. I’ve read Fundrise reviews from satisfied investors who have steadily earned 9% to 11% each year. That’s a solid return rate.
There are still many investors who are nervous about how Fundrise will handle a major economic downturn. In March of 2020 through July 1 of that year, Fundrise took action and suspended and delayed redemptions to protect its investments, but that meant you were unable to access your funds if you really needed them.
That brings up maybe one of the most important points: investing with Fundrise is a long-term strategy.
Fundrise works on multi-year projects and they need investors who are willing to stick with it for the duration. You need to be in a long-term mindset and understand that riding out those downturns is how you eventually recoup your investments and earn more.
With that in mind, Fundrise is an affordable way to add real estate to your portfolio.
No, because of the JOBS Act of 2012, Fundrise and other crowdfunded real estate platforms were able to offer options to non accredited investors.
Before 2012, an investor needed to meet these requirements: have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years, or have a net worth exceeding $1 million, not including their home.
Fundrise has a multi-step application and underwriting process that all investments must go through to be considered and approved that includes:
- Screening potential investments to make sure they are top-performing companies with a record of success. Fundrise claims that only a quarter of the companies that apply make it past this step.
- Companies must understand their project due diligence, which requires investors are paid back before the company realizes profits.
- Fundrise has a 350 data point analysis protocol during their underwriting process to ensure the projects they offer investors will be quality investments.
- Fundrise actually pre-funds the investment before their investors do. This means they are taking on the risk before you do.
There’s no guarantee that you will make money from any kind of investment. But Fundrise has historically performed well. Fundrise’s current annualized dividend yield is 3.66%, and here are Fundrise’s average annualized returns since 2014:
- 2014: 12.25%
- 2015: 12.42%
- 2016: 8.76%
- 2017: 11.44%
- 2018: 9.11%
- 2019: 9.47%
There is a minimum $500 investment to start with Fundrise, but how much you invest depends on your financial situation. Because your money will be tied up for a while, you want to consider having other more liquid investments before starting with Fundrise.
You must submit a redemption request to redeem your shares. Redemption requests are available under your account settings once you’re logged into the site.
Remember, Fundrise is a long-term investment, and you will be penalized for redeeming your shares before 5 years.