Fundrise Review 2021 – Invest in Real Estate With Just $10
Fundrise is a real estate platform that was founded in 2021 and lets unaccredited investors start investing in commercial and large scale residential real estate. Fundrise recently lowered their minimum investment to $10, which means this platform is more accessible than ever. Overall, Fundrise makes it easy to start investing in real estate, but it’s highly illiquid and investors need to be aware of Fundrise fees to make a smart decision.
At a Glance
What we like
- Low minimum investment
- Open to all investors
- Access to diverse portfolios
- Passive investment
- Transparent platform
What Needs Work
- Highly illiquid
- Complicated fees
- Potential delays or suspended redemptions
- Passive investors
- Real estate investors
- Long-term investment
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. They’ve since lowered their minimum investment to $10, making real estate more accessible than ever.
Fundrise real estate investments have historically performed well, and their strategy was tested in 2020. They made temporary changes to how they handle redemptions and kept more cash on hand to weather a tumultuous year, and this strategy paid off, with positive returns for the year.
My Fundrise review is going to explain how Fundrise operates, what you’re investing in, minimum investment requirements, more about their 2020 investment strategy, if Fundrise is a good investment, and more.
Fundrise Review 2021 | Invest in Real Estate With Just $10
Fundrise is an online real estate investing platform that allows average people -- as in those who aren’t considered super-wealthy -- to start investing in commercial real estate. It was founded in 2012, with headquarters in Washington, D.C., and they’ve invested over $4 billion in real estate across the country since their launch.
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 a revamped starter portfolio and the Flagship fund.
While there are no performance guarantees, Fundrise has historically performed well. It hasn’t had a down year yet, and even in 2020, Fundrise portfolios were resilient to economic challenges. Below are Fundrises’s historic annualized returns:
- 2014: 12.25%
- 2015: 12.42%
- 2016: 8.76%
- 2017: 11.44%
- 2018: 9.11%
- 2019: 9.47%
In 2020, Fundrise made the decision to safeguard their cash reserves to avoid having to sell any assets. They ended the year with $265 million cash on hand (approximately 20% of their collective equity), and in their 2020 year-end letter to investors, Fundrise acknowledged that holding so much cash lowers returns in the short run and tends to disproportionately impact newer investors.
Fundrise published their 2020 net returns by age of account to emphasize their point and affirm the importance of having a long-term outlook. You can see that Fundrise investors still saw positive returns despite the effects of the pandemic:
You can now start investing in Fundrise for as little as $10. The Fundrise minimum investment was recently lowered because they’ve seen a number of young investors looking for alternatives to the stock market.
With $10 you can start investing in Fundrises’s Starter Portfolio, which previously required a $500 minimum investment. The Starter Portfolio includes dividend reinvestment and auto invest.
You’ll need to up your minimum investment to access other Fundrise Portfolios, which include:
All of the portfolios above Starter allow investors to create and manage their investment goals and invest via an IRA. You can customize your portfolio strategy and directly allocate to specific real estate funds with the Core portfolio and up. Investors using the Premium Portfolio have the added benefit of priority access to their investment team.
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.
How you earn returns on your Fundrise investment. You can earn returns in a couple of different ways:
- Dividends: Fundrise dividends are 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. Fundrise 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.
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:
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.
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 some Fundrise fees, which are common 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.
Fundrise review: Pros and Cons
- Low initial investment: A $10 minimum investment breaks down one of the barriers to investing in real estate.
- Open to all investors: You don’t need to be an accredited investor to invest in real estate through Fundirse.
- Access to a diverse portfolio: Fundrise keeps your goals in mind as they help you pick the right portfolio. You can go for quick gains or bigger, long-term ones.
- Passive way to invest in real estate: Real estate investing can take work (think rehabbing houses or managing rentals) but Fundrise is truly passive investing.
- Transparent process: Fundrise lets you know exactly what you’re investing in.
- Highly illiquid: You need to be willing to sit on your investments for 5 years to realize any real returns.
- Complicated fees: On the surface, Fundrise’s fees are 1% – 0.15% annual advisory fee plus 0.85% annual asset management fees – and those are fairly low. But the reality is that there are more fees that aren’t easy to see.
- Fundrise may delay or suspend redemptions: Fundrise had its model tested for the first time in March of 2020 as the economy began facing extreme uncertainty, and it suspended and delayed redemptions from March until July. But we’re yet to see what would happen if there was a major housing market crash.
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 is a $10 minimum 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.
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About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.