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2019 Fundrise Investment Review: Is it legit? +Returns vs Realty Mogul

Jordan Beaumont
Financial Guru
Updated: 1/2019

Fundrise Investment ReviewHistorically, investing in private real estate has been exclusively the domain of wealthy investors. But with innovations in Fintech, startups like Fundrise have main direct investments in real estate an easier feat for small investors.

With a minimum investment of just $500, you too can diversify your portfolio by adding private real estate into the asset mix.

Private real estate has many advantages over traditional stock market investments. For one thing, private real estate funds have outperformed the public markets over the past few decades. In addition, private real estate offers low volatility returns, with low correlation to the stock market.

Table of Contents

How Does Fundrise Work?

Fundrise allows small investors to join in on private real estate investments via crowdfunding. Pool small amounts from scores of individual investors, Fundrise is able to invest in individual private real estate deals across all property types (office, multifamily, retail, industrial).

As is common with private real estate investing, Fundrise goes into deals with the objective of turning around/enhancing undervalued real estate property.

They either renovate/stabilize properties for a quick resale (flip), or improve the cash flow generation of a property in order to produce distributions for investors.

Turnaround situations can be riskier than other real estate investments. For more conservative investors, Fundrise offers opportunities to invest in property that have already been stabilized. These properties are operated as-is, and can generate cash flow for investors.

Types of Portfolios Offered by Fundrise

In order to provide diversification and to reduce risk, Fundrise offers small investors the opportunity to invest in several portfolios tailored to varied investor objectives.

Fundrise Investment Review

The Starter Portfolio

The starter portfolio consists of two separate sub-portfolios: Income eREIT and Growth eREIT.

Income eREIT invests in real estate loans (first mortgages, mezzanine debt, etc). This portfolio provides both low volatility and consistent cash flow generation.

Growth eREIT invests in properties with a high likelihood of appreciation. This is a riskier portfolio, but over a long time-frame can produce returns that outsize those of the Income eREIT.

Other Portfolios Offered

Fundrise also offers a second set of portfolios. These portfolios require a larger minimum investment ($1000), but can provide location-specific diversification. Investors can mix and match any of these five funds:

  • Income
  • Growth
  • East Coast
  • West Coast
  • Heartland

As implied by the fund names, the last three funds invest in deals specific to the region indicated.

Fees Charged by Fundrise

As an investment management platform, Fundrise does charge fees for its service. Unlike index funds, alternative investments such as private real estate typically have higher management fees to compensate for the complex nature of the investment.

Fundrise’s fees consist of an acquisition fee (2% of asset value at time of purchase), plus an annual management fee of 1%.

One plus of Fundrise’s fee structure is that there are no other brokers involved in the process. All fees due are only those charged by Fundrise.

How To Start Investing With Fundrise

To start investing with Fundrise, you must create an account. The account setup requires your name, phone number, residential address, as well as your social security number.

After providing this personal information, Fundrise will send you a prospectus that discloses all the details of your potential investment.

It is imperative you read and fully understand the terms and conditions of an investment via Fundrise. Alternative investments have certain caveats that traditional stock market investments typically do not have.

After you have read and acknowledged the investor disclosure, you are now ready to invest with Fundrise.

Your account can be funded either via wire transfer or by linking your checking account. There may a required waiting period of a few days for the transaction to clear and your funds available to invest.

Why Fundrise May Be A Great Investment Product For Your Portfolio

  • Fundrise can give your portfolio exposure to private commercial real estate. Historically, small investors have been unable to invest in private commercial real estate. With Fundrise, you can expose your portfolio to this valuable alternative asset
  • Fundrise requires a very low account minimum. With just $500, you can begin investing in commercial real estate deals. Try doing that with a traditional real estate fund.
  • Fundrise is a great way to get started investing in commercial real estate. The low minimum investment is a low-commitment way to determine if the asset class is right for you.
  • To put your fears at ease, Fundrise currently offers a 90-day money back guarantee for first-time investors with the platform.
  • You do not have to be an accredited investor. Unlike other crowd funders in the real estate space, you do not have to meet the criteria of a high net worth investor.
  • Private commercial real estate investments are an alternative to traditional stock market investments. Historically, they have offered lower volatility, and lower correlation to the public markets.
  • Fundrise’s portfolios are highly diversified, lowering your risk exposure with no required due diligence on your part.
  • Fundrise takes care of the details. Private real estate investing requires a lot of behind-the-scenes work. For busy professionals, there is simply not enough time to conduct the required due diligence, deal hunting, negotiation, and property revamp commercial real estate investment requires.
  • Fundrise provides quarterly distributions. Private real estate is an illiquid investment, but Fundrise offers its investors the opportunity to generate cash flow from their investments.
Fundrise Investment Review

Caveats to Consider Before Investing With Fundrise

  • Private real estate investments (such as those offered by Fundrise) are highly illiquid. It is difficult to buy or sell real estate within a few months, let alone a few days. Stock market investments provide a greater deal of liquidity. The trade off is that private commercial real estate can be a great long-term alternative to index funds and other stock market investments. If you are looking for long-term returns uncorrelated to the public markets, Fundrise’s portfolios may be a strong consideration for your portfolio.
  • Real estate crowdfunding has not yet seen a correction. Funds such as Fundrise did not develop until just a few years ago, when the commercial real estate market was bouncing back from the Great Recession. Because of this, real estate crowd funders have not yet seen a downturn, which has allowed them to post above-average track-records. It is important to note that past performance is not indicative of future results, and a recession may cause losses greater than anticipated for the real estate crowdfunding platforms.
  • Fundrise may not be a tax-efficient investment. Unlike index funds and other tax-efficient investment products, distributions from Fundrise’s eREITs will not be considered dividends like the ones seen from stock market investments. Some or all of your distributions may be taxed as regular income, which is taxed at higher rates than dividends.

How Does Fundrise Stack Up To The Competition?

There are several competitors to Fundrise, both in the realm of real estate crowdfunding, as well as in the public markets. Here is an inclusive but not exhaustive list of Fundrise’s competitors:

  • Peer Street
  • RealtyShares
  • Vanguard REIT

How Fundrise Performs Compared to Peer Street

PeerStreet is a similar investment product to Fundrise, with one key difference: PeerStreet is only available to accredited investors. Accredited investors, also known as high net worth investors, are those who have a high enough portfolio value and/or income to be considered sophisticated enough for alternative investments.

PeerStreet makes up for this requirement by offering distributions bi-monthly, as opposed to the quarterly distributions offered by Fundrise. For investors seeking cash flow generation from their portfolio, and meet the accredited investor requirements, PeerStreet may be a more attractive option.

How Fundrise Compares Against RealtyShares

RealtyShares is another major crowd funder in the private commercial real estate space. RealtyShares requires a higher account minimum of $10,000. Unlike Fundrise, which offers highly diversified portfolios across all major property types and geographic regions, RealtyShares specializes in acquiring and turning out residential properties.

Fundrise Versus Vanguard REIT: Alternative Real Estate Versus a REIT Index Fund

When considering alternative stock market investments (such as hedge funds), accredited investors like to compare the fund’s performance to that of the S&P 500 (the market’s typical barometer for stock market performance). The rationale is that a fund should in theory provide risk-adjusted returns that outpace the broad market, in order to justify the higher management fees alternative investments require.

To do the same comparison for private commercial real estate investments, it is key to compare their results to that of the Vanguard REIT index fund.

Vanguard is the industry leader in passive investing. While it has been common knowledge that most fund managers fail to beat the market, Vanguard took that finding and said “if you can’t beat them, join them”. Creating funds that mimic the broad stock market returns via high diversification and passive investing, Vanguard’s index funds have become a fast growing investment vehicle for individual investors.

Vanguard’s REIT fund essentially tracks the performance of REITS, or real estate investment trusts (publicly-traded owners of commercial real estate).

The key advantage of Vanguard’s REIT fund is not the performance, but the liquidity. While Fundrise’s funds are highly illiquid and require a long time horizon, Vanguard’s REIT exchange-traded fund can be bought and sold at any time, making it a more flexible option for small investors.

The downside is that REIT performance is not highly correlated with private commercial real estate investments. Historically, REITS have shown closer correlation to the stock market at-large (such as the S&P 500), and have been more volatile than private commercial real estate investments.

Fundrise Investment Review

Bottom Line: Is Fundrise Right For Your Portfolio?

If you are a small individual investor looking to take advantage of the many opportunities presented by private commercial real estate, Fundrise is a great option to get your feet wet in this space.

With a low account minimum, you can risk as little as $500 and see if private commercial real estate investments are right for your portfolio.

The key caveat of Fundrise is the liquidity of the investment. Are you looking at a long-time frame (5 or more years), or will you require liquidity within a few years or less? Before committing your money to private real estate, consider if you are willing to trade liquidity for the potential for low volatility returns that have historically shown low correlation to the public markets.

It is also important to take into account that real estate crowd funding has come of age during a bull market in commercial real estate. We have not yet seen how these platforms perform in weak market conditions.

Putting it all together, depending on your personal investing objectives and risk tolerance, Fundrise may be a strong choice for making an small initial investment in private commercial real estate.

FAQ

Basic Facts About Fundrise

Before making an investment in Fundrise, however, a first time investor needs to be aware of certain facts about this relatively new concept. The most commonly asked questions about Fundrise are as follows:

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What is Fundrise?

Fundrise is a crowdfunding platform that encourages small investors to make investments in the real estate sector by way of equity ownership purchase in commercial real estate.

It works with a view to enhancing real estate that’s undervalued; renovating/stabilizing properties for flipping; or in improving cash flow generation of properties to earn profits for its investors.

Where is Fundrise located in Washington, DC?

1601 Connecticut Avenue Northwest, 3rd Floor, Zip Code – 20009

How to contact Fundrise?

Visit their website at https://fundrise.com/about or visit them personally at the above mentioned address. Since Fundrise attracts most of its investments online, it’s more viable to visit their website and take your investments further.

Is Fundrise accredited?

No. In fact, no investor needs to be accredited to indulge in investing in real estate through Fundrise.

Is Fundrise legit?

Yes, it is. Over the last 6 years, there have been no negative reports about any illegal activities or serious customer complaints about the company so far.

Is Fundrise a good investment?

Yes, it’s good if you are a small investor. With a minimum investment of $500, you could diversify your portfolio, provided you’re thinking long-term and have ample risk tolerance.

Is Fundrise a safe investment?

Yes, but there are certain drawbacks like cost burdens and high fee loads; management and origination fees; special servicing fees for non-performing assets; disposition expenses as also liquidation fees for redeeming shares.

Is Fundrise worth it?

For a small investor, looking at 8-10% annual ROI, Fundrise is worth it because it exposes their portfolio to the real estate sector; comes with a 90-day money back guarantee for first-time investors and has a highly diversified portfolio.

Is Fundrise a scam?

No, it isn’t because since its inception in 2012, no negative reports have been found. There are no serious customer complaints or government enquiries so far either.

How does Fundrise work?

Fundrise accepts your investment in an electronic real estate fund (eREIT). It invests that money in multiple investment channels ranging from equity to loans and in real estate to earn profits, distributed as dividends to shareholders.

Should I invest in Fundrise?

Yes, you can with as little as $500 and your income is fully passive. However, your average earnings that range between 6 to 8% are subject to 3% of fees payable.

Can Fundrise give you financial freedom?

To a degree, yes. You get quarterly dividends, depending on the company’s performance and also a share of the company’s rental income. You could also sell your Fundrise shares at a premium.

Can you make money on Fundrise?

Yes, you can, provided you have a long-term outlook and are prepared to hold on for five years at least and want an alternative to stock and bond trading.

How much can you make on Fundrise?

It all depends on how much Fundrise actually makes. Every profitable transaction and rental income of the company gets you a dividend. Selling off shares at a premium also helps you earn. 

How much a month I can make with Fundrise?

According to published figures, roughly about 0.6% per month or 8% annually on average. This again can go up or diminish depending on the company’s performance. 

How much to expect from investing in Fundrise?

According to the company’s historical performance, about 8 to 10 percent annually. However, prevailing conditions in the real estate sector will determine your final annual earnings.

What is Fundrise 2.0

The Fundrise 2.0 is a real estate focused Robo-Advisor that provides investing tools to match customized investor needs and is the first of its kind in real estate investments.

Is Fundrise a REIT?

Yes, it is. Fundrise allows the average investor to access returns on real estate, which they otherwise can’t through a conventional REIT or on their own.

When is Fundrise going public?

Fundrise has already gone public in February of 2017. It’s initial offering was subscribed well and showed ample investor trust in the organization. 

When will Fundrise be open to the public?

In August 2018, Fundrise offered 10,000,000 shares of Class B Common Stock and settled about 4,474,379 shares of Class B stock.

Is Fundrise IPO a good investment?

Yes, provided you are looking at a 5 to 10-year period. However, it’s prudent to keep about 10% of your investable assets in it because the concept is relatively new.

Investing & Divesting in Fundrise: Methods & Options Available

Since Fundrise is an online platform, investing in it is easy. All you need is to open an account, study the prospectus that’s sent to you and take a call about making an investment. Earnings too can be redeemed anytime and all funds inclusive of payouts and dividends get credited to your bank account. The following are the FAQs on how to invest in Fundrise:    

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How to get started with Fundrise?

Create an online account first by submitting your name, residential address, phone number and social security number. Then study the detailed prospectus on available investment options and invest through your bank account or wire transfer.

How can you fund a Fundrise account?

You can link your bank account or make a manual entry of your account and routing numbers. ACH transfers are mandatory for transactions under $25,000. Investments above $25,000 are doable through wire transfer.

Why doesn't Fundrise give account numbers?

Your bank account info is your identity and the bank routing number at the time of purchasing shares is, therefore, compulsory.

Can Fundrise take automatic deposits?

No, it can’t unless you specifically instruct your bank to make investments on your behalf in Fundrise. In addition, you can add a minimum of  $100 on your own.   

Can international investors invest in Fundrise?

No, Fundrise is available only to US residents. However, US-based entities like LLCs, LPs, and trusts with a US tax ID number can invest.

What is a Fundrise stock ticker?

The Fundrise stock ticker is a digital information service available on its website that keeps you posted on its current stock prices.

Which Fundrise investment plan is right for you?

This depends totally on your investment and risk bearing capacity. However, long-term plans are most suitable to get the best returns.    

Which Fundrise plan is best?

The plan that offers maximum diversification while also reducing risk is the best. You can opt for any of the 4 plans that Fundrise offers based on your investment objectives.

How to determine your performance for Fundrise?

You can communicate directly with Fundrise to know your investment’s performance through regular updates and reporting as also tax filing delivery.

How much does Fundrise earn?

As per published figures, Fundrise revenues rose to US $30 million in 2017 with 11.44% return on an average. The monthly payout has been to the tune of 0.95%.

How is Fundrise income paid out?

You get quarterly dividends; payouts on earned rental income; overall appreciation in asset value on the completion of the asset’s term of investment; and by selling off Fundrise shares at a premium.

How long does it take for Fundrise investment to settle?

It depends on the plan that the investor selects but the investment is generally illiquid and long-term in nature. It’s also dependent on the investor’s overall portfolio allocation and prevailing market conditions.

Does Facebook use stripe transfer for Fundrising?

No, it doesn’t. Even though stripe transfer is a secure method, only bank account linking and wire transfers are accepted. 

Why does Fundrise take out multiple withdrawals?

Several redemption plans allow shareholders to redeem on a quarterly basis, subject to certain limitations on the full amount in one calendar quarter. However, inadequate available redemption funds make way for redemption on a pro rata basis.

What is in the Fundrise Starter portfolio?

The Fundrise Starter Portfolio needs an initial investment of just $500 and subsequently splits it between Income and Growth eREITs.

Can I fund my Fundrise account with a credit card?

No, you can’t. Only bank account linking and wire transfers are accepted. For transactions under $25,000, ACH transfers are mandatory. Investments above $25,000 need to be wire transferred.

How easy is it to add money to Fundrise?

You can add funds by clicking the “Add Funds” icon on your investor dashboard and add at least $100. You need to invest an additional $1,000 to upgrade to an advanced plan.

Can you invest in Fundrise each paycheck?

Yes, if you leave specific instructions with your bank to make investments or manually do it yourself from your account dashboard.

How to auto invest with Fundrise?

Enable the auto-invest feature in your account setting. You can also avail the Fundrise “DRIP” or Dividend Reinvestment Program to automatically reinvest all earned dividends back into your plan.

How to evaluate investments on Fundrise?

You can evaluate your investments from annual audited financial statements on Form 1-K filed with the SEC; and from regular reports and updates on your investment’s status from Fundrise.

How to divest from Fundrise?

Shares are redeemable by clicking on the Redeem Shares icon in your Account Settings and filling out the Redemption Request Form and submitting it online.

How do you get your principal back on Fundrise?

You get your principal back after a minimum 60-day waiting period after submitting your redemption request. However, the redemption value may attract a liquidity penalty of up to 3%.

When can you pull out money from Fundrise?

For first time investors, withdrawal is possible within 90 days through the Fundrise money back guarantee. For others, a 60-day waiting period follows after submission of the redemption request.

How to withdraw money from Fundrise?

You can withdraw money monthly, following the compulsory 60-day waiting period after you submit the redemption request. First time investors can withdraw within the first 90 days. 

How do I sell my Fundrise investment?

Go to your account settings and click on the Redeem Shares icon there. Fill out the Redemption Request Form and submit it online. Monthly withdrawal can be done thereafter.

How to liquidate Fundrise?

Each eDirect Fundrise investment has its own redemption plan on a monthly basis, after a waiting period of 60 days following submission of the redemption request online.

How do I sell my stake in Fundrise?

You sell off your stake by redeeming your shares online after a mandatory 60-day waiting period. Just fill in the online redemption request form and click on submit.

Do you pay taxes on Fundrise withdrawls?

Yes, because Fundrise withdrawals are taxed as regular income and often its dividends are taxed at a higher rate than stock dividends. 

How to delete a transaction on Fundrise?

Go to your account settings and click on the Delete Transaction button. A notification confirming the deletion will be sent to you.

How long does it take to get upgraded on Fundrise?

As soon as you make an additional investment of $1,000, you can upgrade to another plan. It’s almost instantaneous as the whole process is online.

Do I have to submit Schedule K to Fundrise?

Yes. eFund investors receive a K-1, K-1 information, or substitute K-1, reflecting their annual share of the fund’s taxable income or losses.

Jordan Beaumont

Jordan Beaumont

Financial Guru

Jordan's work focuses on helping people reach their financial goals so they can spend more time with family and friends and less time worrying about their budget. After finishing college with a degree in Accounting and Communication, he realized that these are the most important things in life and that people shouldn’t miss out because of money.

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