June 7, 2018

Fundrise Review: Is It Legit?

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Make passive income by investing in real estate. Fundrise lets you invest with as little as $500. So what's the catch? Read on for the pros and cons.

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Fundrise allows anyone to invest in the commercial real estate industry with just $500. That means even the "average investor" can take part.

Commercial real estate investing can be a lucrative way to expand your portfolio and potentially increase your earnings. Over the last 30 years, real estate has performed better on average than the stock market.

So Fundrise must be on to something.

Keep reading to see if it's something you should consider.

What is Fundrise?

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Fundrise is a crowdfunding platform for commercial real estate. Individual investors with as little as $500 pool funds with other investors.

The money you invest, even just one share, gives Fundrise the capital necessary to purchase more real estate. These may include apartment complexes, office buildings, industrial buildings, and shopping malls.

Fundrise's main products are eREITs (electronic Real Estate Investment Trusts).

What is an eREIT? A REIT is a real estate investment trust or a company that acquires, manages, and disposes properties.

The trust obtains the funds to do this from crowdfunding or opening up the investment to small investors. Fundrise's eREITs are not publicly traded, so they are less liquid than traditional REITS.

The platform earns returns in a variety of ways:

  • Buying undervalued real estate, and then renovating the property to raise the rents or property value.

  • Collecting rental income on stabilized properties.

  • Holding mortgages and collecting interest.

  • Acquiring properties that have potential to appreciate in value.

The profits are then distributed to the shareholders. For more details, check out the Fundrise website.

Who is eligible to invest with Fundrise? To invest with Fundrise, you need to be:
  • Over the age of 18
  • A resident of the United States

You'll also have to invest a minimum of $500

How Fundrise Works

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Here is how to get started:

  • Pick a plan. First, you'll choose a portfolio (Starter, Core, or Advanced). The Starter plan only requires $500. Read more about the plans below.

  • Sign up. Signing up takes 10 minutes and requires some personal information. You'll give Fundrise your name, address, phone number, Social Security number.

  • Fund your account. Once you are ready, you can link a checking account to your Fundrise account or set up a wire transfer.

    It may take several days for your account to fund and for you to be able to start investing.

  • Earn returns. Investors are paid out in 2 ways:

    1. Quarterly dividends (rental income generated from the properties). You'll typically receive dividend distributions a few weeks after the end of each quarter.

    2. Appreciation in value of your shares. You'll receive proceeds when the property is sold. Appreciation is only paid at the end of the investment.

How is Fundrise taxed? Your earnings on Fundrise are taxed as ordinary income.

What Are the Fees?

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Fundrise charges an all-in 1% management fee as follows:

  • 0.85% annual asset management fee (that goes towards operating costs of the projects)
  • 0.15% annual investment advisory fee (can be waived in certain circumstances)

There are other potential costs that are not very transparent. Fundrise charges a 0-2% acquisition fee when they buy a new asset. And there may be hidden fees within the specific eREITs you choose.

You may not realize the depth of the fees unless you sit down and read the few hundred page circular that comes with each investment.

The good thing about Fundrise, and eREITs in general, is that there is no middleman. That means you save on broker fees.

When you invest in eREITs, you do so directly through Fundrise.

Portfolio Options

Investors have several choices when investing with Fundrise. Each portfolios diversifies your funds differently, based on your goals.

  • Starter Portfolio ($500 minimum). You get a diversified portfolio of 5-10 real estate projects throughout the U.S. This plan has a 90-day money back guarantee.

  • Core Plans ($1,000 minimum). With $1,000, you can upgrade for free to any one of the 3 Core plans. You'll get greater diversification across 40+ projects.

    Pick the one that best fits your financial goals.

    • Supplemental Income: This plan focuses more on properties that generate cash flow (collecting rent or interest). You will receive more dividends.

    • Balanced Investing: This plan invests in a nice mix of income and growth properties. You receive returns through both dividends and appreciation.

    • Long-Term Growth: This plan focuses on properties expected to appreciate in value. You'll receive less dividends now, but the potential returns could be the highest in the long term.

  • Advanced Plan ($10,000 minimum). This highest tier plan offers diversification across 80+ projects and a more sophisticated strategy for potentially higher returns.

Reasons We Like Fundrise

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  • Invest in real estate with just $500. Commercial real estate is usually out of reach for individual investors.

    Thanks to Fundrise's crowdfunding, though, you can take advantage of the growth and dividend potential this investment has to offer.

  • 90-day money back guarantee. You have a trial period to test out a Starter account.

    If you decide you aren't comfortable with this investment vehicle, request your money back within the first 90 days.

    Fundrise will buy your investment from you for the amount you paid.

  • Upgrade to an advanced plan for free. You'll need to invest a minimum of $1,000 before you can upgrade to one of the Core plans. But there is no fee to upgrade.

  • No net worth or annual income requirement. Many real estate crowdfunding platforms require their investors have a net worth of over a million dollars or make more than $200,000 per year.

    With Fundrise, you don't have to disclose your net worth or annual income. This makes investing in commercial real estate possible for anyone with $500 to spare.

  • Alternative to the stock market. Investing in real estate give you a little more diversification on top of stocks and bonds.

    While real estate and stock markets are correlated, diversifying into real estate means you can protect yourself from the direct impacts of a stock market crash.

  • Broad diversification. Fundrise automatically diversifies each portfolio across a series of different types of real estate. You don't have to pick specific properties to invest in—they do it for you.

  • It's passive. You don't have to manage the properties, finance them, or do any of the labor involved in real estate investing.

  • Receive distributions. It's Fundrise's plan to pay distributions on a quarterly basis, which can help with the illiquidity of real estate investments.

    Because they can't predict how the portfolios will react, though, there isn't a 100% guarantee you'll see payments every quarter.

  • Available as IRA. For tax-efficient retirement savings, you can open a self-directed IRA account through Millennium Trust Company and invest in Fundrise's eREIT offerings.

Reasons You May Want to Look Elsewhere

  • Limited liquidity. Fundrise's eREITs are not publicly traded (unlike traditional REITS). This means that there is no secondary market to easily sell your investment.

    Fundrise targets investors who are in it for the long-term, at least five years. While they have a redemption plan, it's complicated and has limitations.

  • Unknown future. These crowdfunding platforms claim that they have a track record of generating impressive returns.

    But they have not demonstrated how resilient their investments will be during a downturn.

  • Tax liability could be high. eREITs aren't treated as dividends in the eyes of the IRS.

    You'll need to pay your regular income taxes on this investment, which could be high depending on your tax bracket.

Does Fundrise have an app? Note that Fundrise does not have a mobile app. It is a web application only.

Fundrise Returns and Performance

Fundrise disclosed its performance for the past 5 years. See screenshot below.

The average annualized returns is as follows. This means that the returns are presented after fees have been subtracted.


Of course, these results don't mean that future returns will go the same way.

Is Fundrise Safe?

As with any investment, there is the risk of losing value. So even though Fundrise has done well since its establishment, there is no guarantee it'll continue to do so.

Fundrise's portfolios are made up of qualified offerings regulated by the Securities and Exchange Commission (SEC). They must follow strict reporting requirements. So you get the same sense of transparency as required for public companies.

Fundrise uses bank-level security to keep your personal information safe. It uses measures such as 2-factor authentication, AES bit symmetric key encryption, and Transport Layer Security (TLS).

How It Compares

Fundrise vs Traditional REIT (such as Vanguard REIT): There's one major difference between Fundrise's eREIT and a standard REIT—liquidity.

A traditional REIT is traded on the public market, which means you can sell at any time that the stock market is open.

An eREIT is not traded on the public market and requires a long-term investment because it's illiquid.

Fundrise vs PeerStreet: Fundrise is a platform for the average investor with a small amount of money to invest.

PeerStreet is for the high net worth investor with a lot of money to invest. Fundrise doesn't require you to be an "accredited investor," whereas PeerStreet does.

As a tradeoff, PeerStreet offers bi-monthly distributions, whereas Fundrise offers only quarterly distributions.

Fundrise vs RealtyShares: If you are just starting out, RealtyShares may be out of your league as they require a minimum $10,000 investment.

RealtyShares' main focus is on flipped houses and small business, whereas Fundrise provides investment opportunities with more diverse levels of risk.

Fundrise vs RealtyMogul: RealtyMogul's platform has opportunities for both accredited and average investors.

If you're non-accredited, you can invest in their REITs with a minimum of $1,000. For the accredited investors, you can invest in Realty Mogul LLC shares, or real estate loans or debt.

Bottom Line

Fundrise lets you invest in real estate without taking a large risk or putting a huge burden on yourself. Because it's a long-term investment, though, you should give this investment careful thought.

Can you tie up your money for the next five years? There's no guarantee you'll be able to access it any time before that.

If you're willing to tie up your money up and start small, Fundrise diversifying into real estate through Fundrise might be worth the investment.

Disclaimer: The information contained herein neither constitutes an offer for nor a solicitation of interest in any securities offering; however, if an indication of interest is provided, it may be withdrawn or revoked, without obligation or commitment of any kind prior to being accepted following the qualification or effectiveness of the applicable offering document, and any offer, solicitation or sale of any securities will be made only by means of an offering circular, private placement memorandum, or prospectus. No money or other consideration is hereby being solicited, and will not be accepted without such potential investor having been provided the applicable offering document. Joining the Fundrise Platform neither constitutes an indication of interest in any offering nor involves any obligation or commitment of any kind.

The publicly filed offering circulars of the issuers sponsored by Rise Companies Corp., not all of which may be currently qualified by the Securities and Exchange Commission, may be found at www.fundrise.com/oc.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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