June 7, 2018

Fundrise Review: Is It Legit?

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Investing in real estate is reserved for the wealthy. But Fundrise is here to help put those thoughts to rest. They provide access to real estate investments with as little as a $500 investment. It sounds too good to be true. Isn't it only millionaires who can invest in real estate?

Fundrise set out to make waves in the real estate industry. Giving "average investors" access to private real estate investments, both residential and commercial, is something you just don't see every day. But investing in commercial real estate can be a lucrative way to expand your portfolio and potentially increase your earnings. Without large amounts of capital necessary, Fundrise has made it possible for many investors to take part in this investment method.

Over the last 30 years, real estate has performed better than the stock market, so Fundrise must be on to something. Keep reading to see if it's something you might want to consider.

How Does It Work?

Fundrise relies on crowdfunding. Combining the funds of individual investors, Fundrise can invest in a variety of commercial real estate properties. This may include apartment complexes, office buildings, industrial buildings, and shopping malls, as a few examples. The money you invest, even just one share, gives Fundrise the capital necessary to purchase more real estate.

Fundrise uses the funds invested to buy undervalued real estate. They then use their resources to renovate the property. Once complete, they either sell the property for a profit or rent it out for a longer investment. The profits made go back to Fundrise, which then distributes the profits to the shareholders.

Investors have four portfolio choices when investing with Fundrise. Each of the portfolios diversifies your funds differently, based on your goals. For example, the Starter Portfolio requires just a $500 initial investment and splits your portfolio between the Income eREIT and Growth eREIT. The Income eREIT invests in real estate debt (i.e., mortgages) and the Growth eREIT invests in appreciating commercial real estate.

The remaining 3 portfolios require a $1,000 minimum investment and distribute your funds amongst the Income, Growth, East Coast, West Coast, and Heartland eREITs. The East Coast, West Coast, and Heartland REITs are localized investments in certain areas of the country.

What is an eREIT? An eREIT is a real estate investment trust or a company that purchases, runs, or finances commercial real estate. The trust obtains the funds to do this from crowdfunding or opening up the investment to small investors. eREITs are not publicly traded, so they are less liquid than traditional real estate investment trusts.

What Are the Fees?

Unlike other investments with a discount broker or robo-advisor, the fees aren't as transparent with eREITs. Fundrise is transparent enough with their own fees. They charge 0.85% of your assets under management per year plus a 0.15% advisory fee per year. But there are often hidden fees within the specific eREITs that 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, though.

The good thing about Fundrise, or eREITs in general, is that there is no middleman, so you do save on broker fees in that aspect. When you invest in eREITs, you do so directly through Fundrise.

How Do You Sign Up?

Fundrise makes signing up for their platform simple. It takes approximately 10 minutes and very little personal information. You'll give Fundrise your name, address, phone number, and Social Security number.

From there, you'll receive investor disclosures, which you should take the time to read before you 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.

Reasons We Like Fundrise

  • You can invest in commercial real estate. 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.

  • You can start investing with as little as $500. Investing in real estate with just $500 would normally be laughable. It's possible with Fundrise, though. Their Starter platform requires just this small investment, allowing you to get your feet wet and see if you enjoy investing in real estate.

  • Fundrise has a 90-day money back guarantee. If you open a starter account, you do have a 90-day money back guarantee. If you decide you aren't comfortable with this investment vehicle, you can request your money back within the first 90 days and Fundrise will buy your investment from you for the amount you paid.

  • You can upgrade your account to an advanced plan for free. Technically it's not free, because you do have to invest a minimum of $1,000 before you can upgrade, but Fundrise doesn't charge a fee if you decide you like real estate investing and want more out of it.

  • You don't need a minimum net worth or annual income to invest with Fundrise. Typical commercial real estate investments require high net worth in the million-dollar range. With Fundrise, you don't have to disclose your net worth or annual income, making investing in commercial real estate possible for anyone with $500 to spare.

  • It gives you an alternative to the stock market. Investing in real estate gives you a little more diversification than standard stocks and bonds. Private eREITs aren't tied to the stock market, which means your real estate investments could perform well even if the stock market crashes.

  • You can choose your investments based on your goals, rather than property or investment type. You can choose between income, income & growth, or long-term growth as your goals.

  • You get broad diversification. Fundrise automatically diversifies each portfolio across a series of different types of real estate. You don't have to make any decisions—they do it for you.

  • You don't have to do any of the legwork involved in real estate investments. You don't have to manage the properties, finance them, or do any of the labor involved in real estate investing. You do get to reap the benefits of it, though.

  • You should receive distributions every quarter. 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.

Reasons You May Want to Look Elsewhere

  • The investment is rather illiquid. Real estate isn't an investment that you buy and sell in a day or even a few months. 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.

  • Crowdfunding real estate hasn't seen an economic downturn yet. There's no historical proof regarding what would happen in a housing crisis. If everyone tried to cash in their investments at once, who would get paid and who would be left out in the cold?

  • Your tax liability could be high. eREITs aren't treated as dividends in the eyes of the IRS, which means you'll pay your normal taxes on this investment, which could be high depending on your tax bracket.

How do you get paid? Fundrise pays investors dividends and appreciation of shares invested. Depending on your chosen portfolio, you might receive rental income, interest income, or appreciation. Investors typically receive distributions a few weeks after the end of a quarter. If assets are sold mid-quarter, though, you may receive random cash distributions.

How It Compares

Fundrise vs REIT (such as Vanguard REIT): There's one major difference between Fundrise's eREIT and a standard REIT—liquidity. A Vanguard 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 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 $5,000 investment. RealtyShares' main focus is on flipped houses and small business, whereas Fundrise focuses on a variety of commercial real estate investments that diversify your risk.

Bottom Line

Fundrise does provide you with a way to 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 that you'll be able to access it any time before that.

If you are sure you can tie your money up and you are going to start small, it could be an investment worth trying to see if diversifying into real estate really does make a difference.

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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