Is Fundrise Legit Read This Before Investing
Lets face it with eye-popping year-over-year gains in property values, lots of young people have serious real estate FOMO .
There are plenty of tools to invest in the financial markets with platforms like M1 Finance and SoFi Invest, but many just dont sleep well knowing how far out of reach real estate is moving each day.
If you want exposure to real estate but cannot plunk down a big down payment, you may have considered investing with Fundrise.
Theres good news you can be assured its definitely not a scam or a fraudulent scheme. The bigger question is whether their service fits your individual needs.
So, how can we be so certain Fundrise is legit and how can you determine if this is the best option available for your money in the real estate sector?
Stocks Bonds And Private Real Estate
When I was trying to decide whether or not I wanted to throw $5,000 into Fundrise , I wanted to see some historical backtests. I wasnt about to get suckered by some fancy UI and an interesting marketing angle without seeing some #facts, you know?
It turns out that between 2000 and 2021, portfolios that have approx. 20% real estate outperform portfolios that are entirely stocks and bonds.
Mini history interlude: Bonds used to get pretty damn good returns when interest rates were higher. An investor didnt have to take on much risk to get a 7% return because a bond yield was 7%. Not bad for fixed income, huh?
Investors would choose bonds for stable, predictable returns that carried lower risk than stocks.
Ive been growing increasingly skeptical of bonds as interest rates continue their eternal climb downward and have considered treating Fundrise as an alternative to bonds. Obviously, Im pretty far away Fundrise is only 1.2% of my total invested assets but depending on how the next year goes, I may start shifting more of my bond exposure into Fundrise.
The other reason this strategy makes sense to me is because my bond yield is taxed like earned income, too. In other words, Fundrise returns and bond yields are taxed the same way. By shifting money out of bonds and into Fundrise, Im not changing my tax liability, but Im improving my chances of higher overall returns that are uncorrelated to the stock market and may provide some cushion in down years later on.
Simple Signup Process Of Fundrise
If you pass all criteria mentioned in the previous paragraph, there is nothing that can stop you from signing up. The process is pretty straightforward: Just enter your name, email address and password, then click on the register button.
After registration you will need to fill out a short form about your investment goals as well as risk tolerance before finally getting one-time access code sent to your email address which will help verify account ownership.
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Historical Real Estate Performance Vs Traditional Market Performance
The chart below shows the returns of the real estate market versus the returns of the S& P 500 from the year 2000 to the year 2016.
As you can see, real estate performed far better than the S& P 500 did.
Even without the housing bubble burst and its comeback you can see better performance in the real estate market.
I would imagine the reason for this has to do with two facts.
First, the increase in market crashes over the last twenty years may have made investors feel more secure in owning brick and mortar properties as opposed to pieces of paper that claim ownership in companies.
Second, low mortgage interest rates may have spurred on investors eagerness to take advantage of how cheap it is to borrow money for real estate purchases.
The reasons for the solid returns in this type of investing in recent years are anyones guess, but the proof is in the numbers.
Real estate investments have been outperforming the market for the last several years almost two decades now.
Consider All Factors
This shouldnt be the sole factor you consider as you decide whether or not a real estate crowdfunding platform is for you.
However, historical returns are an important fact to weigh into the equation.
Also, market performance has had its own rally in the last couple of years, with the S& P 500 rising in value by over eight percent in just the first half of 2017 alone.
Your goal as an investor is to decide how you should diversify your investments between the different markets.
Fundrise Reviews: Can You Make Money With Fundrise
Yes, You can!
You can make money with Fundrise by rental income and receiving quarterly dividends. Another approach to earn returns is to sell properties that have appreciated in value over time.
Fundrise does charge a 1% management fee. The starting point is a $10 investment.
In 2019, the average return on Fundrise investments was 9.47 %. This assumes you reinvest your dividends in Fundrise. As is always the case, past performance does not guarantee future success. Its critical to never invest money that you cant afford to lose.
Its unknown how this type of investment will do in a financial crisis such as the 2008 market fall.
Now, dont get the wrong idea
Its not impossible to make money with Real Estate, but if youre gonna put in the amount of grueling work to do this business , you might as well bring in some REAL money while youre learning the ropes.
The program that helped skyrocket many online businesses to over $40,000+ per month is so simple that making money really does become second nature.
Fundrise Review: Who Can Use Fundrise
This platform was created for people like you who are interested in investing into commercial property without having to go through any red tape or wait around for years until their projects arrive first.
The reason why this company was founded is to provide one solution for investors and developers alike. While you are invited to join the platform, there are a few restrictions that you need to be aware of in order not to get banned or lose your accounts.
What Are The Fees At Fundrise
There is an all-inclusive 1 percent management fee for Fundrise, with .85 percent of that going toward operating costs and .15 percent going toward the annual advisory fee. Though, the advisory fee can be waived in certain circumstances.
This is a very reasonable price. Some of Fundrises potential costs, however, are not as transparent.
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Invest Through Your Ira
When you invest in real estate through a self-directed IRA, you need a third-party custodian to oversee your investments. This comes with an annual fee of $125. However, Fundrise waives the next years annual fee if you invest at least $3,000 of new money in the current calendar year. They also waive the fee permanently for accounts maintaining a balance over $25,000.
Fundrise Review Intro To The Company
Fundrise is one of the early successes in real estate crowdfunding. Originally, it was for accredited investors only, but a few years ago they began to allow unaccredited investors the opportunity to invest in commercial real estate. Thats when their growth absolutely exploded!
The minimum investment amount is $500 and they make it very similar to investing in a mutual fund.
Investors can expect a quarterly dividend payment from the Fundrise eREITs and whatever appreciation has accrued when the assets investment term has expired.
There are currently 9 different eREITs that they have, some of which are stabilized and no longer accepting new investors. When you invest, you can choose an investment strategy and Fundrise will distribute your investment across the eREITs to diversify the money. Well get more into that in a moment.
Disclaimer: When I first wrote this article it was because I invested in Fundrise and enjoyed my experience with it. After some time I came to love it so much that I am now an affiliate. If you click on one of the links and sign-up for Fundrise, I may be compensated a small referral fee at absolutely no cost to you.
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Plans Available At Fundrise
Before we unravel the four plans available at Fundrise, there are two key points of consideration that need to be made.
Firstly, Fundrise offers a Standard and Plus option on each of its plans. The Plus option will provide you with greater diversification, with more than 80 real estate projects active at any given time. The specific differences between the Standard and Plus options will vary depending on which investment plan you go with, so do bear this in mind.
Secondly, and as we will explain in more detail further down, some of the plans are blended with both eREITs and eFunds. In a nutshell, an eFund will see Fundrise use a percentage of investor funds to purchase land, develop properties on the land, and then sell the properties in the open marketplace. Although the returns on eFunds can be much higher than a conventional eREIT, the underlying risks are also greater.
This is because property development projects are much more susceptible to a downturn in the US economy. If the developer in question did run into financial difficulties before the project is completed, then Fundrise stands the very real chance of losing some, or all, or its investment into that particular venture.
Nevertheless, lets explore the four plans available at Fundrise.
Real Estate Crowdfunding For Non
Because most of us are not accredited investors with a net worth over $1,000,000 or income over $200,000 the U.S. government doesnt allow us to invest in the same opportunities as wealthier investors.
Fortunately, ever more real estate crowdfunding companies allow non-accredited investors to participate.
As for management fees, real estate crowdfunding platforms make all sorts of claims about them. But the simple truth is that they have endless ways to hide costs that line their own pockets if they want to, such as handling maintenance in-house and overcharging for it. Look at their net returns, past and projected, rather than fixating on promises of low or no fees.
Consider the following ways to invest in real estate without ever actually taking title.
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Fundrise Returns Vs Other Real Estate Investments
To recap, my four-year average return on my Fundrise investment was 13.3%, net of expenses.
I cant do a valid comparison among other real estate crowdfunding platforms since Im only invested with Fundrise.
But we can look at the Fundrise returns against those provided by real estate exchange-traded funds , which are widely available on market exchanges.
The Fundrise Platform And Features
Here’s a more detailed look at how the Fundrise platform works and some of its features.
When you log into your Fundrise account, you’ll see your dashboard with your:
- Summary of returns: Shows how much you’ve earned in dividends and appreciation, and how much was taken out in advisory fees.
- Growth graph.
- News feed announcing recently acquired or completed projects.
The example shown below is a Core long-term growth portfolio.
You can click into your “Portfolio” tab to see your investments in detail. This graph allows you to see your spread of projects at a glance. You can see where they lay on Fundrise’s risk scale, as well as percentage of debt and equity projects.
You can also see the complete list of your projects. In this portfolio, there are 80 active projects. You can click into each one to see more details such as the projected annual return, total size, location, timeline updates, and market analysis.
This portfolio has a mix of apartment buildings and commercial real estate. The investments consist of new construction, renovations, and stabilized apartments.
You’ll also get a full breakdown of your portfolio by each eREIT and their values.
In your “Performance” tab, you can see your personal returns information.
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How Does Fundrise Make Money
Fundrise makes money in multiple ways to earn profits. For instance, it charges 0.15% advisory fees from annual advisory options. Meanwhile, it also charges a 1% management fee for each investment.
The platform also has origination and early redemption fees. The key thing to note is that the percentages allow the platform to earn high. Besides that, the platform also earns money through sponsorships.
Fundrise Review 202: Pros Cons And How It Compares
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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
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Is Your Money Safe With Fundrise
Rise Companies is the organization responsible for managing Fundrise investments. There are some risks associated with the business model because the biggest revenue stream is not asset management but originating developer funding.
One day the market will take a downturn, and this could pose some risk for Rise Companies, including:
- Reduced access to investor capital
- Less capital demand from developers
- Increased redemption requests
Does this pose a problem for individual investors?
Its unlikely because this is a short-term issue and would not impact the REITs held by investors. Plus, as we can see from the balance sheets and the management experience inherent within Rise Companies, they have all the tools needed to navigate a market downturn.
Plus, if the worst-case scenario did occur, your REITs are separate from the rest of Rise Companies. Even if creditors went after Rise Companies, they wouldnt be able to touch investor holdings, except for the Fundrise IPO.
In other words, your money is extremely safe when you decide to invest in a Fundrise REIT.
Bottom Line: Is Fundrise Right For You
Fundrise is the one of the oldest and largest crowdfunding real estate companies in the U.S.
If youre interested in a fun and passive way to invest in private real estate, they can be a great option, regardless of how much money you have to invest. The Starter Portfolio only requires a $10 minimum investment, and theres no need to be an accredited investor.
Fundrise unlocks unprecedented access to commercial and residential real estate, and allows you to easily set your account to maximize short-term dividends, long-term growth, or a blend of both.
A key takeaway from my Fundrise review is that the company is amazingly transparent and proactive with their investors, and theyve consistently delivered solid historical returns with little volatility.
Between 2014 and 2021, Fundrise has performed extremely well, earning annual returns ranging from 7.4% 23.0% with low volatility. This has kept pace with a period of strong performance in the stock market.
If youre a sophisticated investor who wants to actively manage your investments and maximize long-term returns, then Fundrise may feel a little too passive for your taste.
Or, if youre a short-term investor who values liquidity , then Fundrise probably isnt a fit for you.
Otherwise, I think Fundrise is a fantastic place to earn strong, passive returns from private real estate investing. Personally, I have a solid chunk of my money invested with Fundrise.
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Fundrise Review: How Does It Work
There are two kinds of deals on the platform: Direct Deals and Marketplace Deals. In this Fundrise review, I will focus on the latter. The most significant difference between them is that with Direct Deals, you invest in completed real estate projects, while with Marketplace Deals you get access to developments before they have been built or renovated.
This means that you will be required both to lend money for their construction, and also pay for your share later on. It seems that getting involved in such an investment requires users to do work first they can earn returns later.
However, this is not necessarily the case. Since you will earn money through interest payments, there may be a delay before your investment pays off. In the end, it’s all up to you how much effort and time you want to put into your investments, since Fundrise gives two options with different kinds of return on investment.
It starts with an evaluation of possible projects by experienced development specialists. Next comes project selection when developers present their ideas and investors are given an opportunity to choose which ones they like most as well as pledge money for them.
When it comes to Marketplace Deals, pre-registration takes place when user deposits are collected from select buyers interested in specific projects. These are refunded when a project is fully funded, and credited to the account when it enters construction, thus allowing you own shares.
How To Invest In Fundrise
Your account level with Fundrise will be determined by the amount you have invested. There are five different levels of investment to choose from. As you invest more money with Fundrise, you’ll advance through the tiered level system. But you won’t have to pay more in fees as you move up this ladder.
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