Welcome to a Fundrise review in the time of COVID-19. Pre-Covid, investors saw Fundrise as a way to diversify personal investments. But what about now? We wanted to consider Fundrise real estate despite the coronavirus and its related economic challenges. Not to mention we haven’t left the house since March, when the lockdown in San Diego started. So, we have a little extra time on our hands for research. Not the typical San Diego summer to say the least.
We scoured their site and reached out to their support team with questions. Most importantly, we invested $10K of our own money after all the research we did to feel confident about that.
In our Fundrise review I take you though the world of Fundrise real estate crowdfunding and share our own experience with the investment platform. I’ll also talk a bit about how this company is managing expectations in the wake of Covid-19.
Full Fundrise Review
What is Fundrise?
Fundrise is an online real estate platform that leverages crowdfunding to allow investors to participate for as little as $500.
Fundrise has over 130k active investors and over $4.9 billion in assets since launching in 2012. Any U.S. resident over 18 can invest with Fundrise. You don’t need to be an accredited investor to participate. As a result, it’s accessible to a wide range of investors.
The cool thing about Fundrise is that it offers a path to commercial real estate for smaller investors. In other words, it allows investors to diversify their portfolio with institutional grade real estate that would otherwise be out of reach.
Without the need for huge upfront capital to make a purchase, Fundrise makes investing in commercial projects possible for virtually anyone. We invest our own money in Fundrise and will probably add more to our portfolio when we can.
Fundrise Review: Pros
- low minimum investment
- virtually anyone may invest (U.S., 18+, no accreditation needed)
- user friendly website and apps
- IRA accounts available
- small investor can get into commercial real estate
- way to diversify personal portfolio with alternative investments across various real estate projects
Fundrise Review: Cons
- redemption limits
- fees can be confusing and require investors due diligence (no broker means less fees but more due diligence for the investors. For instance, asset management and advisory fees are stated on the website but Fundrise offering circulars note additional costs that are not immediately clear to see.
- tax consequences – taxed as income
- Website: https://fundrise.com/
- Launched in 2012
- Investment Types: Real Estate
- Sector/Class: Finance, FinTech, Real Estate, Real Estate Investment
- Minimum Investment: $500
- Open to all investors (non accredited)
- Advertised returns 8 – 12%, 2019 historical return 9.47%
- Customer support options: email support
- Regions Served: U.S.
Who Should Invest with Fundrise?
Ease of use and low barriers to entry make Fundrise an attractive investment opportunity for various investment goals and investors.
Check out the questions below. If you answer yes to them, Fundrise may be right up your alley. Do you want to:
- diversify your investment portfolio with a non-stock market option?
- get into commercial real estate without the typical large upfront purchase payment required for a project of that size?
- be ready for a 5 year investment timeline, at minimum?
- want to get into real estate and outsource the due diligence of identifying, acquiring and managing properties?
- want a passive income investment option?
How Does Fundrise Work?
When you invest with Fundrise, you buy shares in eREITs (Fundrise’s version of Real Estate Investment Trusts) or eFunds, through the purchase of a Fundrise Investment plan. eREITs and eFunds are limited liability companies that hold the real estate projects in your Fundrise portfolio.
Investors receive common stock in these special purpose entities which gives them ownership and dividends where applicable.
Real estate projects are identified, acquired and managed by Fundrise. Investors do not have a vote or a say in the projects and can not choose individual projects to invest in. However, you will be able to view the details of each of the projects in your portfolio and check out regular updates.
How Do Investors Make Money with Fundrise?
Investors make money with quarterly dividends and appreciation of investment share value. Dividends are paid at the end of the quarter and investors see higher dividends if/when underlying properties are sold.
You can have your dividends reinvested through an account setting in the app if you prefer. The asset value is recalculated every 1-2 quarters.
Fundrise Historical Returns
The average annualized return for Fundrise for 2019 was 9.47%
The Fundrise site explains in detail that 9.47% is the net overall return but most investors got a little more or a little less. According to the company “on average, the historical rate of return for Fundrise investments has generally started out lower and increased over time.”
In short, it’s probably wise to set your expectations: anticipate lower returns than the platform average for the first 1 or 2 years and plan for the potential to see higher returns in the future.
What are eREITs and eFunds?
Fundrise has two main products; eREITS and eFUNDS.
Real estate investment trusts (REITS) invest in income producing real estate. Fundrise’s eREITS are are not publicly traded like standard REITS. Therefore, there are no middlemen which means less cost for you BUT you can’t sell your shares whenever you want. Pro and con all in one.
eFunds are crowdfunding money used to buy land, develop housing and sell to home buyers. This option is available to investors in the advanced account level (i.e. $10k+ investors).
eREITS and eFunds: Specific Strategies
eREITS and eFunds create value for investors in different ways. Here is how they work.
Growth eREITS are focused on equity. For these, Fundrise aims to acquire commercial real estate assets with appreciation potential.
Specifically, they target multi-family assets of institutional quality that are on the smaller side as far as institutional size goes. Here are there guiding “principles”:
- Workforce Housing: Aquire existing affordably priced apartments. Affordably priced apartments face little competition from newly built construction. Since these assets are in limited supply and there is a growing need for them, Fundrise expects the value to increase over time.
- Low Cost Basis: Low Cost Basis: Aquire properties below the price of what it would cost someone else to build a similar property in the same location today.
- Long Term Fixed Financing: Secure the best long-term fixed rates today (which are at a historical low) to maximize consistent cash flow and reduce volatility over the life of term.
Income eREITS focus on debt investments in commercial real estate that generate cash flow. Fundrise identifies institutional quality assets in urban markets that are smaller than the average institutional size. The selection of these assets also follow 3 principles:
- Small Assets: Aquire assets that are overlooked by big banks and investment funds due to a smaller size.
- Regulatory Inefficiencies: Explore new opportunities for flexible lenders that exist due to the 2008 financial crises and resulting banking regulations.
- Urban Infill Location: Aquire real estate assets in the core of large cities where there is higher demand, higher pricing, and less supply.
eFunds focus on appreciation. They invest in residential real estate. This includes condos, townhomes and single family homes, primarily in urban areas with a high potential for growth. The idea here is to focus on the huge demand for reasonably priced housing by focusing on two types of projects:
- Long-term “rental to sale” assets: Aquire homes that need minor renovation or updates. Rent the home for 7-10 years and then sell it, to capture long term price appreciation while realizing consistent cash flow.
- Renovations: Aquire “flips” to earn a substantial profit.
Note eFunds are currently available at the Advanced account level.
How to Get Started with Fundrise
The process is super quick. However I’m not including the time you should spend reading the fine print and offering circulars. Once you get through that part, signing up for Fundrise isa breeze. First, Click on this link to get started (note: affiliate link), enter your email and you are on your way. You will be presented with the option to choose between Starter, Core or Advanced.
Once you choose the correct account for you, you will only have a few steps to follow which include providing your information, funding details and signing their agreement and terms. The whole process can be completed in a matter of minutes.
What’s the Minimum Investment for Fundrise?
Choose an account level. You’ve got four choices:
- Starter: With a $500 minimum, it’s not surprising this is the most popular with beginners. Invest $500 – $1000 and get a portfolio diversified across 5 – 10 projects.
- Core: Invest $1000 – $10,000 and get more diversification across 40+ projects.
- Advanced: Invest $10k or more and you are diversified across 80 or more projects. This offer includes everything from the core plan along with the choice to “opt in” to a “Plus” plan. Plus plans include additional investment strategies that have the potential for higher returns and potentially greater risks. Advanced levels investors also get an additional 90 days (making it 180 total) of advisory fees waived for referrals. Money Minx founders are currently here 🙂
- Premium: Invest $100k minimum to join the premium club! This is a relatively new option. Fundrise says their long term goal is to add exclusive experiences for these investors. Currently premium investors get a year of advisory fees waived for every referral. We’ll have to see what else they come up with for this group. As a modern tech company, we’re hoping to see innovative tech-based user experience perks. Just a little wishful thinking in case anyone from Fundrise stumbles across this review. To join the premium club, sign up for the Advanced account and then contact their support team at email@example.com. I think this is the way to do it.
There is no additional cost to upgrade to a higher level. You can invest easily right from your account dashboard although it’s not required. If you want to do this, the minimum for additional investments is $100.
What Investment Plans Does Fundrise Offer?
Once you’ve decided how much you are going to invest, you get to chose how you’re going to invest. Fundrise has 3 investment plans to choose from. They are based mostly on returns you want to see and risk you are willing to take.
1) Supplemental Income: For those of you that want to make extra money on a regular basis, chose this option. You’ll invest primarily in income-oriented cash flowing real estate. You can expect consistent quarterly dividends with less appreciation. Of all Fundrise investors, 28% choose this option and the average investment is $6,142. The projected annual return in 7.8% – 8.7%.
2) Balanced Investing: With this option, you’ll invest in a mix of income and growth focused projects to yield a blend of dividends and appreciation. Forty one percent of Fundrise investors chose the balanced investing plan with the average investment coming in at $6,204. Projected annual returns are 9% – 11%.
3) Long-Term Growth. This is your option for investing in high potential growth real estate assets. You’ll see bigger appreciation and fewer dividends, resulting in greater returns over a longer period. Of the Fundrise investors, 31% chose this one and the average investment is $6,632. Projected returns are 9.3% to 12.8%.
So you basically choose if you want less money more often or more money in the long term. Choose based on your preference.
Minx Tip: You can visit this Fundrise Investments Options page to learn about each each individual eREIT and eFund that Fundrise has to offer.
As an extra tip for you, if you find one you really like you can contact Fundrise directly and let them know you want a specific eREIT or eFund purchased in your account before you deposit funds. You can’t do this during the standard sign up process though.
What Tax Documents Will I Receive?
You can expect to receive one or two different types of tax documents, depending on the funds you’re invested in. You will receive a Form 1099-DIV for each eREIT in which you own shares and a Schedule K-1 for each eFund in which you own shares.
How Do I Get My Money out of Fundrise?
To get your money out, you have to go to the website and request a redemption. It’s a little hard to find but go to Settings from the top right drawdown menu (click on your name) the from the left side bar click on Advanced Options and finally scroll all the way down to find the redeem shares section.
They have a redemption schedule that allows you to take money out but there is a fee if it’s before 5 years. Taking money out is also not guaranteed. For example, as of March 2020, Fundrise suspended all redemption requests (and new investments in all mature eRETIS and eFunds) due to Covid-19 related challenges. You can read more about this later on in the article.
When redemption requests are available, the fee reduces the share price value and is paid into the eREIT or eFund. The fee schedule is:
- 0% if in the first 90 days
- 3% if held at least 90 days but less than three years
- 2% if shares held at least three years but less than four years
- 1% if shares held at least four years but less than five years
- 0 if held five or more years
For example, if you sell back your shares after 1 year, you’ll get 97% of their value back.
Plan to invest for at least 5 years.
Minx Tip: Fundrise has a cool quarterly performance update email they can send you for your account but it’s not enabled by default and can’t be enabled from the app or website (as of the time this article was written).
If you want access, send an email to firstname.lastname@example.org and just ask them to turn on The Quarterly Snapshot email.
Fundrise Technology Review
Fundrise states their mission is to use technology to make high quality real estate investments available to everyone at a low cost. The user experience of the site and mobile app is exactly what you would expect – modern, clean and easy to use.
Both the website and mobile app are user-friendly, visually appealing and provide the full suite of features. Fundrise investors can review their portfolio anytime to invest, manage or track performance. It’s especially cool to check out real-time asset updates, photos and all.
Security is crucial, as it is for all financial service companies, and Fundrise take this seriously. Investor information is encrypted with an AES bit symmetric key (also used by large commercial banks) and can be protected by two-factor authentication. We highly recommend you turn on the two-factor authentication which will basically send you a text with a number for you to enter before letting you in the site.
Fundrise and COVID-19 Updates
In response to the economic challenges resulting from COVID-19, Fundrise suspended all redemption requests and new investments in mature eREITS and eFUNDS. They did this to maximize cash reserves and keep the portfolio is in a stronger position.
New investment capital will go into new funds “tailored specifically for the COVID-19 world.” Recently the company sent a letter to investors explaining what that means. Not surprisingly, their strategy for new investments in the “COVID-19 world” has three phases. (Everything seems to come in 3s with Fundrise.)
- Phase1: Maximize near term flexibility by targeting liquid and structured debt markets
- Phase II: Maintain midterm stability while seeking increased yield by targeting distressed debt and private market bridge / rescue loans
- Phase III: Capitalize on opportunities for higher potential return by targeting direct ownership of undervalued properties that fit long-term macroeconomic trends.
Fundrise investing should be considered a long term investment, even prior to COVID-19 times. In this new environment investors will need even greater patience to capture the opportunities created by the market.
If you’re interested in learning more about Fundrise is managing investments through COVID-19, review the helpful articles on their sites.
Fundrise Review: Our Experience
We currently have an account with Fundrise and Q1 2020 return was 0.5%. Our partial 2019 return was 4.1%. It’s only about 2% of our portfolio. We redeemed newly invested shares in our initial Covid related panic. Fundrise sent the redemption promptly (although they suspended mature eREITS and eFunds) but I regret that decision. I view Fundrise investments as a long term strategy and should have stuck to my plan, but that’s a post for another day…
Fundrise makes it super easy to get into commercial real estate with minimum barriers. If you’ve already got a diverse portfolio of stocks and bonds and want to try the commercial real estate investment market, this is a great avenue to start, provided you are ready to let your money sit for 5 years or more. Do your due diligence – there are lots of offering circulars to read through. Have we said that a few times already?
To sum up, we are pretty happy with Fundrise as a diversification strategy for our portfolio. We are waiting for COVID risks to go down a bit and will add into our Fundrise account. The returns are not out of this world but they seem to be consistent and stable which in this market is a really difficult thing to achieve.
If you like what you read in our Fundrise review and want to learn more about Fundrise, head over to their site and get started.
Thanks for reading our Fundrise review.