Fundrise is a Washington D.C.-based real estate crowdfunding company enabling non-accredited investors to invest in high-quality real estate from their computer or smartphone. Investors can earn 8%-10%+ yields via one of the most passive income streams I’ve come across. After six months of investing on the platform, this is my Fundrise review.
As mentioned in recent income updates, I’ve been investing in Fundrise to add to my passive income portfolio. Both index and dividend growth investors can benefit from adding real estate to your asset allocations.
When investing with Fundrise, your money goes into private real estate investments, typically apartment complexes, construction loans, and acquisition loans. Enabled by technology, the Fundrise platform gives ordinary investors access to investments once reserved for professionals.
More than 140,000 investors now invest their money with Fundrise. The eREIT and eFund investment products are a low-cost way to own diversified real estate across the U.S. These products are scrutinized by the Securities and Exchange Commission (SEC) which makes them available to non-accredited investors (i.e. non-millionaires), unlike the options on other real estate crowdfunding sites.
In this Fundrise review, I’ll go over real estate crowdfunding, the Fundrise platform (including screen shots and earnings from my personal account), and compare Fundrise to other similar platforms.
Full disclosure: Since the start of 2017, I’ve invested $10,000 of my own money into five Fundrise eREITs. Real estate financing has changed forever and I’m optimistic about this long-term investment opportunity. Since I’m not currently excited about stock market valuations, I’m putting my money into multiple real estate crowdfunding sites. I’m also a Fundrise affiliate.
After six months of investing in and researching Fundrise, I recommend it to investors looking for exposure to real estate and higher yields than typical dividend stocks or REITs.
Fundrise is the simplest, most hand-off way to invest in private real estate. Investments with Fundrise are not risk-free, but they are backed by real properties which lower the risk compared to peer to peer lending.
What is Real Estate Crowdfunding?
Fundrise is an innovator among the first to bring real estate crowdfunding to the mainstream. The founders saw inefficiencies in how real estate projects were financed. They also wanted an easy way for friends, family, and locals to invest in properties. But there wasn’t away to do so online.
In 2012, Fundrise successfully completed the first crowdfunded real estate purchase in the H Street Corridor of Washington D.C. raising $325,000 from 175 investors.
Around the same time, Congress passed the Jumpstart Our Business Startups Act (JOBS) of 2012. The JOBS Act set the foundation for equity crowdfunding. Equity crowdfunding is similar to more established crowdfunding on sites such as Kickstarter, but allows for the exchange of equity for early investments.
The JOBS Act has created more options for early-stage companies to raise money, including crowdfunding and mini-IPOs, also known as Reg A+ IPOs. Companies can raise up to $50,000,000 per fund via Regulation A of the JOBS Act.
Real estate crowdfunding was not the primary intent of the JOBS Act. However, it has seen the most growth. Since the passing of the JOBS Act, at least 100 real estate crowdfunding sites have emerged because the opportunity is so big. But the top tier companies do most of the volume. In addition to Fundrise, other significant platforms include Realty Mogul, Patch of Land, Groundfloor, RealtyShares, PeerStreet, and EquityMultiple.
The potential for real estate crowdfunding is huge. These platforms are quickly taking share of the real estate project funding landscape. But crowdfunding is still in its infancy. Now, large commercial and residential real estate investments, once reserved for wealthy individuals and established companies, are available to ordinary investors.
The Fundrise mission is far reaching but helps explain what they’re all about.
We’re reinventing the way people invest their money… Fundrise was born from the belief that everyone deserves a simpler, smarter, more reliable way to invest their money. Using technology, we are rebuilding the entire investment system from the ground up so individuals can efficiently access the best investments.
Innovation is at the core of Fundrise. Since it’s first funded property, it has grown significantly in users and products, many of which were the first of its kind. From filing the original patent for real estate crowdfunding to using Regulation A to fund itself (in the Fundrise “iPO – internet Public Offering”), Fundrise continues to push limits of what is possible.
eREITs vs. eFunds
As of August 2017, Fundrise has seven funds (five eREITs and two eFunds) available to invest in on the platform. Each fund can raise up to $50,000,000 to be invested. As money is raised from investors like you and me, the funds are invested into properties around the United States. As the investments mature, they create cash flow which is then paid out as dividends to investors.
eREITs are defined as follows:
An eREIT is a professionally managed, diversified portfolio of commercial real estate assets, such as apartments, hotels, shopping centers, and office buildings from across the country. Similar to an ETF or mutual fund but specifically for commercial real estate, an eREIT allows an investor to diversify across many properties at a relatively low cost and with minimal effort.
eFunds are defined as follows:
An eFund is a type of online alternative investment available exclusively through Fundrise. An eFund is a professionally managed, diversified portfolio of residential real estate assets, such as single-family detached homes, townhomes, and condominiums tailored to first-time, move-up and active adult homebuyers. Unlike publicly traded residential home builders, eFunds are structured as partnerships, not corporations, and therefore are not subject to the same double taxation.
Fundrise started by crowdfunding individual properties, much like many other platforms still do. Then in 2015, they created the first eREIT, a regulated security that made it easy for ordinary investors to begin investing.
The company recently reinvented its platform again by introducing Fundrise 2.0. Instead of investing in individual eREITs, new investors can now invest based on investment objectives. Investors who opened accounts prior to Fundrise 2.0 have the option to upgrade. I’m still in 1.0 mode for now.
The difference between Fundrise 1.0 and 2.0 is that Fundrise 2.0 chooses your eFunds and eREITs for you. You get instant diversification across all seven funds (as of August 2017). Allocations to those seven funds vary based on which objective you choose.
This upgrade to Fundrise 2.0 further simplifies the platform and builds broad diversification into the core of Fundrise.
Choosing an Investment Goal
eREITs and eFunds are non-traded securities that are only available on the Fundrise platform. Your money is split among the seven different funds. How your funds are allocated is based on your investment goal.
When you open an account at Fundrise, you’ll be directed to choose one of three investment goals: Supplemental Income, Balanced Investing, or Long-term Growth.
Each goal is invested into the same seven funds using different allocation percentages. By investing in all seven, you get instant diversification across all of Fundrise’s real estate investments. Between the seven funds, Fundrise currently has real estate investments in 35+ properties. You’ll own a tiny piece of each.
Most readers here are income investors and would thus be interested in the Supplemental Income goal. I think it is the best choice, at least until the D.C. and L.A. eFunds are more mature.
The allocations for each investment goal are below.
The portfolio you choose is optimized for the investment objective. You’ll still own a piece of each fund, and thus, each property in the funds. But you’re investments will be skewed toward income or growth, or in between.
In the next section, I’ll briefly go over each fund.
The Seven eREITs and eFunds
Each fund has a stated strategy used to guide the investment portfolios. Experienced real estate professions search for, vet, and invest in properties based on the goal of each fund. The money raised by the funds is invested into actually real estate properties, either as whole investments or with an experienced local partner.
For full transparency, when you own or research a fund, you can look at the current property investments contained within. The more mature funds are made up of several properties while the newer funds are still growing as investor cash flows in.
The two eFunds are new as of Spring 2017, so they are still in ramp up stage.
Dividends below are net of fees and subject to change. Descriptions are taken from the Fundrise website.
The seven funds are:
- Income eREIT™ (Current Dividend = 10.50%)
- Growth eREIT™ (Current Dividend = 8.00%)
- East Coast eREIT™ (Current Dividend = 8.75%)
- Heartland eREIT™ (Current Dividend = 8.00%)
- West Coast eREIT™ (Current Dividend = 8.00%)
- Washington DC eFund™ (Ramping up)
- Los Angeles eFund™ (Ramping up)
The Income eREIT focuses primarily on making debt investments in commercial real estate assets that generate steady cash flow. To date, the Income eREIT has executed on this strategy by identifying institutional quality assets of sub-institutional size, particularly in urban metro markets.
The Growth eREIT focuses on acquiring and owning commercial real estate assets that have the potential to appreciate in value over time. This opportunistic investment strategy is centered primarily on multi-family assets of institutional quality that are sub-institutional in size.
East Coast eREIT™
The East Coast eREIT focuses on a balanced approach of acquiring both debt and equity investments in commercial real estate assets located specifically in the East Coast region. The East Coast eREIT aims to invest in commercial real estate assets located in Massachusetts, New York, New Jersey, North Carolina, South Carolina, Georgia, and Florida, as well as the Washington, DC, and Philadelphia, PA metro areas.
The Heartland eREIT focuses on a balanced approach of acquiring both debt and equity investments in commercial real estate assets located specifically in the Midwest region. The Heartland eREIT aims to invest in commercial real estate assets located in the Houston, TX, Dallas, TX, Austin, TX, Chicago, IL, and Denver, CO metro areas.
West Coast eREIT™
The West Coast eREIT focuses on a balanced approach of acquiring both debt and equity investments in commercial real estate assets located specifically in the West Coast region. The West Coast eREIT aims to invest in commercial real estate assets located in the Los Angeles, CA, San Francisco, CA, San Diego, CA, Seattle, WA, and Portland, OR metro areas.
Washington DC eFund™
The Washington, DC eFund plans to acquire properties for the development of For-Sale Housing targeted at first-time, move-up, and active adult home buyers in the Washington, DC metropolitan statistical area (MSA). The eFund intends to primarily target equity investments in homes, town homes, and condominiums in the area.
Los Angeles eFund™
The Los Angeles, CA eFund plans to acquire properties for the development of For-Sale Housing targeted at first-time, move-up, and active adult home buyers in the Los Angeles metropolitan statistical area (MSA). The eFund intends to target debt and equity investments in homes, town homes, and condominiums in the area.
In the future, expect to see more eREITs, eFunds, and perhaps new products in the works. As demand increases for the Fundrise suite of investments, the company will create more investment opportunities.
Fundrise Dashboard Overview
When you log into your established account, you’ll see your earnings to date and earnings since your last login. Then on the right is a chart of projected returns over a 10-20-year period. That chart isn’t very helpful. I’d like to see a better graphic replace it.
Across the top is a minimalist menu.
Scroll down and you’ll see a more helpful circle chart showing the total value of your portfolio and a sliver of donut for each property that is owned. This is the Asset view. The colors represent the risk profile of each property. The gray area indicates more properties will be added in the future.
Next to Asset, you can click the Map view to see where your investments are physically located. This view shows that the properties in your portfolio are spread all over the U.S. However, some over-concentration exists in L.A. and D.C. Fundrise is located in Washington D.C. so it’s no surprise properties are here. They also have developer relationships in L.A. that has opened up a number of deals there.
I’m familiar with the D.C. markets so I’m comfortable with the overweight here.
The third view is Investment. This shows the portfolio of holdings. I own all five eREITs, but no eFunds. I owned the three regional eREITs first and received my first dividends. Those were reinvested back into the funds. Unpaid earnings grow every day. Those will be paid out at the next distribution. NAV or net asset value is an estimate of what each share is worth based on numerous factors.
Scroll down again and there’s a list of all the properties owned in my portfolio. In the five eREITs, there are currently 37 properties (as of August 2017). Each one is listed. I’ve taken a screen shot of the six largest holdings. The colored circle represents the risk profile.
Click on any of the properties and you can learn more. For example, below is a screen shot of the B3 rated Alexandria, Virginia apartment complex. The basic information is included. This one is a JV Equity structure, multifamily complex, that is stabilized. Stabilized means it is being rented to tenants and operating normally.
Then some key deal points and a summary.
From the Your Account tab on the menu, there are a few other pages to navigate to including Performance, Transaction, and Documents. But the most interesting to share here is the Updates page. Any time there is activity on your account, you receive an email and the message is added to the Updates feed. Below is an example. Here they announced the acquisition of new properties and reminded me they paid me a dividend. You can click on each item to learn more.
Similar to investing in dividend stocks, you can now reinvest your quarterly Fundrise dividends back into your funds. I’ve implemented reinvestment for my account since I’m still in a wealth building phase. I’m comfortable adding more to my accounts every quarter.
If you prefer, you can have your dividends deposited into your bank account.
All of the eREITs and eFunds are expected to have an investment duration of about five years. At that point, they expect to exit some investments to provide more liquidity to investors.
Due to investor demand, Fundrise implemented a quarterly redemption plan to provide liquidity even though the investments are meant to be five years in duration to allow fund maturity.
Should you decide to redeem your shares, the following redemption price schedule will affect your account:
In other words, if you exit the investment early, you’ll pay a small fee. 3% before three years, 2% before four years, and 1% before five years.
But remember, you’ll earn interest on your investment during that time, so you can withdraw your money and still be well ahead. The reduced redemption price encourages long-term holds to optimize the property investments.
All performance metrics and dividends on your account are net of fees. The fees are clearly disclosed in the FAQs. The fees are approximately 1%. These come out of your dividend payments, so the don’t lower the balance of your account. They lower the dividend.
From the FAQs:
The eREITs and eFunds charge a 0.85% annual asset management fee. In addition, clients of the investment services and management system pay a 0.15% annual investment advisory fee, although this may be waived in certain circumstances.
Fundrise claims (and justifies) that you’ll save 20 – 40% vs. traditional investments and 90% compared to traditional REITs due to the lack of corporate overhead.
The 8%-10%+ yields are net of fees. Those returns do not include long-term equity appreciation.
Like dividend income and everything else, you do need to pay taxes on your Fundrise income. For the eREITs, you’ll receive a 1099-DIV in February or March to report on your annual tax return.
The eFunds are structured differently as partnerships. As such, you may receive a K-1 and be required to file it with your taxes. If the partnership operates in a state other than your own (likely), you may need to file additional state tax returns.
However, as stated in the FAQs, in some cases, a composite tax filing (by Fundrise) may eliminate the need for investors to file at the state level.
When I read about the K-1 and potential additional state filings, I was immediately turned off by the eFunds. So I reached out to Fundrise for clarification. Filing extra state tax returns would suck and be too expensive (negating returns).
Fundrise told me they intend to do composite filings for the eFunds, eliminating the need to individuals to file additional state tax returns. But could not guarantee it.
I am not a CPA or tax attorney so contact yours for your own specific tax questions.
Invest with a Self-Directed IRA
To lower your taxable income from Fundrise eREITs, you can invest with Fundrise with a self-directed IRA. Investing with a self-directed IRA requires an account with a custodian. Fundrise has partnered with a custodian called Millennial Trust Company to provide self-directed IRA services. Read more here.
Fundrise Cons and Risks
Up to here, it’s been mostly “pros”. An easy to invest platform where you can earn 8%-10%+ yield super-passively does sound too good to be true. The platform isn’t perfect.
The most glaring negative on Fundrise is that you’re dependent on the investing prowess of the Fundrise investments team. These are seasoned professionals in the space, but individual investors don’t have a say in the property investments whatsoever. Fundrise 2.0 made this relationship more tethered.
As a result, the investments are passive, but reliant upon people you don’t know. If this makes you uncomfortable, see the next section below. Other platforms give you more control.
Giving up control, however, is how many novice investors with no experience with real estate can earn good returns. Fundrise is targeting those investors, not expert real estate investors.
Another downside is the liquidity that we discussed above. If you may need the money in a year or two, don’t invest it. Since these securities are not traded on stock market exchanges like traditional REITs, they are not subject to market fluctuations. That makes Fundrise investments non-correlated to the stock market. The next time the stock market declines, you’ll appreciate that (oh wait, that’s not a con).
Income from Fundrise dividends are non-qualified, meaning they are taxed as ordinary income. This will bump up the tax rates on these fund which is always a bummer. Invest with a self-directed IRA to avoid the extra tax. The high yields help make up for the tax rate. And I suspect Fundrise has this issue in mind. They are innovating to make this process as investors friendly as possible, but dealing with the constant nag of regulation and compliance,
Fundrise is growing quickly and innovating. Sometimes that means changes you aren’t ready for. For example, I was perfectly happy with Fundrise 1.0. Then it changed. I still haven’t upgraded because I like it the way it was. However, all signs point to the Fundrise 2.0 model in the future. On the plus side, Fundrise is innovating to stay ahead of the curve. Some 100+ new platforms were formed to follow what Fundrise establish first. Startups must innovate or be overcome.
Lastly, all investments carry some risks, especially those with higher returns. Fundrise was, in part, born out of the financial crisis and real estate bubble a decade ago. Another similar crash would be detrimental to these investments. However, many of these investments provide housing to people, and those people will always need a place to live. And these investments are long term and can hopefully ride out any storm. But you may lose money investing in Fundrise, as you would in the stock market or anywhere else.
Fundrise vs. RealtyShares vs. PeerStreet
Since I can’t try every platform, I’ve chosen three (for now) in which to invest my money.
Read my RealtyShares review here.
Read my PeerStreet review here.
The basic difference between the three platforms is that on the RealtyShares and PeerStreet platforms, you invest in individual real estate deals instead of eREITs. Lots of data is provided to the investors for due diligence. This includes appraisals, comps, financials, and past successful deals of the sponsor. Then you choose which deals you want to invest in.
Between ReatlyShares and PeerStreet, RealtyShares requires larger minimum investments, typically $5,000 to $40,000. While PeerStreet only requires $1,000 per deal.
These coincide with the nature of the deals. RealtyShares has quite a few large equity deals while PeerStreet is doing mostly fix-and-flip debt deals.
A major drawback for these other two platforms is only accredited investors can invest. Accredited means either 1) the investors must have a demonstrated annual income of $200,000 (single) or $300,000 joint for the past two years, or 2) must have a net worth of more than $1 million, single or joint, excluding primary home equity.
That leaves out many investors making Fundrise the most accessible platform. A few other advantages for Fundrise:
- You can invest whenever you want – on the other platforms, you must wait for a deal you like.
- Don’t have to pick individual deals- less time spent on vetting investments. But less control.
- Instant diversification – Your money is dispersed among many real estate properties instead of one deal.
Here’s a summary of the three platforms:
I’m currently recommending all three platforms. As I invest more and learn, perhaps I’ll favor one over the others.
If you’re non-accredited, go with Fundrise.
If you are accredited, you can still choose Fundrise for the ease of investing and diversification. But if you want more control over your investments, consider the other two.
For those looking to invest large sums in long-term equity real estate deals with the potential for income and appreciation, RealtyShares has the best deals. They also have smaller debt deals.
To invest strictly in shorter-term debt deals, PeerStreet is the way to go. The $1,000 minimum per deal is a good way to diversify quickly. But returns on PeerStreet are generally lower than what I’ve seen on RealtyShares for debt.
One downside I’ve seen on both RealtyShares and PeerStreet is ease of finding deals. RealtyShares doesn’t have a lot of $5,000 minimum deals. I found a $2,000 minimum debt deal to invest in, but those are less common. When lower minimum deals hit the platform, it’s very competitive to get in. You don’t have much time for due diligence (but can always back out).
PeerStreet has an automated investing service so you can set that up and let the platform choose loans to fund for you. You have 24 hours to perform due diligence. Loans on the platform fill very quickly. So if you’re investing manually, you must be nimble.
Being at the forefront of the fintech and crowdfunding revolution, media outlets are interested. CEO Ben Miller has been interviewed on podcasts a few times. I highly recommend checking out the two podcasts below if you are considering investing with Fundrise. Ben talks about the origins of Fundrise and their ambitious plans for the future.
CEO Ben Miller on the Lend Academy Podcast.
CEO Ben Miller on Invest Like a Boss Podcast.
And this link to press mentions is endless. Lots of information if you want to learn more.
Don’t Forget: The minimum investment for the Fundrise Starter Portfolio is just $500 until December 31st, 2017.
Have you invested with Fundrise? What is your take on the platform? Please add your insight in the comments section below. If you have ANY questions about Fundrise, I’m happy to answer any specific questions that I can. Add to the comments section or contact me directly and I’ll respond. Most everything is answered in the FAQs on the website, but being a user I may be able to provide feedback on less obvious inquiries.
Fundrise 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.
Thanks for reading my Fundrise review.