Fundrise is an alternative investment platform offering access to real estate opportunities. Fundrise has over 380,000 investors and gives investors the chance to get involved with projects that are normally reserved for large institutions. Read on to find out how you can diversify your portfolio with hot commercial real estate developments in our complete Fundrise review.
Pros and Cons of Using Fundrise
- Low minimum investment
- Low Fees
- Proven Investment Performance
- Property investing is not liquid
- Investors need some property knowledge
- Fees can be hard to understand
Fundrise is a platform for individual investors to buy shares in real estate investment trusts (REITs). The platform offers a low $10 minimum investment, which makes property investing more accessible. Stock market REITs can sometimes lack diversification and Fundrise solves that problem with more bespoke investing opportunities.
Who Should Use Fundrise?
- Passive real estate investors
- Investors who do not want to pay down payments
- Stock investors looking to diversify
Fundrise Investment Plans
Fundrise offers two distinct investment areas: General Investing and Retirement. The former has different investment tiers for private investors, while the latter is geared toward IRA or 401K investors.
The general investing category has the following tiers:
Starter: This is the basic entry-level with a $10 minimum investment.
Basic: The Basic account builds on the essentials and adds IRA investing.
Core: The Core account requires a $5,000 entry payment and starts to introduce customization.
Advanced: With the Advanced account, investors start with a $10,000 minimum and this opens the door to more sophisticated property investments, which have higher upside potential.
Premium: Finally, the Premium account has a $100,000 minimum which qualifies for accredited investor status.
- All of the above accounts have a 0.15% annual advisory fee.
- An annual asset management of up to 0.85% is included on all accounts.
- Fundrise offers a share bonus for referrals which is higher for each tier.
Dan and Ben Miller are two brothers from Washington D.C. who saw an opportunity to merge technology and real estate in 2021. That was around the time that the Securities and Exchange Commission (SEC) started to make real estate investing more accessible.
Fundrise has been able to grow and lower the barrier to entry for real estate investors. The initial platform was only open to accredited investors. That has gradually been lowered from $5,000 to $500 and now $10.
The core investment offering of Fundrise is REITs, which allow investors to pool their money and invest in large commercial real estate opportunities such as shopping malls, office buildings, and apartment complexes. In recent years we have seen investment giants like BlackRock and Wall Street investment banks being big players in the commercial real estate arena. Retail investors can now join them and diversify their portfolio with real estate investments that can be out with their geographical location.
How to Redeem Your Investment
New investors should be aware that real estate investment is not as liquid as stocks or other exchange-listed products. Fundrise shares are harder to sell for that reason because the investment is underpinning the development of the real estate portfolio.
Investors should consider this when they do due diligence, but it you want to redeem your investment, you have to submit a redemption request. This can be done via the Fundrise website. Redemptions are subject to a 60-day waiting period and there may be a penalty for withdrawals before the real estate is sold.
Relative to the standard portfolio made up of 60% blue chip stocks and 40% bonds, a portfolio that includes some allocation to private real estate has historically shown higher returns.
According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the average 25-year return for commercial real estate properties slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% against 9.6%.
Fundrise states that its worst quarter in the period from 2017 to 2022 was -3.32%. That is much lower that the worst quarter for public REITs at -25.42$ and the S&P500 at -19.60%.
The platform also shows 23 positive quarters versus 18 for REITs and stocks. Fundrise had only 1 negative quarter in that period while the other investment products had 6 each.
Fundrise Versus Public REITs
One of the most frequently asked questions is why investors should choose Fundrise versus REITs. Fundrise offers a very different investment from publicly traded REITs. Large publicly-traded REITs offer the benefit of owning developed real estate with high occupancy rates and stable monthly incomes. Public REITs have built up their assets over years or decades and do not offer large upside potential.
As Fundrise states on its website, “value creation in real estate is most often found at the development or renovation phase of an asset’s lifecycle”. This requires private investment by private equity funds, developers, or other private operators. These firms benefit from being local to opportunities and also having flexible investment criteria.
The goal of Fundrise is to provide access to real estate opportunities that can provide value to its investors and then sell them on to the publicly-traded REITs seeking stable returns and income.
Many investors also ask if Fundrise is legit and we offer a very detailed answer to this question here.
We also offer an informative guide to investments in Fundrise versus Crowdstreet.
Click here to learn more about Fundrise or to sign up.
Interesting Related Article: “What is a Real Estate Investment Trust (REIT)?“