Monday, January 20, 2020

Fundrise Real Estate Review

Fundrise Review 2020: Pros, Cons 

Fundrise is an online real estate company that gives investors access to private real estate deals, but be wary of underlying costs and lack of liquidity.

Our Take

The bottom line: Fundrise makes it easy to become a real estate investor, but be prepared to do your own due diligence to make sure you understand each investment's risks and underlying costs.

on Fundrise's website
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Pros & Cons


  • Low minimum investment.
  • Open to all investors.
  • Easy-to-use website.
  • 90-day money-back promise.
  • IRA accounts available.


  • Highly illiquid investment.
  • Fees can be difficult to understand.
  • Complex investments that require investor due diligence.

Full Review

Fundrise is an online real estate company that lets average — read: not wealthy — investors buy into private commercial and residential properties by pooling their assets through an investment platform.
Fundrise's main products are real estate investment trusts, or REITs, which generally invest in income-producing real estate, either through buying and managing buildings or by holding mortgages. The company calls its products “eREITs.” Fundrise also offers eFunds, in which investors’ pooled money is used to buy land, develop housing and then sell it to home buyers.
Investors purchase shares of the eREIT or eFund, which is a limited liability company that conducts the deals, by buying one of Fundrise's portfolios: Starter, Supplemental Income, Balanced Investing or Long-Term Growth. Fundrise determines the mix of eREITs and eFunds in each plan, as well as the underlying properties. Fundrise also offers Advanced and Premium account levels, where investors may get access to a greater number of real-estate projects, plus other features and benefits.

Fundrise is best for

    • Investors with a long-term outlook.
    • Those seeking diversification outside of stocks and bonds.
    • Investors willing to do their own due diligence.

    Fundrise at a glance

    Investor requirements
    None. Investments are open to non-accredited investors.
    Types of investments
    Investors choose among four investment portfolios, which hold a varying assortment of eREITs and eFunds.
    Investment minimums
    • $500 minimum for Starter Portfolio.
    • $1,000 minimum for Core plans (Supplemental Income, Balanced Investing, Long-Term Growth).
    • $10,000 minimum for Advanced account level.
    • $100,000 minimum for Premium account level.
    Asset management fee of 0.85% and advisory fee of 0.15%, but other fees may apply.

    Fundrise features you should know

    Available to non-accredited investors: While some online real estate platforms are available only to accredited investors — defined in U.S. securities law as having a net worth of more than $1 million, not including their home’s value, or annual income of at least $200,000 for individuals or $300,000 for a couple — many of Fundrise’s products are available to all investors.
    Low investment minimums: If you like the idea of getting into private real estate deals but don’t have big money to play with, Fundrise might suit you.
    Easy-to-use platform: Signing up takes about 10 minutes, if that, assuming you’ve already read the lengthy investor disclosures (and you should read those first). You provide your address, phone number and Social Security number, and then choose whether to fund your account via an ACH transfer (i.e., linking your bank account), by entering your bank information on your own or by using a wire transfer.
    90-day money-back promise: Fundrise will buy back your investment if you request a redemption within the first 90 days. The website says, "Investors requesting to liquidate shares within the 90-day introductory period should receive their full, initial purchase price." This lets you dip your toes in the water. Restrictions may apply, including a 60-day waiting period after submitting your request, according to Fundrise’s offering circulars.
    Non-traded REITs: Fundrise's eREITs don’t trade on a public exchange — they’re highly illiquid. That means there's no guarantee there will be buyers for investors who want to sell shares. (Check out this warning from the Financial Industry Regulatory Authority, or FINRA, for more on risks to watch for with non-traded REITs.)
    There are significant risks to investing in non-traded REITs, but there can be rewards, too. The average annualized return for all Fundrise investments in 2018 was 9.11%, net of fees, assuming dividend reinvestment, according to Fundrise.
    Alternatively, you can invest in publicly traded REITs, which trade on an exchange like a stock. This top broker offer a large selection of REITs with zero commision and zero trading fee: M1 Finance.

    Redemption fees: While Fundrise offers a redemption program, it comes with caveats and and fees. Specifically, Fundrise reserves the right to suspend the redemption plan without notice. If too many investors request redemptions at any one time, payouts may be delayed. The redemption fee, which is paid into the eREIT or eFund, is calculated as a reduction to the share price value: 0% if in the first 90 days; 3% reduction if the shares were 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. There’s no share-price reduction to redeem shares held five or more years.
    Understand other fees: Fundrise says it saves investors money by creating a relatively direct link between investors and real estate. There’s no broker-dealer acting as a middleman at Fundrise, and that saves on costs. However, with any real estate deal, there are costs that are difficult for investors to see. While Fundrise clearly notes its asset management and advisory fees, you need to do some burrowing into lengthy offering circulars to learn about other costs.
    Here are some costs to consider:

    1. Shares in Fundrise’s products may be sold at a premium to their value, which means you could pay, say, $10 a share for an eREIT that has a net asset value of $9.50. That differential acts as a type of sales load.
    2. As with any real estate deal, there are organizational and offering costs to bring the eREITs and eFunds into existence. Fundrise says these run 0% to 2% of the money raised from investors. The manager is reimbursed for these offering costs out of the eREIT or eFund in monthly installments that don’t exceed 0.5% of the fund’s total proceeds.
    3. With eFunds, there’s a potential development fee of up to 5% of total development costs, excluding land. Also, when an eFund sells a property, there may be a potential disposition fee of 1.5% of the gross proceeds, after repayment of property-level debt.

    Is Fundrise right for you?

    There's a lot to like about real estate as a way to diversify your portfolio, and the Fundrise platform is easy to navigate.
    But it's also true that crowdfunded real estate platforms such as Fundrise have yet to be tested during a downturn. For example, in the event of a housing crash, Fundrise could be forced to postpone redemptions for some investors. There are unknowns here, so if you’re risk-averse, know that there’s more than one way to invest in real estate. Check out our dividend Growth Portfolio on M1 Finance which includes traded REITs.
    Also, investing with Fundrise means tying up your money for a while. You can request to redeem your shares on a quarterly basis, but you may owe a fee, depending on how long you’ve held the investment. Investors concerned about this might prefer investing through a standard brokerage account such as M1 Finance, which gives you access to a wide range of investments.
    If you already have a diversified portfolio of stocks and bonds, and you have time to let your money sit for at least five years, then investing via a platform like Fundrise can be one way to add real estate to your portfolio. Just be sure you're aware of the risks and do your own due diligence.

    Get Started with Fundrise Today.