It doesn’t seem that long ago that if you wanted to invest in property, you either had to already be wealthy, or you needed to own your own home with a small mortgage remaining. You could then use the equity in your home to leverage into another mortgage for a rental property.
The alternative was to invest in a mutual fund, most of which included other assets and needed investments of at least $50/month. You had no choice over what type of property you were investing in, and they did not include private real estate.
But in recent years that has all changed with the introduction of new technologies allowing investment into a wide range of property assets, often with tiny investment amounts.
Fundrise is one of those new technologies leading the way when it comes to property investment in the 21st century.
With Fundrise, you can use an online platform to invest in private commercial and residential properties by pooling their assets with a minimum contribution of just $10. This makes it ideal for new investors who want to dip their toes into the property market.
These platforms also remove the many complexities involved with directly owning bricks and mortar property like capital gains tax and realtor fees.
The main products are real estate investment trusts (REIT), which invest in income-producing real estate, buying and managing buildings or holding mortgages. They refer to these as eREITs. They also offer eFunds, in which investors pool their money to buy land, develop housing and then sell.
Another offer is their Interval Fund, which offers higher liquidity and diversification than its other funds.
When you deposit your money, you are buying shares of the Interval Fund, eREIT or eFund by investing into 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. They also offer Advanced and Premium accounts. These allow investors greater access to more real-estate projects, plus other features, and benefits.
Anyone can invest in Fundrise, the platform is easy to use and quick to set up, and has low investment minimums:
- $10 minimum for Starter Portfolio.
- $1,000 minimum for the Basic plan.
- $5,000 minimum for the Core plan.
- $10,000 minimum for the Advanced account level.
- $100,000 minimum for the Premium account level.
When you want to withdraw you sell shares back to Fundrise. This will cost you a 1% fee if you have not held your shares for at least five years.
Fundrise may suspend or delay redemptions during periods of extreme economic uncertainty. They did this for three months during the coronavirus outbreak in May 2020.
The Interval Fund is more liquid than the other funds, allowing you to make quarterly repurchase offers with no penalty fee. It’s also the largest fund, holding more assets, resulting in greater diversification, while still retaining all the benefits offered by the eREITs and eFunds.
Fundrise’s eREITs don’t trade on a public exchange — they’re highly illiquid. You have no guarantee there will be buyers available when you want to sell shares. This means there are significant risks investing in non-traded REITs, but there can be rewards, too. Average annualized platform returns ranged from 7.31% to 16.11% between 2017 and the third quarter of 2021.
Fundrise charges a 0.15% advisory fee (waived with referrals), plus a 0.85% asset management fee charged by eREITs and eFunds. That adds up to a 1% annual fee, which is a little high, but still much lower than any fees a human financial advisor would charge.
There can be additional fees, and these are often difficult to find. Their asset management and advisory fees are noted, but Fundrise reserves the right to charge additional fees, such as development or liquidation fees, for work on specific assets. You can find these fees in the dense offering circulars, but they’re not easily accessed.
One aspect to be aware of is that no crowdfunded real estate platform has ever been tested during a real-estate-driven downturn. How Fundrise would respond to that event, which will certainly occur at some point in the future, is a big unknown.
There are other competitors in this space with similar offers to Fundrise, however, if you already have a portfolio of stock and bonds and you are prepared to leave your funds invested in property to remain untouched for at least five years, then Fundrise is legitimate easy to use, low-cost method of adding the property sector to your total investment portfolio.
For a second opinion of Fundrise, you can read this review for more comprehensive details.
