Content of the material
- What is Fundrise?
- Other Real Estate Crowdfunding Platforms
- Invest Smarter with The Motley Fool
- Invest alongside large real estate investors
- What Tax Documents Can I Expect to Receive?
- How to Open a Fundrise Account
- How does Fundrise work?
- What is an eREIT?
- What is an eFund?
- Fundrise Real Estate Interval Fund
- Account levels
- Fundrise Key Features
- Self-Directed IRA
- Goal-Based Investing
- Fundrise iPO
- Fundrise Mobile Support
- My Thoughts on Fundrise
- Is Fundrise passive income?
- Choosing How to Invest With Fundrise
- Choosing an Investment to Crowdfund with Fundrise
- Frequently Asked Questions About Fundrise
- How to sign up for Fundrise
What is Fundrise?
Fundrise is a private market real estate investing platform that combines the element of investing in commercial real estate across the United States with the element of crowdfunding.
Other Real Estate Crowdfunding Platforms
Fundrise isn’t the only real estate crowdfunding platform out there. There are others that provide similar opportunities, also offering low investments and transparent fee structures.
YieldStreetworks similarly to Fundrise in that they offer investments in commercial real estate. But they also include alternative investments, like marine loans, artwork, and private business credit. It’s probably better suited to more sophisticated investors with a big appetite for risk.
Groundfloor also invests in commercial real estate, but not in the same way as Fundrise. Instead of offering equity investments, and an opportunity for long-term growth, they focus on investing in financing for commercial projects. You can invest with as little as $10, and the investments are short-term – generally less than one year.
DiversyFundis another real estate crowdfunding platform that invests in commercial real estate. But they focus primarily on large apartment complexes, which they feel are better long-term investments. You can invest in their REIT with as little as $500.
I think RealtyMogul is probably the closest competitor to Fundrise. You can begin investing with as little as $1,000, but the deals they invest in are much more specialized. For example, you can invest in individual properties. But the one catch with RealtyMogul is that you must be an accredited investor, which means you must meet certain pretty strict financial criteria to qualify.
The fact that there are multiple real estate crowdfunding platforms in the market confirms strong demand for this type of investment. But just as important, the competition forces each platform to provide a better investment offer to their customers.
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Invest alongside large real estate investors
Other online real estate marketplaces like CrowdStreet, Realty Mogul, Equity Multiple, and Fundrise enable you to invest in larger commercial real estate opportunities. Also sometimes called real estate crowdfunding portals, these sites allow investors to either become a limited partner in a single property or invest in a real estate fund that holds several properties.
Due to accreditation rules, some deals on these sites are only available to investors with a high income ($200,000 per year or $300,000 if married) or high net worth ($1 million in net worth excluding your primary residence). But if you are an accredited investor, they can be a great way to invest in real estate without much effort.
Investors can browse their portals and invest in individual commercial real estate properties (known as single-asset syndications) offered by experienced real estate sponsors. These sponsors manage the properties, complete any maintenance projects, and handle the eventual property sale. These real estate deals enable investors to benefit from the passive income and capital appreciation the properties produce. But investors give up control, including the ability to sell these illiquid investments.
Another opportunity many online marketplaces offer is the ability to invest in real estate investment funds or non-traded real estate investment trusts (REITs) that they manage. This fund-based investment approach can be an excellent way to earn passive income from a diversified commercial real estate portfolio. These funds tend to be more liquid than single-asset syndication deals, with many enabling investors to sell some or all of their investment once a quarter.
What Tax Documents Can I Expect to Receive?
Oh taxes! As you grow your wealth and expand your investments, your tax forms can start to pile on too.
But don’t worry, Fundrise provides everything you need.
Pending which fund you choose to invest in, you’ll receive potentially different tax documents.
This is because the types of funds that are in each one and the states where real estate is located that you might be invested in.
Below are the tax forms you can expect with each investment fund.
- Investors in the Starter Portfolio plan can expect to receive a Form 1099-DIV for each eREIT in the plan’s allocation.
- Investors in the Supplemental Income plan can expect to receive a Form 1099-DIV for each eREIT in the plan’s allocation.
- Investors in the Balanced Investing plan can expect to receive a Form 1099-DIV for each eREIT and a Form K-1 for each eFund in the plan’s allocation.
- Investors in the Long-Term Growth plan can expect to receive a Form 1099-DIV for each eREIT and a Form K-1 for each eFund in the plan’s allocation.
How to Open a Fundrise Account
Are you ready to open a Fundrise account?
Next, you’ll want to click on the orange “Get Started” button.
How does Fundrise work?
When you invest with Fundrise, your funds are allocated across a diversified mix of Fundrise’s offerings, known as eREITs and eFunds, both of which are professionally managed portfolios of private real estate assets located throughout the United States.
What is an eREIT?
An eREIT, short for electronic real estate investment trust, is a type of online investment available exclusively on Fundrise. An eREIT focuses solely on commercial real estate assets, so you’re investments will be in properties such as apartments, hotels, shopping centers, and office buildings. Similar to an ETF (exchange-traded fund) or mutual fund, eREIT investments give you the chance to easily diversify across many properties at a relatively low cost.
Fundrise offers a range of eREITs for its real estate investors. Each eREIT has a corresponding objective of either income, growth, or both income and growth. eREITs with an income objective focus on potential cash flow, and eREITs with a growth objective focus on properties with the potential for appreciation, or increasing in value. eREITs with an income and growth objective take a balanced investing approach, focusing on both cash flow and appreciation potential.
Fundrise eREIT options as of January 2022 include:
- Income eREIT: This eREIT focuses on debt investments in commercial real estate assets. Its objective, not surprisingly, is income. It’s available to investors with a Core account or above.
- Growth eREIT: This eREIT focuses on commercial real estate with the potential to appreciate. Its objective is growth, as the name indicates, and it’s available to investors with a Core account or above.
- Heartland eREIT: This eREIT is one of Fundrise’s options that focus on a specific region of the U.S. (in this case, the Midwest). It has a broad definition of the Midwest, however, with properties in Dallas, Texas; Dever, Colorado; and Las Vegas, Nevada. Its objective is both income and growth, and it’s focusing on both residential multifamily and commercial real estate investments. It’s available to Core account members and above.
- Development eREIT: This option has an income objective and is focused on multifamily and commercial properties that are in various stages of renovation and development. To find out availability, you’ll need to inquire with Fundrise.
Fundrise eREITs have no brokers or selling commissions. Since eREITs cut out the middlemen and are sold directly to the investor, they also have lower fees compared to other REITs. What does that mean for you, the investor? You pay significantly less to invest your money in real estate.
One thing to keep in mind, though, is that since eREITs are non-traded — meaning they aren’t publicly traded on the stock exchange — they generally have less liquidity than REITs, which are publicly traded. Said simply, this means cashing out your eREITs is a little more difficult. As with any investment, make sure to do your due diligence before you invest.
You can compare Fundrise vs. REITs side-by-side to better understand how Fundrise differs from traditional REITs.
What is an eFund?
An eFund is similar to an eREIT but focuses exclusively on residential real estate assets, such as single-family homes, townhomes, and condominiums.
Traditionally, when you wanted to invest in the housing market, the primary opportunity was via publicly traded homebuilders — think Toll Brothers or D.R. Horton, both companies you can buy stock in. These companies are subject to “double taxation,” however, which makes them a less efficient investment than Fundrise’s eFunds. Double taxation is when a corporation is taxed on its earnings (profits), and shareholders are also taxed on the dividends received from those earnings.
Unlike those residential homebuilders, which are publicly traded and structured as corporations, Fundrise’s eFunds are structured as partnerships, so they’re not subject to the same double taxation. In other words, you and every other investor in Fundrise are considered partners with Fundrise. So any cash distributions you receive are not considered income and won’t be subject to double taxation.
Fundrise Real Estate Interval Fund
This fund was rolled out by Fundrise in December 2020. It had a target initial offering of $1 billion with no cap on its offering capacity. It offers quarterly liquidity, which gives you more ready access to your funds, and it’s priced daily (eREITs and other funds are typically updated quarterly or semi-annually). Funds are allocated to the Interval Fund whenever you invest new funds, and the allocation is based on your account level and plan type.
Fundrise offers five investment plans: the Starter, Basic, Core, Advanced, and Premium. With a Core or Basic portfolio, investors can access eFunds, and with a higher-tier portfolio, investors can choose to diversify with eREITs. Investments are subject to an annual asset management fee of up to 0.85% and an annual advisory fee of 0.15% (as of Jan. 13, 2022)*. While Fundrise offers relatively low minimum investments and low fees, it’s important to review Fundrise’s offering circulars to learn about other fees associated with certain investment options.
|Account level||Minimum initial investment||Fees||Features|
|Starter plan||$10|| || |
|Basic plan||$1,000|| || |
|Core plan||$5,000|| || |
|Advanced plan||$10,000|| || |
|Premium plan||$100,000|| || |
Fundrise Key Features
Before going over the software features, here’s some background about the Fundrise platform. Ben Miller, the company’s CEO and co-founder, had been working in the real estate sector for years before he started Fundrise.
He saw plenty of inefficiencies in the existing real-estate investment model that depended mostly on Wall Street partners. He felt that online technology had developed to a stage where individual investors could directly invest in properties without relying on the stockbrokers as middlemen.
The platform was developed and launched in 2012. It has grown over the last 7 years to over 140,000 investors. The company manages assets worth over $1.2 billion. Investors need not have accredited investor status, and you can invest even with $500. It is popular among millennials and young investors who want to be directly in control of their money.
Fundrise offers a couple of different options for investing. The most common is through their eREIT (electronic Real Estate Investment Trust) option. The other is the eFund. Besides these, though, Fundrise offers a variety of investment types, from starter portfolios to advance investing options.
This option lets you put your money into a group investment in a cluster of commercial real estate buildings. Think of it as a mutual fund except for real estate. The properties include things like apartments, shopping centers, and office buildings.
Fundrise lets you buy the eREIT straight from the company. That means you can skip the commissions and other fees that can add up when you purchase through a broker. Plus, the volatility is low. However, the eREIT also has weak liquidity. You’ll get charged a fee for withdrawing your money before the end of your contracted period.
If you’re looking for a slightly different investment, Fundrise offers e-funds. These are investments in residential-only real estate assets. These investments are not publicly-traded and consist of single-family homes. eFunds are structured as partnerships, not with dividend income like the eREITs above. This means come tax time, you’ll receive a 1065 K-1 form, which differs from the tax form you receive if investing in eREITs.
With the eFund, you’ll still get direct access to the portfolio, which saves on costs. And you’ll still be diversified across different areas and types of homes, so you can count on a relatively stable investment.
More recently, Fundrise has started offering portfolios, including a starter portfolio with a $500 minimum investment fee. There are also passive income plans, plans for more balanced investing, and plans meant to drive long-term growth. You can see the projected growth over the next several years of each portfolio at Fundrise’s website.
These managed plans are a little bit more expensive. But don’t worry as much about balancing your risk and rewards.
Fundrise is available to any United States citizen over the age of 18. You must have a Social Security Number to invest with Fundrise, and the minimum amount to invest is $500.
I’ll cover more on the different portfolios below.
You can now invest in Fundrise with pre-tax dollars and use for retirement planning. (Note that self-directed IRAs may be used just for eREIT offerings.)
Using their new platform, you can invest in real estate based upon your goals rather than types of investment or location.
Fundrise is preparing to sell shares in the business itself through what they’re calling an “internet Public Offering” (iPO). To be qualified for this investment, you should have at least $1,000 on your Fundrise account and have chosen one of the advanced plans. You can invest up to 25% of your total account balance in this offering.
Other Notable Features
- Easy signup that takes less than 10 minutes
- Available in all 50 U.S. states
- Prefund investments are allowed
- The minimum investment is $500
- Asset Management fee ranges between 0.85% to 3.00% per year
- Bankruptcy protection
- VC funding
- Non-accredited investing
- Investments are made in diverse properties including land, industrial, residential, and commercial
- Both debt and equity investments options are used
- 90-day money-back promise, if you are unhappy with the service in the first 90 days
- If the fund does not perform up to Fundrise expectations, your money investment fee is waived
Fundrise Mobile Support
Fundrise is aimed at the younger generation and millennials. From its earliest concept design to the crowdfunding stage, the platform always allowed accessibility via mobile devices. The mobile support offered by the website makes it easier for young investors to invest within minutes.
The dashboard can be used from your mobile and automatically adjusts to screen size. You can access and use all the options on the dashboard from your mobile, track potential earnings, dividend payments, and property value appreciation in real-time, and you can also access your monthly account statements, quarterly asset updates and tax payments on earnings on your phone.
My Thoughts on Fundrise
We’ve crunched a lot of numbers in this analysis, but I need to point out that investing isn’t all about returns alone. More important is, what is your goal with your money? Or more specifically, what are you hoping to use the money for?
For example, if you’re looking to save money to make a down payment on a house, or to retire early, an investment in Bitcoin that drops more than 72% in the first year isn’t going to get the job done.
Something else I want to point out is that the returns in the market over the past few years have been phenomenal, but they’re not typical. A correction is going to happen at some point, and when it does investments in stocks and even crypto will take a big hit.
I’m not trying to spread doom and gloom and advise putting all your money into safe investments. But we all need to be ready for a correction. They are going to be losses, which we saw in both the Vanguard and iShares ETFs in 2018 and 2020.
Because Fundrise does all the investing directly, it saves investors money on broker and placement fees. But it does charge a high asset management fee of 0.85% as well as an advisory fee of 0.15%. So, for every $1,000, Fundrise charges investors $10 each year—$8.50 in asset management fees and $1.50 for advisory fees. The company says it uses the fees for operating expenses. For reference, the expense ratio for the SCHH ETF is 0.07%.
Although the Fundrise eREIT may seem like a very promising investment, it certainly isn't for everyone. Here are three important things to ask yourself when determining whether to invest in eREITs.
Is Fundrise passive income?
Residual income (also known as passive or recurring income) refers to income that you continue to earn even after the work required is done. Fundrise is the simplest and most cost-effective way for the everyday investor to create a new stream of residual income through real estate investing.
Choosing How to Invest With Fundrise
One thing to remember about Fundrise – you are actually investing in a bundle of real estate deals. They’ve created a revolutionary real estate platform that most of you will be comfortable with.
Simply put, you pick you broad investing objectives, and Fundrise helps choose how to allocate your money.
As you can see, it’s generally broken down into high income, balanced, and growth.
Choosing an Investment to Crowdfund with Fundrise
Continuing on with the Fundrise Review… As you can see, there aren’t many choices. So how do you get diversification? Simply, they have several eREITs that have invested throughout the country.
By choosing one of their options, Fundrise will suggest an allocation. You can choose if you’re focused on current income, future potential, or a balance of the two.
A Real Estate Investment Trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. – Wikipedia
a REIT has a lot of requirements in order to qualify and it needs to distribute 95% of its taxable income to the shareholders. There are also different types of REITs, such as a publicly listed REIT, non-listed REITs. These eREITs offered by fundrise are non-traded REITs as they are not listed or traded on the stock exchange.
According to FINRA, there are a number of risks associated with non-traded REITs, the biggest of which is that it can be very difficult to get your principal back. Other issues are potentially high fees, especially on the front-end and a limited secondary market to sell your shares. In fact, you can read a very scathing review of non-traded REITs if you’d like.
So I decided to do a bit of digging on this eREIT. I was able to pull up the offering circular on the SEC website. Wow, what a hard document to read!
The first thing I wanted to investigate was the fees. Here is a quick breakdown of the fees I was able to find:
Frequently Asked Questions About Fundrise
I get emails and comments all the time about Fundrise, here is a compilation of the most common ones.
How Much Does it Cost to Invest with Fundrise? At first, the minimum investment with Fundrise was $1,000 but it is now $500. You can invest with your IRA or 401k as well. The coolest feature is being able to turn on an auto investment and just let your investment go in every month just like you would into a mutual fund. How Much Could You Earn Investing With Fundrise? I’ve earned between 9% and 11% per year since I started investing with Fundrise in 2016. It’s now 2019 and that has held relatively steady, but your results may be different than mine. Let’s say you invested $1,000 on January 1st and left it in there for 3 years. Let’s say your results were similar to mine and one year you earned 11%, another 10%, and the last year earned 9% and you reinvested the dividends each quarter. According to my spreadsheet, on December 31st 3 years later your investment would be worth $1,344. That’s an overall return of $344, or 34.4% of the initial investment. How Much Should You Invest in Fundrise? We cannot give you specific investment advice as every person has a unique situation and goals. But, in general, you should not invest more than you are willing to risk and lose. The SEC has made a requirement that most non-accredited investors should not be allowed to invest more than 10% of their income or their net-worth, whichever is more. …and this is a great rule to follow! It’s great advice to not risk more than a percentage of your money on any one thing. If you capped it at 10%, you’d be able to invest in 10 different opportunities which would allow you to be well-diversified. Is Fundrise a Scam? I’ve invested back in 2016 and have received my distributions every single quarter from them. Also, I’ve seen them grow and acquire new properties, new investors, and go from a tiny company to probably the most well-known crowdfunding company in the real estate space. I’ve also spoken to some of the team over the years and they’ve had the same point of contact over there for these two years. So, there hasn’t been high turnover that you might see in some sort of scam or scheme. So, I believe that NO, Fundrise is not a scam. I’m not part of the company in any way so I can only say it from my point of view and that’s what my opinion is. That does not mean you will not lose money. I haven’t lost money, but all investments can lose money. Even if I did lose money, that doesn’t make it a scam. It just means I got a bad investment. Can I Withdraw My Money Once I Invest in Fundrise? The answer is yes, but with caveats. When you invest with Fundrise, you are investing in what they call an eREIT, which is essentially a newer version of a real estate fund. A fund pools money from a lot of investors then invests that money into a variety of investments from loans to equity. So, you’ll own a tiny fraction of tons of different investments. I’m explaining this again because it illustrates how illiquid your money is. It’s basically impossible to sell your portion. Eventually, all of the assets will be sold off and capital will be returned, but in the meantime, it’s not easy to give the initial capital contribution back to the investors. But, Fundrise does allow you to request to withdraw some money, but they do it periodically a few times a year, and they don’t actually have to fulfill it. Additionally, there are some fees based on how long you’ve invested your money which decrease every year for 5 years. They do have the ability to reject or delay a withdrawal based on the availability of funds in the account. From my understanding, they’ve been able to honor every request for withdrawal to this point, but that doesn’t mean in the future every request will be met. The best thing for you to do is to read the offering curricula for each fund you want to invest in and see what the withdrawal and fee schedule looks like.
Check Out Fundrise Now
How to sign up for Fundrise
If you want to sign up for Fundrise, the process is simple. You can open a Fundrise account on Fundrise.com or through the Fundrise app.
To get started, you’ll need to choose one of the account levels we described earlier: the Starter, Basic, Core, Income, Advanced, or Premium. Each one gives you a description of the type of investor it’s best for, so you’ll get a good sense of which is right for your situation.
Then you’ll need to provide personal information like your name, email, Social Security number, and citizenship and residency. You can also choose between an individual, joint, or trust account as well. To finish, set up funding for your account by linking to your bank.