Is Fundrise Worth it? My Yearly Returns

Is Fundrise Worth it? My Yearly Returns

What Is Fundrise?

Fundrise is a real estate investment company that offers the online platform by the same name for online property investment.

Unlike most other investment businesses that cater to institutional investors, Fundrise focuses on small investors to give them the option to invest in properties by pooling their funds together directly.

The main product offered by the company is Real Estate Investment Trusts (REITs). Investors can buy the product by creating a portfolio in one of four ways.

  • The Starter Portfolio: This is the default account you get when you sign up with Fundrise. It is a low-rise, low-return option and accounts can be created with as low as $500. You can upgrade to one of its three core plans as per your requirements.
  • Income Supplement: This portfolio option is used to create a steady source of supplemental income for the investor. This is achieved through property value appreciation and rental income. It offers a good steady income, but the long-term gain is low.
  • Balanced Investing: This option builds a highly-diversified portfolio that consists of income generating and value appreciating properties. The periodic payments are low but investors build a decent value in properties over time.
  • Long Term Growth: This portfolio consists of properties that offer the most significant appreciation in value over time, and you can get annual returns as high as 15% per year. Investors holding this portfolio do not get a regular income.

Each portfolio offers different rates of returns, risks, and terms of investment. The average overall ROI for all of Fundrise’s investments was 11.44% in 2017, based on company reports. More on portfolios below.

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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:

What other people are saying about Fundrise

Fundrise has received some positive feedback from its users. One Reddit user indicated that some of their funds initially didn't provide the expected returns, but they were patient over several years and the last quarter of 2019 got their lifetime returns over their target rate of 7%. 

However, while the company is accredited by the Better Business Bureau and has an A rating with the BBB, Fundrise has been the subject of 58 complaints, including some users indicating they were unable to cash out their investment despite requesting to do so.

Company Basics

  • Fundrise makes real estate investing accessible to the average individual investor by reducing complexity, costs, and fees, while increasing transparency and flexibility.
  • With over 170,000 active investors on the crowdfunding platform, Fundrise has completed $7.0B in real estate transactions, collected 244 projects (and completed 122 more), and distributed over $124M in dividends to their investors since 2014.
  • Fundrise invests in both residential and commercial real estate deals, such as single-family and multi-family rental properties, for-sale housing, hotels, retail space, shopping centers, and office buildings.

Make Sure You Understand The Risks

I learned about Fundrise more than two years ago. At the time, they still allowed individuals to invest in particular properties. At the time, investing online in properties I’ve never seen made me nervous. The introduction of the eREIT (and the added benefit of diversification) eased my fears, but there is still a risk.

My primary concern is the level of leverage that Fundrise considers sustainable. While most would consider a 78% leverage ratio conservative (and it is), many of the properties are development projects. If demand for housing in any major city falls, the leverage could doom the profitability of the investments.

Most of the properties purchased are not done with a buy and hold forever mentality. Rather, the eREITs want regular liquidity events to enable growth.

In my personal real estate investments, I only take on debt when I can profitability hold a rental property for the long haul. I’ve been trapped underwater once, and it is not a good time. Certainly, the 100% passive nature of Fundrise should assuage my concerns, but I can’t shake them.

However, the low entry price of just $10 does limit downside risk. I would recommend Fundrise as a great starter platform for getting started in real estate. As always, before committing large amounts of capital do your own due diligence first.

You might also want to check out these Fundrise alternatives.

What do you think of Fundrise? Have you ever tried it?

Fundrise vs. Other Real Estate Investments

To recap, my four-year average return on my Fundrise investment was 13.3%, net of expenses.

I can’t do a valid comparison among other real estate crowdfunding platforms since I’m only invested with Fundrise.

But we can look at the Fundrise returns against those provided by real estate exchange-traded funds (ETFs), which are widely available on market exchanges.

Fundrise vs. Vanguard Real Estate ETF (VNQ)

Probably the most popular is the Vanguard Real Estate ETF (VNQ). This isn’t a full apples-to-apples comparison, because I didn’t start my Fundrise investment until roughly the end of the first quarter of 2018.

Even still, in 2018 my net return with Fundrise was 7.4%. This compares with a -5.9% for the VNQ. That’s a more than 13% difference between the two investments, and I’d rather make money than lose it.

For 2019, my Fundrise return was 9.2%. VNQ had a return of 28.89%. Even though I made over 9%, it definitely hurt that VNQ made almost 29%.  For 2019 at least, it was a 20-point swing against Fundrise.

What about 2020? Fundrise returned 7.6% for the year, while VNQ was down 4.64%. That’s a swing of more than 12% in my favor.

The performances in 2018 and 2020 were no-brainers

The performances in 2018 and 2020 were no-brainers in favor of Fundrise. But if I had started investing in 2019, the investment with Vanguard would have produced a return three times greater than what I got with Fundrise for that year.

That’s a tough difference to swallow, and if it were happening on a consistent basis I certainly wouldn’t be happy with Fundrise. Anytime an investment consistently underperforms the competition, it’s just about the best evidence you’re in the wrong investment.

But Fundrise demonstrated a major advantage over VNQ…

The Fundrise Consistency Factor

Even though VNQ made Fundrise look bad in 2019, it easily outperformed Vanguard in two out of three years.

When I did a three-year calculation of the average annual returns from Vanguard, it came to 6.093%. That was well below the 8.1% average with Fundrise.

But with that said, a quick look at the year-to-date return on VNQ for 2021 shows a positive return of 13.54% through the end of April. When compared with the 1.9% year-to-date return from Fundrise, it’s possible VNQ pulled ahead, or that the returns between the two are very close.

Even still, the fact that Fundrise has had three consecutive positive return years is also important. One of the primary challenges for any investor is to avoid losing money. That would be the case with a Fundrise investment over the past three years, while VNQ turned losses in two out of those years.

Consistency matters with investing.

Fundrise vs. the REET

Let’s take a look at another example of the real estate front, iShares Global REIT ETF (REET).

This again is not exactly an apples-to-apples comparison. Where VNQ is a US-based ETF, REET takes in real estate investments from around the world.

Similar to the VNQ, REET was down in 2018 by 4.89%. In 2019 it was up by 23.89%, then down 10.59% in 2020. I’m not going to break down the numbers with this one, because it’s pretty easy to see that REET underperformed both Vanguard and Fundrise on an average annual basis.

In looking at these two potential real estate inve

In looking at these two potential real estate investments, I’m not having any buyer’s remorse over my decision to invest with Fundrise. It outperformed both alternatives over three years.

How to stay safe investing with Fundrise

Because of the nature of the investments, Fundrise eREITs and eFunds have a lower correlation to the broader market and could potentially offer greater protection from market volatility.

Fundrise doesn’t invest in just any real estate, either. The company’s real estate team only goes after high-quality investments that can potentially earn income and safeguard against losses. So you can rest easy knowing your money is only going toward sound investments, not the riskier forms of real estate investment. Fundrise also uses bank-level security to ensure your information is safe while using the platform.

Fundrise vs. Bitcoin (Cryptocurrency)

Let’s go beyond stocks and other real estate investments and look at Fundrise compared with a true alternative investment: cryptocurrency.

This isn’t an arbitrary comparison either. I’ve been invested in crypto since 2018, along with my Fundrise investment.

We’re doing this just for fun, because certainly comparing real estate crowdfunding with crypto is about as far away from an apples-to-apples comparison as you can possibly get. But let’s do it anyway!

We’ll compare Fundrise with Bitcoin. The total return for that crypto in 2018, was -72.6%. But that comes after 2017, when Bitcoin had a return of 1,318%.

But the situation changes in the next two years. B

But the situation changes in the next two years. Bitcoin is up 87.2% in 2019, and 302.8% in 2020. What’s more, Bitcoin continued to power forward in the first few months of 2021.

Looking at the average annual return on Bitcoin for 2018, 2019 and 2020, it’s an unbelievable 105%.

Fortunately, I was invested in the stock market and crypto at the same time I was in Fundrise, so I didn’t miss out. But now you have a side-by-side comparison of how Fundrise performs compared to both commercial real estate and non-real estate investments, like stocks and crypto.

Fundrise’s Investing Strategy

As mentioned earlier, Fundrise offers four plans. The Starter Plan or portfolio invests 25% in its Income eREIT V, 25% in its Growth eREIT V, 25% in its Income eREIT II and 25% in its Growth eREIT II.

Its Supplemental Income portfolio is currently invested in 40 projects. Of them, 71% are debt real estate assets (meaning it owns the loans) and 29% are equity (meaning it owns the property). 

The Balanced Investing portfolio is invested in 52 projects, of which 57% are debt and 43% are equity.

Finally, the Long-Term Growth portfolio is invested in 41 projects, of which 38% are debt and 62% are equity.

Supported Accounts Individual and Joint accounts Trusts Limited Liability Companies Limited Partnerships C Corporations S Corporations Unsupported Accounts 529 IRA Roth IRA *Can invest in IRA accounts through Millenium Trust Company, a Fundrise partner, for an additional fee

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Fundrise Pricing and Options

When investing with Fundrise, you are charged two standard fees plus a third that might impact your investment:

  • Asset Management Fee: 0.85%
  • Investment Advisor Fee: 0.15%
  • Asset Origination/Acquisition Fee: 0% – 2% (Depending on your investment)

Add them up, and you’ll see the fees charged equate to 1 to 3% of your portfolio with Fundrise. For example, if you invested $100,000 for a full calendar year, you would be charged a total fee of $1,000 – $3,000. Fundrise charges these fees to your account monthly.

The Fundrise team claims you can save 20% to 40% on cost vs. traditional investment firms. The cost structure can be broken down as follows:

FundriseTraditional
Investment Advisor Fee0.15% annual0.25% – 1.45% annual
Asset Management Fee0.85% annual1.00% – 3.80% annual
Total Annual Costs/Fee1.0% annual1.37% – 6.45% annual
Asset Origination Cost0% – 2% advance0% – 3% advance

Based on the total annual fee, Fundrise would charge you 1% on your total investment for one year. If you start with a $10,000 investment, you will pay $100 each year. Other popular investing software charge 2% to 6% so you would be paying $200 to $600 for the same period.

The company may also charge one-time fund development and fund liquidation fees of 0% to 2%. This fee is charged by many other REITs and usually ranges between 1% and 3%.

An additional servicing fee may also be charged by the company for non-performing assets. The fee depends on the individual fund manager’s discretion. The total fee equals the reimbursement cost of actual expenses incurred on a non-performing asset.

So far, the business reports there have been no non-performing assets. Hence, customers have not been charged this fee. However, this could change, and investors may be charged this fee.

Fundrise vs The Competition

Fundrise vs other crowdfunding platforms is really what it comes down to. How does Fundrise compare in this review against others.

Well, at the time of writing there are 11 categories we rank them by. Here they are:

  1. Is Fundrise Available in all 50 states? – Yes
  2. Do they prefund deals? – Yes
  3. Fees? – Approximately 3%
  4. Minimum Investment? – $500
  5. Co-Investing? – Unknown, but most likely not
  6. Bankruptcy Protection? – Yes
  7. VC Funding? – Yes
  8. Non-Accredited Investors Allowed? – Yes
  9. Diverse Property Types? – Yes
  10. Equity Investments? – Yes
  11. Debt Investments? – Yes

A few months ago, Fundrise was tied in first place with 3 other platforms, but now that they have dropped their minimum investment to $500 from $1,000, now they will take first place with an overall score of 5.5 points out of 6.5 points.

Our rule is the top 5% of sites will get a 5-star ranking, so it’s still an overall tie which Fundrise shares with EquityMultiple and RealtyMogul.

Realty Mogul

This platform was founded in 2013 and is for both accredited and unaccredited investors.

Realty Mogul tends to invest in apartment buildings, retail centers and class A office buildings. The minimum investment amount is $1,000. They offer both debt and equity investments and have what is called “private REITs” which are similar to REITs sold on the stock exchange.

To date, they have over 130,000 investors, borrowers and sponsors. Realty Mogul has provided financing to over 135 properties and loans amounting to $280 million.

You can learn more about Realty Mogul here.

Equity Multiple

Equity Multiple is focused in bringing institutional grade investments to average investors. So, very large apartment complexes, retail centers, office buildings, etc.

The minimum investment is between $1,000 and $5,000 generally, but it varies by deal.

Learn more about Equity Multiple here.

What I Like About Fundrise

Here is a summary of this Review and what I like about Fundrise. Seemingly lower fees than traditional real estate investing I am impressed by the website, layout, and utter simplicity. I love how you can reinvest dividends It’s great that you can pick a strategy based on your risk tolerance and investing goals, then Fundrise does the rest.

The Bad Side of Fundrise

It’s actually hard to find negatives about Fundrise. But here are the worst parts. I wish there were more offerings to choose from, or that they came along more often. You’re limited to the funds they have available. It would be great if they brought back individual deal crowdfunding.

What Are Fundrise’s Fees?

A big part of Fundrise’s value proposition to investors is that the company cuts out middlemen and charges lower fees.

Let’s take a closer look at their low-fees claim. Fundrise charges investors two primary fees:

  • Advisory fee of 0.15% per year: A $1,000 investment would pay $1.50 per year in advisory fee.
  • Asset management fee of 0.85% per year: A $1,000 investment would pay $8.50 per year in management fees.
  • Together, these two fees mean investors pay a total annual fee of 1.00% on Fundrise.
  • Fundrise doesn’t charge any sales commissions, transaction fees, or carried interest fees for its plan-based offerings.
  • On some specialized funds, Fundrise may charge fees like development or liquidation fees for work on specific assets. According to Fundrise, these are one-time fees that are industry standard and are rarely charged.
  • If you choose to invest using an IRA, there is a $125 annual fee, which you can get waived by maintaining a balance of at least $25,000 or by investing at least $3,000 per year.

One compelling feature is that Fundrise will waive their advisory fee (doesn’t include their annual asset management fee) for every new investor you refer to their platform. Depending on your account level, you can get up to a full year of advisory fee waived for a single referral. Each person you refer will receive 90 days without advisory fee.

Explore Fundrise Properties & Start Investing Today (Starting at $10)

Why Invest In Real Estate?

Before we talk specifically about Fundrise, let’s look at the reasons why diversifying by adding real estate to the mix is such a great strategy.

Investing in real estate is an ideal way to generate passive income.

Passive income is money that rolls into your bank account without much effort on your part!

When real estate becomes a passive investment, you are not required to get out there with your shovel and start digging for the new construction. You put money in the pot and the actual planners and builders take care of the rest!

You will supply the money, not the manpower! So when you’re asleep or mowing your lawn or eating dinner, your real estate investment continues to grow in value and earn income.

Investing in real estate also provides tax breaks for your personal finances due to depreciation and tax write-offs.

Where Fundrise gets it right

Investors can choose from multiple different portfolios

Fundrise offers multiple different investment options including:

  • Fixed Income: This portfolio is focused on investing in products with durable demand and constrained supply to reduce investing risk. Examples include real estate backed loans and structured financing. Interest income is the primary source of expected returns. 
  • Core Plus: This portfolio aims to acquire and operate stabilized cash-flowing real estate. Fundrise looks for properties where they believe they can add value through focused management. This includes residential properties and commercial properties in growing markets. 
  • Value Add: This portfolio consists of properties that generally require improvements or lease-ups.  Fundrise aims to acquire properties below their replacement cost in growing markets where there's limited access to affordable rental housing. The goal is to invest money to make these properties more competitive. 
  • Opportunistic: Assets in this portfolio usually include real estate that Fundrise will redevelop. Fundrise looks for underutilized properties with good locations in dynamic markets and aims to recreate them so they become more profitable over the long-term. 

With multiple different portfolio options to choose from, almost any investor can find one suited to their risk tolerance and investing goals. 

You don't need much money to get started 

Fundrise allows you to get started investing in real estate with just a $10 minimum investment if you sign up for their Starter Account. This account provides access to registered investment products, as well as dividend reinvestment and auto investing. 

You don't have to be an accredited investor

Many real estate investing platforms require you to be an accredited investor. This means you must have assets of $1 million or more (not counting your primary home), or must have an income of $200,000 (or $300,000 combined with a spouse) over the prior two years and expect your income to remain at this level. Fundrise does not require this, making it much easier for people to begin investing even if they aren't high-earners. 

Fundrise offers IRAs

Fundrise provides the opportunity to invest in real estate using an IRA as long as you opt for at least their Basic Account Level. While this requires a $1,000 minimum initial investment, many real estate platforms do not offer IRAs so those who are interested in putting real estate into their retirement investing portfolio will find this feature very attractive.

Fundrise pros and cons

Our Fundrise review found several advantages and disadvantages of using the platform. Take these into consideration before making an investment.

Fundrise Pros

  • Low minimum and fees. You only need $500 to start with Fundrise and it charges only 0.85% asset management fee annually. 
  • Accepts non-accredited investors. As mentioned, the platform is open to any investor living in the United States, regardless of their network and income. This sets them apart from competing firms that are available to accredited investors only. 
  • 90-Day Guarantee. If you’re not happy with your Fundrise investments, you can sell them back to the platform for the original investment amount. There are conditions to this claim, however. 
  • Diversification. Fundrise eREITs give you access to a pool of properties that could even out your returns – this sets them apart from other firms that offer private REITs. 
  • Passive investment. As opposed to owning a commercial real estate, Fundrise makes passive real estate investing a walk in the park. 
  • Access to commercial real estate. Before platforms like Fundrise, commercial real estate investing was exclusive to only those who had lots of money. With Fundrise, you can invest in commercial real estate at an affordable rate.
  • Potential for liquidity. While REITs are typically illiquid, Fundrise offers a quarterly redemption plan that offers periodic liquidity. Do note, however, that distributions are not guaranteed. 

Fundrise Cons

  • Taxes. All Fundrise distributions are taxed as though they are ordinary income, as opposed to the typical 15% tax rate on qualified dividends.
  • Liquidity. Once you make an investment in Fundrise, you’ll have to commit to it for the entire term. You won’t find a secondary market to sell the investments you made. However, this is padded by the platform’s quarterly redemption program that allows you to redeem your shares for a fee (with conditions). 

Fundrise Fees

One of the best things about Fundrise is the flat fee charged to all investors. Each portfolio listed above comes at a standard 1% annual investment fee.

This covers all the research, administrative tasks, and management associated with running Fundrise. In addition, each time a new building is purchased, there is the occasional origination fee.

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.

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