Is Fundrise Worth it? My Yearly Returns

What Is Fundrise?

Fundrise is a real estate investment company that offers an 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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What Type of Real Estate Does Fundrise Invest In?

Fundrise invests in both residential and commercial real estate, such as single-family and multi-family rental properties, for-sale housing, hotels, retail space, shopping centers, and office buildings.

Fundrise cites as example projects, “a land bridge loan in California’s Bay Area, to direct ownership of a last-mile delivery warehouse in Maryland, to a luxury apartment tower in Tampa, to an entire community of detached, single-family rental homes just outside of Houston.”

They rely on an internal team of analysts to source, research, conduct due diligence, and underwrite real estate deals. Their goal is to acquire “high-quality assets, focusing on locations and asset types with the potential for outsized growth.” Historically, they’ve accepted less than 1% of deals they consider each year.

Keeping with its philosophy of transparency, the company provides a complete list of all their assets, which you can sort by investment size or region.

You can dig into any specific project and see the details. For example, here’s a profile of their EVO Apartments in Las Vegas, Nevada.

Fundrise eREIT Returns (Updated March 1, 2022)

Overall returns don’t tell the full story, because depending what you strategy you invest in, your returns will vary greatly.

Here is the historical range of returns for Fundrise eREITs that are currently in the “operating” phase (UPDATED: March 1, 2022):

  • Income eREIT (income): 6.0% — 9.7% per year (5.94% dividend yield)
  • Growth eREIT (growth): 12.8% —43.0% per year (2.56% dividend yield)
  • East Coast eREIT (balanced): 10.2% — 21.4% per year (0.70% dividend yield)
  • Heartland eREIT (balanced): 5.7% — 41.7% per year (3.47% dividend yield)
  • West Coast eREIT (balanced): 4.4% — 9.1% per year (4.87% dividend yield)

I only focused on “operating” funds because it’s important to understand the concept of the J curve in a real estate investment. Fundrise describes it like this:

A “J” curve investment is an investment that follows a pattern where realized returns tend to be lower — or even negative — in the early period of the investment, often as a result of both money and time being invested into creating value, with the majority of the return on that capital and work realized towards the later portion of the investment period.

This is because real estate property often requires an investment of time and money to acquire tenants, optimize the property, and ultimately sell the asset at a higher value than it was bought. Such upgrades hurt the profitability of the project early on (sometimes even making it negative), but can drive strong returns in later years.

This means that returns on the Fundrise investment platform tend to be better in the later years vs. the early years:

Fundrise investors should not only expect for returns to be lower than the platform average if they’re in their first year or two of their journey with us, but if they’re like us and like to think long-term, they might actually get excited about owning a portfolio that is heavily weighted towards properties that are in this early “incubation period” where we are building up the potential for higher returns in the future.

There’s also a difference in the returns for their income-focused investments vs. their growth investments:

The first year returns for the income investments are higher than the growth investments. After the end of the second year though, the growth investments have “caught up.” By the end of the third year, the growth investments have begun to see a “pop” in their value while the income investments have leveled out into a straighter line, resulting in the growth investments earning a greater total return over the life of the investment.

To summarize, Fundrise aims to provide steady returns over the long term. When the stock market and public REIT funds surge, Fundrise will be left behind. At the same time, when public markets crash, Fundrise is likely to strongly outperform (as they did in 2020).

Staying on the platform longer leads to better returns, since real estate investments have a lower return profile in their first few years due to the J curve.

So if you’re looking for fast results or a high-risk investment with huge upside, investing with Fundrise probably isn’t a fit for you.

But if you’re looking for portfolio diversification, safe exposure to a real estate portfolio, and steady, attractive, long-term returns, then Fundrise could be an excellent addition to your portfolio.

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

Maximizing your earnings with Fundrise

Your potential earnings with Fundrise will vary depending on your portfolio and the investments within it. But there are a few things you can do to help maximize your earnings. Consider these tips before jumping in:

  • Look at your options: Fundrise doesn’t offer one catch-all portfolio but rather a handful of options tailored to your specific investment style. Understand each of these plans before you begin so you know you’re choosing the best option for your situation.
  • Reinvest your dividends: It might be tempting to take your earnings and do with them what you want, but reinvesting your dividends puts that money straight back into open offerings with Fundrise. There are no fees to reinvest your dividends.

Plans

Fundrise offers five different portfolio options, with minimum investments ranging from $10 to $100,000.

Starter

This is Fundrise’s most basic plan. Investors can get into the market with a minimum $10 investment. This is a good option for anyone with a little money to invest or for anyone who just wants to test out the market.

Basic

This account is a setup from the starter plan and allows investors to invest via their individual retirement accounts (IRAs). This plan requires a minimum $1,000 investment.

Core

The core plan adds a bit more customization than the basic plan, including customizing their portfolio strategy and directly allocating money to funds. The minimum investment for the core plan is $5,000.

Advanced

This plan gives investors access to more sophisticated real estate investing strategies. The minimum investment for the advanced tier is $10,000.

Premium

This is the highest-end offering from Fundrise, tailored for accredited investors. The minimum investment is $100,000 and gives investors priority access to the company’s investor relations team.

Fundrise Disadvantages

No investment option is perfect, and Fundrise is no exception. While investing in Fundrise can offer high returns and truly passive income, there are some disadvantages to consider as well.

  • Many Fundrise investments outside of their new eREIT products are not available to unaccredited investors. To become an accredited investor, you must meet certain criteria decided by the SEC. One way to qualify as an accredited investor is earning an income of at least $200,000 per year or a joint spousal income of at least $300,000 per year for at least two years. Also, having a net worth of at least $1 million dollars will do, regardless of your income. There are other ways to meet the requirements to become an accredited investor, of course, but those are the two easiest.
  • Fundrise investments are not liquid until they reach maturity. While Lending Club offers a secondary market where you can sell notes if you need to cash out, Fundrise does not offer this option yet. As a result, your investments are not liquid until they reach maturity. If you feel you might need to access your money at any time, this is a disadvantage. Fundrise has recently introduced a stopgap measure to make it easier to cash out investments.
  • Fundrise offers limited investment options at this point. Even for accredited investors, investment options are somewhat limited. This will likely continue to change as Fundrise grows its platform, but it’s still worth noting that your choices are not plentiful yet.
  • Fundrise is relatively new, so we don’t have a lot of data to work with yet. While Fundrise investors earned an average of 13 percent on their investments in 2015, the company wasn’t founded until 2012. Earnings dipped into the single digits in 2016 but bounced back to 11.44 percent in 2017. It will be interesting to see what kind of earnings investors report in 2019 and beyond.

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. 

Account levels

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
  • Annual asset management fee: 0.85%
  • Annual advisory fee: 0.15%
  • Dividend reinvestment
  • Auto invest
Basic plan $1,000
  • Annual asset management fee: 0.85%
  • Annual advisory fee: 0.15%
  • Starter plan features
  • Ability to create investment goals
  • IRA investing
  • Access to Fundrise IPO
Core plan $5,000
  • Annual asset management fee: 0.85%
  • Annual advisory fee: 0.15%
  • Basic plan features
  • More opportunities for diversification
Advanced plan $10,000
  • Annual asset management fee: 0.85%
  • Annual advisory fee: 0.15%
  • Core plan features
  • Access to more sophisticated investing strategies
Premium plan $100,000
  • Annual asset management fee: 0.85%
  • Annual advisory fee: 0.15%
  • Advanced plan features
  • Priority access to investment team
  • Access to accredited offerings

What is Fundrise and How Does it Work?

Fundrise an investment service that allows you to invest directly in commercial real estate.

Fundrise created a marketplace that is fairly transparent and their goal is to “make the process of investing in the highest quality commercial real estate from around the country simple, efficient, and transparent.” Essentially, they bridge the gap between the investor and the developer.

As I complained about above, real estate is traditionally very exclusive, and the only investors were those with direct access to the institutions that fund the deals. Fundrise (along with many others) is cutting out the middle-man and allowing us to directly invest. Also, by cutting out the institutions, it should hopefully reduce the overhead expenses and keep our fees low.

Fundrise currently has hundreds of thousands of members and they have invested in billions worth of real estate. They let you invest as little as $500 at a time into commercial real estate and you get to pick the allocation of the funds into different REITs.

Are you ready to see how they do it? Continue reading this Fundrise review to find out. But first.

What is Commercial Real Estate?

There are 4 primary types of real estate – land, industrial, residential, and commercial. Commercial real estate is the broadest type of real estate and there are a dozen or so sub-categories within the CRE category.

The most common types of real estate are multifamily apartment complexes, office buildings, and retail.

While multifamily is used for residential purposes, it is classified as commercial real estate because it’s primary purpose is to provide income for the owners. Residential real estate is 1-4 unit properties and the primary purpose is for the owner to live there.

Review of Fundrise – Why Invest in Commercial Real Estate?

One of the big things we need to cover in this Fundrise Review is why commercial real estate is a great place to invest your money and a great long term investment.

The biggest reason is income. Commercial real estate is bought for the primary purpose of providing income, and that’s what it does best. In CRE, even the price of the building is determined entirely on the income it provides, not on what other properties are selling for.

The second biggest reason to have commercial real estate as an investment is because of appreciation. Since price is determined by the income, anything that increases income will increase its value. In real estate, we call this ‘forced appreciation’ and it’s a great way to increase the value of your investment.

Check Out Fundrise Now

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?

How Risk Tolerant Are You?

Before you invest your money, you should develop your risk profile. Your age, income, and goals all factor into how much risk you’re willing to take on. Fundrise may promise great returns, but it may not be suitable for your investment portfolio if it doesn’t fit your risk profile.

One important thing to note about Fundrise and its offerings is that the company came about after the financial crisis, and has no experience with any significant downturn in the economy, especially pertaining to the real estate and housing markets. There's no telling how investors may react to negative news if they try to cash in their holdings in the company at the same time.

Fundrise, founded in 2012, has yet to experience any downturn in the housing and real estate markets.

Depending on your age and overall goals, an investment in the eREIT might be worth the investment. On the other hand, other investors might not feel comfortable with the risk associated with the nature of the eREIT. Publicly-traded REITs may be a much more suitable alternative for conservative investors like retirees, who want a reliable flow of income while protecting their principal

My experience using Fundrise

I appreciate the dedication to transparency you see at Fundrise, and their website and investor dashboard are clean, clear, and easy to use. It’s a relief to be able to invest smaller amounts of money and the fact that you don’t need to be an accredited investor is a huge plus.

They also provide a lot of investor education, which I think is important for new investors. It’s still important that you do your research, though, both inside and outside the platform, so that you know exactly what you’re getting into and can forecast some trends out to the five- and 10-year marks at least.

How Does Fundrise Work: Final Thoughts

Fundrise offers a relatively easy way to buy into real estate with a starting point of $10.

Fundrise will pool your money together with thousands of others and put it toward new construction projects or rehabilitations with potential. This will be completely passive investing requiring no time or energy on your part.

How successful has the Fundrise platform been so far? To date, Fundrise has acquired more than $5.1 billion in real estate and distributed over $100 million back to investors in the form of dividends.

If this is the type of investment you are searching for, follow the link below to sign up for Fundrise today!

Start Investing With Fundrise Today With $10 Minimum

Signing Up for Fundrise

The investment platform is easy to use and sign up for. Since they are focused on individual non-accredited investors, they’ve focused on keeping things simple.

Just visit the website and sign up to create an account through the ‘Invest Now’ option. You will need to provide necessary details like your full name, email address, and choose a password to create an account.

You will be asked to choose the type of account you want to create. There are two main options here. You can either create an individual account or go with a selection between joint/trust /entity account.

You will then be prompted to fill in personal details including your home address, SSN, date of birth, and phone number. After filling in this information, you will be asked about funding options. You can make an online payment through EFT, debit/credit card or wire the money. The Fundrise platform is secure and encrypted.

If you invest the $500 minimum required, Fundrise will put you in the Starter portfolio, which is merely a 50% income and 50% growth-oriented approach to commercial real estate investing.

If you invest $1,000 or more, you can invest in three goal-based plans:

Supplemental Income

The Supplemental Income plan is an income-oriented strategy. You are investing in cash flow, making returns primarily through dividends rather than the appreciation of the underlying asset.

So this could be a strict revenue approach. It’s very much like investing in dividend stocks which don’t have plenty of growth of the underlying asset, but they’re paying a consistent dividend and a high dividend yield.

Balanced Investing

Next, you’ve got the Balanced Investing plan that’s a blend of both growth and income, cash flow generating property, and they also are buying undervalued property in emerging areas and looking to earn money from the asset appreciation.

So Fundrise is purchasing properties, fixing them up, making repairs, and then selling them down the line. The yield is the gap between what they bought it for and the renovation costs and what they are selling that bit of property for later.

Long-Term Growth

Finally, there’s the Long-Term Growth program. This is a growth-oriented approach — investing in undervalued real estate, improving it, and selling it. The asset appreciation is where you’re making the majority of the money with a tiny bit of income from dividend payments or the cash flow from the real estate.

You can start with as little as a $500 investment. After you have made the deposit, you will receive a confirmation about the fund transfer. You will almost always start with a starter portfolio, but you can choose and set a different type of investment portfolio based on your needs.

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