{"id":670,"date":"2022-07-20T09:30:11","date_gmt":"2022-07-20T09:30:11","guid":{"rendered":"http:\/\/www.moneyngham.com\/?p=670"},"modified":"2024-05-05T11:51:04","modified_gmt":"2024-05-05T11:51:04","slug":"fundrise-review-crowdfunding-for-real-estate-investing","status":"publish","type":"post","link":"https:\/\/www.moneyngham.com\/index.php\/2022\/07\/20\/fundrise-review-crowdfunding-for-real-estate-investing\/","title":{"rendered":"Fundrise Review \u2013 Crowdfunding for Real Estate Investing"},"content":{"rendered":"
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\r\n \t<\/i> Read Time:<\/span>11 Minute, 6 Second <\/div>\r\n\r\n <\/div>\n

Disclosure: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Money Ngham.<\/strong><\/p>\n\n\n\n

If you\u2019ve ever looked into buying a rental property, you know how much cash you need to cough up in down payments, closing costs, repair costs, cash reserves, and more. You simply can\u2019t do it without tens of thousands of dollars.<\/p>\n\n\n\n

That makes Fundrise<\/strong> an intriguing proposition. With a minimum investment of only $10, Fundrise opens up real estate investing to the masses \u2014 no experience or hefty down payments necessary.<\/p>\n\n\n\n

And with a few exceptions, Fundrise\u2019s perks just get better from there. <\/p>\n\n\n\n

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Key Features of Fundrise<\/h2>\n\n\n\n

Fundrise ranks among the best known real estate crowdfunding platforms on the market. Founded in 2010 and launched to the public in 2012, Fundrise entered the crowdfunding market early. <\/p>\n\n\n\n

You can invest in Fundrise with as little as $10, and you don\u2019t need to be an accredited investor. Here are some other important points to note as you explore investing with Fundrise.<\/p>\n\n\n\n

Types of Investments<\/h3>\n\n\n\n

Broadly speaking, Fundrise offers private REITs (real estate investment trusts), which own a mix of properties and real estate-secured debts. When you invest in Fundrise, your money spreads among these \u201ceREITs\u201d as Fundrise calls them. The more money you invest, the more flexibility and control you have to choose specific investments.<\/p>\n\n\n\n

Fundrise Real Estate Investments<\/h4>\n\n\n\n

Fundrise investments include both commercial and residential properties, in cities all over the country. These properties include apartment complexes, single-family rental properties, commercial buildings, and mixed-use properties. That makes for broad diversification, no matter how little money you invest.<\/p>\n\n\n\n

Fundrise Debt Investments<\/h4>\n\n\n\n

In addition to owning properties directly, Fundrise also owns debts secured against real estate. This further adds to the diversity, as debts generate income, while properties add long-term growth potential. <\/p>\n\n\n\n

Account Levels<\/h3>\n\n\n\n

The Fundrise platform offers five different investment levels, based on the amount you invest. <\/p>\n\n\n\n

Starter and Basic Levels<\/h4>\n\n\n\n

At the $10 \u201cStarter\u201d level, Fundrise set your allocation as it sees fit. When you reach the $1,000 \u201cBasic\u201d level, you get access to a couple additional features, such as their goal tracking tool and investing through a self-directed IRA. <\/p>\n\n\n\n

Core Level<\/h4>\n\n\n\n

If you invest $5,000 or more, you graduate to the \u201cCore plan\u201d and gain more flexibility over your investments. You can choose between their Supplemental Income, Long-Term Growth, or Balanced investing strategies. <\/p>\n\n\n\n

As you probably guessed, these emphasize either stable dividend income or higher potential gains based on your investment goals. You can also allocate money directly to specific eREIT funds, although I had to look closely to figure out how to do it. <\/p>\n\n\n\n

Advanced Level<\/h4>\n\n\n\n

At the $10,000 \u201cAdvanced\u201d level, you gain access to \u201cPlus plans,\u201d optional add-ons to the broad investing strategy you\u2019ve selected. These give you access to \u201cmore sophisticated real estate strategies that may vary over time as different market opportunities present themselves.\u201d Vague as that sounds, these include investment opportunities such as building new homes to sell. Fundrise offers separate \u201ceFund\u201d investment options for these, which you can invest in directly at the Advanced level.<\/p>\n\n\n\n

Premium Level<\/h4>\n\n\n\n

If you invest $100,000 or more, you can access private real estate funds for accredited investors. These real estate projects often come with higher risk and return potential. <\/p>\n\n\n\n

100% Passive Investment<\/h3>\n\n\n\n

Because you\u2019re investing indirectly in real estate, rather than buying a property yourself, you don\u2019t have to take on any of the labor. <\/p>\n\n\n\n

And real estate investing labor is significant. It includes finding good real estate deals, doing due diligence on them, arranging financing for them, upgrading or repairing properties, advertising vacancies, screening tenants, collecting rents, and evicting bad tenants.<\/p>\n\n\n\n

To invest with Fundrise, you just connect your bank account and transfer funds. The end. <\/p>\n\n\n\n

Multiple Funds<\/h3>\n\n\n\n

Fundrise owns and operates over a dozen REITs and funds. But the rules differ between Fundrise\u2019s \u201ceREITs\u201d and their \u201ceFunds.\u201d<\/p>\n\n\n\n

Each eREIT owns a handful of different properties. These sometimes focus in a specific geographical area, such as the West Coast eREIT. Alternatively, some eREITs are designed for a specific investing goal, such as the multiple Income eREITs and Growth eREITs. Investors at the Core level or higher can pick and choose individual eREITs to fund.<\/p>\n\n\n\n

Where it gets slightly more complicated is that Fundrise also offers eFunds, which work differently than eREITs. The catch-all bucket fund is their Interval Fund, which they use to fund projects flexibly based on need. Fundrise also offers targeted eFunds, only available to investors at the Advanced level. <\/p>\n\n\n\n

Why all the fuss over terminology? Well, Fundrise imposes different rules for cashing out your shares early, depending on the type of investment. eFunds may be easier to cash out than eREITs.<\/p>\n\n\n\n

Long-Term Investments<\/h3>\n\n\n\n

Buying shares is easy, but what about selling them?<\/p>\n\n\n\n

It turns out that isn\u2019t quite as simple. There\u2019s no secondary market for selling shares, so in order to do so, you have to redeem them with Fundrise. <\/p>\n\n\n\n

Fundrise explicitly tells you to only invest money you plan on leaving invested for at least five years. If you redeem shares within five years, they charge you with a 1% penalty when buying them back. <\/p>\n\n\n\n

On some shares, anyway. They waive the 1% penalty when selling shares in their Interval Fund, a flexible fund that puts money where it\u2019s needed most. As an example, Fundrise allocates 42% of my own investment into the Interval Fund. <\/p>\n\n\n\n

Regardless of the granular details, real estate is an illiquid, long-term investment. Only invest money you plan to leave invested for at least five years.<\/p>\n\n\n\n

Quarterly Distributions<\/h3>\n\n\n\n

Fundrise pays out dividends quarterly to all investors. They also make it easy to reinvest dividends automatically through a DRIP option. <\/p>\n\n\n\n

The Supplemental Income investing plan offers the highest dividend yield, at the sacrifice of higher potential long-term returns. For example, it paid out a 4.96% yield in 2021, plus 13.02% appreciation, for a total annual return of 17.98%. The Long-Term Growth plan paid a lower 2.92% dividend yield, but produced a higher total return of 25.12%. <\/p>\n\n\n\n

Invest Through Your IRA<\/h3>\n\n\n\n

Fundrise partnered with Millennium Trust Company to offer investments through a self-directed IRA. <\/p>\n\n\n\n

When you invest in real estate (or anything else) through a self-directed IRA, you need a third-party custodian to oversee your investments. This comes with an annual fee of $125. However, Fundrise waives the next year\u2019s annual fee if you invest at least $3,000 of new money in the current calendar year. They also waive the fee permanently for accounts maintaining a balance over $25,000. <\/p>\n\n\n\n

No Liability<\/h3>\n\n\n\n

Landlords and real estate investors take on more legal liability than most. People just love to sue landlords, and most states and cities tilt their landlord-tenant laws in renters\u2019 favor.<\/p>\n\n\n\n

When you own property directly, that liability can bleed over into your personal assets. And no, just buying properties under an LLC name doesn\u2019t give you a bulletproof legal shield. Litigants typically name you personally in landlord lawsuits, and it\u2019s up to you to prove to the judge that your personal name should be removed from the lawsuit. That generally involves demonstrating that you never commingled assets, and operate your LLC like any other business.<\/p>\n\n\n\n

Take it from a landlord who\u2019s been sued several times. <\/p>\n\n\n\n

Increasingly, some cities and states are even adding criminal liability for landlords. That means that if you make a mistake as a landlord, you could potentially serve time in prison. <\/p>\n\n\n\n

None of which are risk factors when you invest via real estate crowdfunding. <\/p>\n\n\n\n

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Advantages of Fundrise<\/h2>\n\n\n\n

Fundrise comes with a slew of advantages, both over investing directly in real estate and over other crowdfunding investment platforms.<\/p>\n\n\n\n