Are you wondering whether Fundrise eREITs are a good investment? I've got the answers as I’ve worked with Fundrise since 2016. They’ve consistently impressed me with their innovation.
They were founded in 2012 and are the pioneers of the eREIT product. They’ve not only raised $55 million from venture capital, but they also found a way to directly raise capital through their “Internet Public Offerings” directly from investors on their platform (past 9 months).
More recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.
Fundrise is open to non-accredited investors i.e. everyone. Further, their business model of creating tailored funds like the Heartland eREIT is attractive to someone who wants to diversify into real estate, but who doesn’t want to pick and choose individual investments on the platform, despite these investments also being carefully vetted first.
Check out their Form 1-Semi Annual Report filed with the SEC. The first several pages has details of their progress. In September 2018, they surpassed $400 million in assets under management under the Sponsored Programs. By 2019 they grew past $1 billion. Fast forward to 2023 and they've grown past $7 billion in total asset transaction value with over 387,000 active investors.
This post will discuss specifically about Fundrise's eREIT products for all investors.
Fundrise eREIT Review
To start, a REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate.
Most REITs are similar to Vanguard's VNQ, the largest publicly traded REIT today. If you want to gain a broad exposure to the real estate market, you can simply buy a REIT ETF and be done with it. Just know that not all REITs are created equal, and Fundrise has created tailored eREITs to take advantage of difference areas of the country and different objectives.
Below are some eREITs that Fundrise created to tailor their product offerings. I'm personally biased for the Heartland eREIT because I see a multi-decade migration to cheaper areas of the country thanks to technology.
Check out my post: Focus On Trends: Why I'm Investing In The Heartland Of America
Important Fundrise eREITs™ Questions And Answers
Here are all the questions I was wondering about. Some of the answers are from their website and others I got directly from the company.
What is an eREIT™?
An “eREIT™” is a real estate investment trust, or REIT, sponsored by Rise Companies Corp. (the parent company of Fundrise, LLC) and offered directly to investors online, without any brokers or selling commissions. Each eREIT™ intends to invest in a diversified pool of commercial real estate assets, such as apartments, hotels, shopping centers, and office buildings from across the country.
How Do I Make Money With Fundrise eREITs™?
You earn potential returns based on the real estate investments made by each eREIT™ that you invest in. By investing in one of the Fundrise eREITs™, you are purchasing common shares of a limited liability company. In turn, the eREIT™ uses the proceeds from its sale of common shares to make investments in commercial real estate assets.
As an investor, you are entitled to your pro-rata portion of any income earned and distributed by the eREIT™. Distributions are anticipated to occur on a quarterly basis, beginning after the first full quarter of operations, which is expected to be the first full quarter following the launch of a particular eREIT’s™ offering of common shares. However, there can be no guarantee that any eREIT™ will be profitable, and investors may be subject to partial or total loss of their investment.
What am I investing in with an eREIT™?
A REIT is a company that combines the capital of many individual investors to acquire or invest in a diversified pool of commercial real estate. A REIT is required to distribute at least 90% of the annual taxable income it earns to investors.
What are the costs and fees associated with investing in an eREIT™?
Assuming a fully subscribed offering, each eREIT™ anticipates having a reimbursement of organizational expenses of approximately 2%, marketing and distribution expenses of each offering up to 1%, and annual ongoing asset management fees and operational expenses of approximately 1-1.5%.
However, the foregoing does not purport to be a full explanation of the fees associated with each eREIT™, which may vary among the eREITs™, and is qualified in its entirety by the disclosure contained in the “Management Compensation” section of each eREIT’s™ Offering Circular, which are available at https://fundrise.com/oc.
Can I redeem (sell) my shares in an eREIT™?
Yes, with some limitations. While you should view your investment as long-term, each eREIT™ has adopted a quarterly redemption plan, whereby shareholders may request that an eREIT™ redeem some or all of their shares at the end of each quarter, subject to certain limitations. We may not redeem more than 5% of the total outstanding shares of an eREIT™ in any given year.
What are the risks involved in an eREIT™?
Investing in an eREIT™ involves a number of risks and should only be considered by sophisticated investors who understand the risks involved and can withstand the loss of their entire investment. All investors should carefully review the Risk Factors section of each eREIT’s™ Offering Circular.
What are the differences between the Fundrise eREITs™?
The primary differences among the eREITs™ are (i) the assets each eREIT™ intends to acquire and (ii) each eREIT’s™ individual investment strategy (which may vary based on asset location, type, and investment structure). Investors in one eREIT™ will have exposure solely to the assets held by the eREIT™, and shall not have exposure to the assets held in any other eREIT™.
For example, the Income eREIT™ intends to acquire assets that pay returns on a more current basis, which is anticipated to produce more predictable and reliable cash flows; however, the Growth eREIT™ intends to acquire assets that it expects to have greater appreciation over time, which may produce larger returns but less frequent distributions.
What is the minimum investment amount for Fundrise eREITs™?
What is the latest declared quarterly dividend for the Heartland eREIT™?
The Heartland eREIT™ declared an approximate 8.25% annualized dividend for 1Q2021 net of fees.
How often are dividends paid?
Is there a way to track the price movement of the eREIT?
eREIT™ shares are initially offered at $10.00 per share, a value that was arbitrarily determined by our manager. After an initial ramp-up period, the net asset value (NAV) per share will be adjusted on a quarterly basis. Each NAV adjustment for the eREITs™ will be filed on its respective SEC Edgar webpage accordingly.
How is the income and sale of the eREIT™ treated tax wise?
The tax section of our FAQs explains how these are treated and the forms investors receive. You should receive a Form 1099-DIV for the dividends and Form 1099-B for any sales.
What is the cost to purchase an eREIT™? Or is the cost embedded?
The per share purchase price will be adjusted every fiscal quarter and will equal the greater of (i) $10.00 per share or (ii) the sum of our net asset value, or NAV, divided by the number of our common shares outstanding as of the end of the prior fiscal quarter (NAV per share).
What about Fundrise eREIT™ liquidity?
Unlike publicly traded REITs that often hold other publicly traded assets, all of Fundrise’s capital is invested in properties they pick. As a result, they can’t simply pull out money from a deal without selling the actual property.
However, to provide better liquidity, they have quarterly windows where they allow existing investors to cash out. So, while you can’t withdraw your cash whenever you’d like – you can do it at four times throughout the year without a penalty.
This ability to withdraw money without penalty can make Fundrise eREITs a good investment.
Are Fundrise eREITs™ a good investment?
Let's find out more below. Like all investments, it depends on the conditions of the economic environment and the asset class. For 2021, real estate was strong because mortgage rates were at all-time lows and there's strong demand to own homes. For commercial real estate, like multifamily properties, demand is likely to rebound and grow.
Understanding the Fundrise Income, Growth and Regional eREITs™
Income and Growth eREIT™
The Income eREIT is focused on investing in debt, not all that different from how a bank collects an interest rate on a mortgage. Thus the fund is all about cash flow.
It invests using the following three core principles:
- Small Assets: We believe targeting assets that fall under the radar of big banks and investment funds allow us to achieve higher relative returns.
- Regulatory Inefficiencies: Increased banking regulations as a result of the 2008 financial crisis have opened up new opportunities for more flexible lenders to expand into the market.
- Urban Infill Location: Real estate assets located in the core of large cities benefit from higher demand, and higher pricing, due to the relative lack of supply.
The Growth eREIT is focused on equity.
Unlike the Income eREIT, this fund owns properties with an eye towards appreciation.
Its main focus is on multi-units, and it also follows three core principles:
- Workforce Housing: There is a growing need for affordably-priced apartments, referred to as “workforce housing.” However, there is a limited supply of existing apartments that meet that demand. The result is that affordably priced apartments face little competition from newly built apartments. We believe this growing demand and lack of supply will result in existing “workforce housing” increasing in value over time.
- Low-Cost Basis: The Growth eREIT seeks to acquire properties below their replacement cost, a strategy known as “value investing.” In other words, the price paid to acquire a property is less than what it would cost someone else to build a similar property in the same location today.
- Long-Term Fixed Financing: Interest rates on loans for acquiring apartment buildings are at historic lows. By securing long-term, fixed-rate debt today, the Growth eREIT can maximize consistent cash-flow while also reducing volatility over the term of the investment.
Both the Income and Growth eREITs are hyper-focused on either cash flow or appreciation. The regional eREITs provide a more balanced investing approach as well as a way for you to invest in sections of the US that you’re particularly interested in. As such, they’re broken into three balanced funds: East Coast, Heartland, West Coast.
New Fundrise eREITs™
Here are some new Fundrise eREITs for the new decade.
Fundrise is coming out with new eREITs every year. So make sure you continue to check back.
In 2H2021, Fundrise came out with its new Starter Portfolio, aimed specifically for first-time investors. The Starter Portfolio has an investment minimum of only $10, which is the lowest I've ever seen.
Fundrise Returns Have Been Solid
At the time of Fundrise's IPO, the firm was managing roughly $1 Billion in assets under management, had 150,000+ active investors, and 76 employees. Fast forward to 2023, and the firm has a $7+ billion real estate portfolio, over 387,000 active investors and well over 100 employees.
Their AUM grow and investor signups have been very promising. Fundrise returns have also been solid and steady throughout inception.
I am continuously impressed with Fundrise's forward-thinking ways. They are growing to become a leading institutional real estate investor. My only wish is that they open up a satellite office in San Francisco. We could then go get a beer and brainstorm about the future of real estate even further.
Here's a different way to show Fundrise's platform returns versus the Vanguard total Stock Market ETF. Notice how much steadier Fundrise's returns have been over the years. Fundrise eREITs have been a stable investment since the beginning.
It's important that investors invest on the best real estate crowdfunding platforms. Fundrise rises above them all is the most experienced operator with the most innovative products. You can sign up and check them out for free.
Fundrise eREITs™: A Stable Investment
Fundrise eREITs have generated between 8% – 11% a year and they are not very volatile, unlike the stock market. Of course, past performance is no guarantee for future performance. It's important to read all the offering documents and invest based on your risk exposure.
When you ask whether Fundrise eREITs are a good investment, think about returns. If you can return 8% – 10% in this environment, I think the answer is yes.
I've personally got $810,000 invested in real estate crowdfunding (<10% of my net worth) after selling my SF rental property for 30X annual gross rent in 2017.
I'm earning a higher return, but best of all, all the income is passive. I couldn't stand dealing with tenants and maintenance issues, especially since I became a dad.
Sing up for Fundrise and see how you can diversify your investments in real estate eREITs today. Overall, I think Fundrise eREITs are a good investment in this volatile environment. But of course, there are no guaranteed returns.
About the Author:
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. After William & Mary and Berkeley for his MBA, he worked at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has $810,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34 largely due to his investments. They now generate roughly $300,000 a year in passive income. He spends time playing tennis and taking care of his family. Fundrise eREITs is one of the easiest ways to gain real estate exposure in a low volatile way.