Fundrise eFunds: An Innovative Way To Invest In Your Future Home

Fundrise eFund Review: An Innovative Way To Invest In Your Future Home

If you want to invest in real estate, consider investing in Fundrise eFunds. Fundrise eFunds are private real estate funds that provide diversified exposure across America.

Washington D.C. based Fundrise is one of the most innovative real estate crowdfunding platforms today. They were the first to create the eREIT, a real estate fund that uses crowdfunding regulations to provide access for non-accredited investors to invest in private real estate across the country. 

Then they invented the “Internet Public Offering.” Fundise directly raised over $14.6 million from 2,300+ Fundrise customers in a matter of 27 hours. Finally, Fundrise has created Opportunity Zone funds to take advantage of tax laws.

When they contacted me to sponsor a post about their new Fundrise eFunds offering, I obliged. As a real estate enthusiast who loves to learn new things, the Fundrise eFunds look promising.

What Is A Fundrise eFund?

An eFund is a new type of investment that allows you to invest directly into a diversified portfolio that aims to develop new homes for the next generation of American homebuyers in major US cities.

Imagine being able to invest in the renovation or construction of a home in downtown Los Angeles. If your life circumstances are right, several years from now you go ahead and exercise your right to buy.

If you don't want to settle down in LA because you found a better job in Austin, you can sell your position for a potential profit. Or, you can remain invested and continue to enjoy the benefits of diversification. This is a good solution that smartly aligns investment and lifestyle goals.

So many folks are getting shut out of buying in expensive cities such as San Francisco, LA, San Diego, Seattle, New York, and Washington D.C. Demand is fierce and supply is lacking.

I cannot imagine what SF rent and its median home price will be in 22 years when my son graduates from college. Therefore, I'm accumulating rental properties now as an investment.

A $4,200/month 2/2 condo with parking will cost $6,493 a month in 22 years if rent grows at 2% a year. If rent grows at 3% a year, the condo rent surges to $8,048/month! The same condo that costs $1,100,000 today will cost $1,700,558 if it appreciates by 2% a year. It will reach $2,107,774 if it appreciates by 3% a year.

Folks, please don't rent forever. You will regret it 20 years from now. You'll also start getting upset at your parents for not buying way back when. There is no time machine. There is only inflation. Pay attention to the angst the home buying demographic is feeling today.

How The eFund By Fundrise Works

The Old Solutions To Buying A Home

In the past, there were really only two independent ways to save for a home:

1) Set up a home buying savings account.

You'd come up with a realistic home you'd like to buy sometime down the road. Multiply the price by 20%. Then calculate how much and how long you'll need to save until you can finally achieve the goal. The only problem with this method is that real estate tends to appreciate over time. Meanwhile, your savings account and real income barely move.

Inflationary chart

If your $500,000 target home appreciates by 2%, your $100,000 salary must appreciate by 10% to just stay even. Given that most people aren't seeing steady 10% annual raises, it's hard to keep up with home prices. As a result, home savers try to take on more risk or save a larger percentage of their income.

2) Invest in riskier assets that aren't perfectly correlated.

Investing in the stock market works over the long term. We're talking 7% – 10% average returns over the past 50+ years. But sometimes the stock market corrects just when you plan to use the proceeds. Pity the people who tried to retire in 2008 with mostly stocks.

Sometimes your stock picks turn into duds. The multiple corrections over the past 20 years have scared many would be investors. In fact, only ~52% of Americans own stocks. When stocks correct by 30% in one month, as they did in March 2020, it's hard to blame them.

If you have some gains from the stock market, regularly convert some of the “funny money” into real assets. I know too many people in 2000 and 2008 who lost almost all their gains if not everything.

The eFunds solution is smart because your investment is perfectly correlated with what you care about. Currently, Fundrise has two eFunds, one in Washington D.C. and one in Los Angeles with more to come if everything works well. On the respective pages, you'll see their general arguments for why investing in D.C. or LA is a good idea.

If you're planning to buy a home within the next five years and want to establish roots in Washington D.C. or LA, it's worth digging deeper. You know that demand outstrips supply due to tremendous job growth and under-building over the years.

There is anxiety that comes with realizing someone can trump you with a sweeter offer. Therefore, if you can invest in something that looks good to you now and later have the optionality of either buying a house in the project or potentially profiting by letting the eFund sell the house to other buyers, then that's an attractive value proposition.

More Info About Fundrise eFunds

Fundrise eFund cost and investing time horizon

Due to regulations, each eFund can only raise up to $50 million. Therefore, each of the Fundrise eFunds will be limited in the number and type of investments it makes. The value of your investment in an eFund will fluctuate with the performance of the specific assets it acquires.

You don't want to be greater than 20% of the fund's size for diversification purposes. Therefore, it's good to ask how the fundraising is going before locking up capital for approximately five years.

As with any investment, it's always good to start small and work your way up. With a minimum investment of $1,000 in Fundrise eFunds, it's good to start small.

A 0.85% annual asset management fee isn't insignificant. However, if the Fundrise eFund can deliver an 8% IRR net of fees and give you the chance to purchase a property you like without having to go through a stressful bidding situation, it's worth it.

Minimum Investment Amount is Only $10

Investing the minimum amount it takes to have the optionality to buy a house is one option. For example, let's say you discover that the LA eFund acquired land in a location you like to build a model home that suits your needs. Further, the eFund still hasn't reached its $50 million cap.

Wouldn't it be nice if you could invest just $1,000 to reserve a spot on the purchase list when the project is done a couple years from now? We've talked about the importance of predicting the future to get rich. Investing just $1,000 in one of the Fundrise eFunds for the option of buying in an area that might turn hot seems very attractive.

Fundrise Overall Performance

In 2018, Fundrise returned 9.11% net of fees. This is a significant 14% outperformance over the Vanguard Total Stock Market ETF. This is also a 15% outperformance versus the Vanguard Real Estate ETF.

Fundrise also outperformed the S&P 500 index in 2018, which was down 6.4%. All-in, Fundrise had a banner year. They’ve once again shown the power of their platform as they carefully vet only the best deals with rigorous underwriting standards for investors to consider.

In 2019, Fundrise returned 9.47% versus 30.8% for the S&P 500. In 2020, Fundrise is likely outperforming the S&P 500 given the S&P 500 is down for the year as of June 8, 2020. Further, real estate tends to outperform stocks tremendously during times of volatility because interest rates collapse and the desire for more stable assets like real estate increases.

What Was Fundrise's Investment Performance in 2019?

Before the 2020 global pandemic began, Fundrise was very conservative with regards to their outlook. They mentioned how equity valuations were extremely expensive and how they were investing more prudently. Fundrise turned out to be right.

I am continuously impressed with Fundrise's forward-thinking ways. My only wish is that they open up a satellite office in San Francisco so we can go get a beer and brainstorm about the future of real estate even further.

8.25% is a pretty good annualized return net of fees for the Heartland eREIT™ given it's about 3.5X the current risk-free rate of return (10-year bond yield). I like the fact that unlike P2P lending, there's an actual asset behind the investment that can be worked out in case we hit a rough patch.

Here are more Fundrise returns as of 2023. I'll update the returns yearly.

Fundrise Returns

Fundrise Investment Offerings Going Forward

In 2023 and beyond, Fundrise is focused on concierge investment strategy approach first based on the amount you want to invest. Below are Fundrise's Starter, Core, and Advanced offerings depending on investment amount. These are in addition to Fundrise eFunds.

Various investment offerings by Fundrise

Once you've selected how much you want to invest, you will then be asked what your investment goals are based on three types of eREITs:

Fundrise investment plans - Fundrise eFunds

More conservative investors should choose Supplemental Income given its focus on dividends. More aggressive investors who are willing to take on more risk should select Long-Term Growth for higher potential total returns.

The Supplemental Income eFund has more debt investments, while the Long-Term Growth eFund has more long-term equity investments. The Balanced Investing eFund is a mixture of both.

With a healthy 6-year track record, Fundrise has taken a huge step forward in proving out what they have believed for so long: that a model of individuals diversifying into real estate through a direct, low-cost technology platform is a superior investment alternative to owning only publicly traded stocks and bonds.

Sign up with Fundrise here today. It's free to explore their eFunds and more.

Fundrise Real Estate Crowdfunding Vetting Funnel
Fundrise Vetting Funnel

Conversation With Ben Miller, CEO Of Fundrise

For those interested in learning more about Fundrise eFunds, listen to my hour-long conversation I had with Ben Miller, CEO of Fundrise.

Discussion Points:

  • The history of the founding of Fundrise
  • Savings and Loan crisis and its impact
  • The pros and cons of being conservative
  • Mental model for identifying and investing in mega trends
  • Prediction of a recession in 2H 2024, “It’s not that you’re not active (in a recession), it’s what that activity is.”
  • Why the Fed can’t do its job better
  • Why there's a window of opportunity to lend for construction loans and refinances
  • Capital constraint, not opportunity constraint for lending deals
  • Why the Income Fund looks the most attractive currently with a $10 minimum
  • The launch of the Opportunistic Credit Fund with a minimum investment amount of $100,000
  • Why investing in the right sponsor is everything
  • Why it's more attractive to invest in value versus risk today
Review Summary
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About The Author

27 thoughts on “Fundrise eFunds: An Innovative Way To Invest In Your Future Home”

  1. The Sand Dollar Investor

    Hello Sam – As you suggested, I have invested in the Fundrise Heartland eREIT. I recently received a communication from Fundrise regarding a new iPO (internet Public Offering) they are offering to existing shareowners. Do you have any thoughts on this iPO versus their eREITs and eFUNDS? Will investors notice a difference if it goes public?

    Thanks for a very unique and enjoyable website!

  2. I am also an investor in Fundrise – both the iPO and Long-Term Growth Portfolio, which includes the LA & DC eFunds. I love the fact that we were also allowed to invest in Fundrise itself via the iPO, which makes me more comfortable with the fees. However, my main concern is about being able to exit the investments in 10-20 years – this is a concern for all crowdfunded real estate. If all goes well, I can hold well beyond that since I’m still young but I’ve heard some horror stories about non-traded REITs (the only private funds, not crowdfunding sites). I’m hoping that they have a good redemption plan and/or return some of the capital once properties are sold (most non-traded REITs keep the money and buy new properties to keep their AUM up and fees rolling in). I like the current redemption plan – which is a fixed price per share for several years and redemption at NAV in future years. My only other “wish list item” is that they were more transparent on their real estate investments. In my experience, their disclosure is much better than almost all REITs but it would be nice to know the details of each transaction – things like NOI, Cap Rate, Vacancy Rate, Leverage, etc. My 2 cents.

    1. Hi Brian,

      Thanks for the insight.The Fundrise IPO itself, it may indeed take 10 years to get liquid, if ever. But the individual funds should provide liquidity yearly or at least every 5 years.

      I don’t know what your age is, but assuming you plan to continue working for the next 5-10 years, you’re going to find the money you lock up today won’t be missed or needed since you’ll have more cash flow. And when the investments finally expire, you’ll probably be glad you made the investment years ago.

      Related:

      Just Say NO To Angel Investing

      Long Term Investing Is About Saving Yourself From Yourself

  3. Renters in SF

    “Folks, please don’t rent forever. You will regret it 20 years from now.”

    We’ve been renting in San Francisco for the past 20 years, and due to the magic of rent control our rent is lower now (in inflation-adjusted terms) than it was initially. Meanwhile, we’ve invested the savings in the stock market. Granted that was a roller-coaster, but we’ve come out ahead financially, and had more flexibility when we considered moving during the Great Recession.

    1. Glad you saved and invested the difference. Most people don’t.

      Please see what property prices in SF have done over the past 20 years and what your 20% downpayment would have turned into had you bought a primary residence.

      The other thing to consider is the quality of your abode. Depending on how old you are, a lot of folks would not be happy living in the same place they rented soon after college. I certainly wouldn’t. Related: Housing Expense Guideline For Financial Freedom

      If you never move and are happy with what you have, then all is good. But if you decide to move, unless out of SF, things may get very difficult. But then again, you’ve got your investments, so perhaps it’s all good!

      Related: Why I Decided To Sell My Rental House After 13 Years

  4. This is very similar to my own down payment saving plan where I held it in VNQ. The advantage of this is an expense ratio of .12% vs .85%, while the advantage of fundrise is a better correlation holding residential real estate in your city vs. a national fund that holds hospitals and strip malls and who knows what else.

    The strategy worked OK for me, but nothing too exciting can happen to the market in the 18 months between when I starting saving and bought. My savings rate was a much bigger factor.

  5. Hi Sam – thanks for sharing.

    You seem to post more often regarding Realty Shares vs. Fundrise – any preference on one vs the other?

    We recently invested an initial $500 with Fundrise when they offered a “starter” portfolio. The allocation is split 50 /50 automatically between the Growth and Income eREITs. We just invested an additional $1000 last week, too.

    Our other exposure to Real Estate (~25% of our networth) is via Vanguard’s REIT Index Fund held in our ROTH IRA.

  6. Siddhanth Maheshwari

    Hey,

    This is the first time I have commented. I am a 22-year-old and I have been following your page for about a year now.

    The reason I have yet to apply with Fundrise is that I’m not sure whether the after-tax and after-fee returns of investing with Fundrise will beat investing in S&P500 index (VOO). Especially because Fundrise dividends are not taxed at the prefered rate of 15%.

    What has your experience been with them? Also, if the returns are similar, then whether it will be worth the lack of liquidity to invest with them. What has your experience with then been?

  7. Fundrise sounds like a nice idea. You can invest right away in a new development and not worry about getting a putting down a minimum down payment. Just put down $1K and wait and see what happens to the new development of houses. Plus you can sell your position if you don’t want to buy the property.

  8. A good chunk of millennials will be either renting or locked out of most metro cities. The death of the suburb is a bit too soon to call and I’m sure it’ll come bouncing back with a different demographic than in the 80s.

    Investing in new construction: my fear is quality and stability. My friend from Vancouver laments about the quality of recent builds. Everything is focused on speed and cost instead of durability. Some of those condos won’t last past 10 years without a lift.

    1. Lily, I’m in an area that is seeing a lot of development and I see the same thing here. I am renting a nice looking house at the moment, 4,000 sq feet at $3,000/month and although it is big and shows nicely it seems there only cardboards dividing the different rooms as I can hear everything no matter where I am. The owner paid over 500k and offered to sell to me, but I declined. I do think that this is what development will look like moving forward unless one is willing to pay 800k and up. fast and cheap is here to stay…

  9. Sounds interesting. Is this different than REITs because they invest in new construction?

    Also is there a risk because so many millennials are questioning even buying a home VS continuing to rent and have flexibility to move to different places all while investing the difference in the stock market? I suppose there are still buyers since as you mentioned property prices are simply rising in DC and LA.

    1. I don’t think that is a real risk. Human nature does not really change as people progress. Perhaps people in their 20’s do not care to own but as they get to 30’s and 40’s they will desire home ownership both as a financial tool and as a lifestyle.

      People don’t change that much.

  10. Money Miser @ Money-Miser.com

    Hm, seems a little bit early for me to want to get involved in something like that. If they only offer options in two cities, they can’t have been around for long and can’t have any track record of success. I’d sooner invest in REIT’s if I want exposure to real estate without buying my own home.

  11. I’ve been using correlated investing for my retirement home purchase by paying off the mortgage on my current home. If my home value drops when I’m ready to move in four years, odds are the price of my future home will also drop. As you point out, investing in stocks for this purpose is dangerous. This post is making me wonder about other ways to use correlated investing.

  12. Jeff @ Maximum Cents

    This sounds like a great way for nonaccredited investors to get in the real estate market. Do you have any experience with Fundrise? I know you have written about RealtyShares in the past.

  13. Cool. It doesnt sound like with fundrise one can hand pick the real estate investment choices. It sounds like it’s a portfolio or basket of real estate that they pick for you based on your investment goals (at least that’s what I could gather from the fundrise website, possibly wrong though). I think I would want the option to personally select individual investment opportunities, similar to how the personal lending sites allows one to do so. I’m also curious of returns during a real estate crash. Most crowd real estate platforms started around in 2012 and have the luxury of stating great returns and projections. They haven’t been punched in the face yet which is great for now.

  14. Interesting concept. Though the question occurs to me what is fundraisers backup if no one wants to buy the home. I.e. They see an inbalance between sellers and buyers in their network? Will they sell outside the network for a better deal? If so would in network potentially have a bidding war with out? What about with no buyers, is renting one of their fall backs? This company seems to live and die on their community, so it would seem your betting on the house and the health of fundrise.

  15. I’ve wanted to not like fundrise because of their high fees (management and the $1M set up fee), but in such a strong real estate market, they’ve Been able to acquire some good looking assets, and paid me a good dividend along the way. Having experienced the house purchasing nightmare in Los Angeles, if they really can help you buy a house down the line, that’s a great benefit.

    1. Do you know what the k-1 looked like? I invested $20k this year, but I don’t want to invest more until I get the k-1 statement next year. At a 40% individual tax rate, the 8% return doesn’t look that great.

      Fundrise income is taxed as regular income, but are there any writeoffs that are passed through? For example, if you received $1000 in earnings from Fundrise, did that full amount appear on your taxes or were they able to pass through things like depreciation, etc?

      1. Bueller?

        Anybody know the answer to this?

        Taxes are the difference between a good and average investment on Fundrise.

      2. If you are getting a K-1, I would hope that the income would be on BOX 2 (rental income), which is passive income. It’s only ordinary income if it is in BOX 1. I am looking into this right now …. I have not yet invested in eFunds. I have a residential property spinning off passive losses (again, a K-1 with a negative number in box 2) and I need positive rental income from eFunds to offset it!! So, I am really very curious about the tax reporting.

  16. Wow this is a super creative concept. While saving up for a down payment can take a long time, efund can help someone own a piece of real estate from day one without worrying about foreclosures or late mortgage payment. They also have the option of buying the property later if the wish to.

    Thanks for sharing the info!

    1. “They also have the option of buying the property later if the wish to.” – Looking at Fundrise site, i cannot find an explanation on this and even as an investor with them, I am still not sure how this works.

  17. Real estate provides so many options when it’s just in a local capacity. But extending it to other cities like that, makes them even greater! While I’m interested in real estate investment, I get nervous about the idea of a long distance investment like that. I see the huge advantages, but at the same time, I’m the more cautious one in our relationship, and wouldn’t be very likely to choose to do it. My husband has looked at those types of real estate investments before but we haven’t ever chosen to invest. The numbers here are very tempting for sure though.

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