Fundrise is one of the largest private real estate platforms that has raised over $40 million to fund its company. The company has come up with an innovative way to raise capital through a Fundrise IPO (Internet Public Offering). I have been following the company since 2014 and am currently an investor on the platform with over $140,000.
The Fundrise IPO raises funds from existing investors on the platform, which is a great way to get support and reward existing investors with an equity stake that may or may not appreciate over time.
Since its founding in 2012, Fundrise has not only raised money from Venture Capital funds, they've also raised funds directly from its platform investors through an IPO several times.
They figured, if they are helping real estate sponsors raise money to invest in their deals, why not use their platform to raise money to fund and grow their own company as well.
This post is a discussion on whether you should invest in the Fundrise Internet Public Offering (IPO). In short, yes you can given the company is doing well with $3.3 billion in assets under management and over 400,000 investors. However, real estate is in a downdraft now due to high mortgage rates.
What may be more interesting is investing in the Fundrise Innovation Fund, it's open-ended venture capital fund that invests in private growth companies in artificial intelligence, property tech, financial tech, and more. It has over 20 investments in its portfolio already which you can check out and the investment minimum is only $10.
Fundrise Historical IPOs
The Fundrise IPO has been a tried and true way for the company to raise capital from investors on its platform. For example, on Feb 1, 2017, Fundrise decided to do an “Internet Public Offering” directly to its customer base. The idea was to get rid of the middle men (investment banker) to save on fees for everybody.
After all, Fundrise’s philosophy is to get rid of barriers to entry for those who want to invest in real estate but don’t have the know-how or capital to do it on their own. The company has been focused on the first-ever online real estate investment trusts (eREITs).
Their “IPO” was met with tremendous reception. More than 2,300 Fundrise members — including investors across all 50 states — participated in the internet public offering, according to the company. Investment orders reached $14.6 million.
Investors had to purchase at least 200 shares — or $1,000 — to participate in the offer. And only existing investors with Fundrise could get in on the action. It's unclear exactly how much equity stake $1,000 actually gets. One can make a best guess estimate that based on the amount raised so far and the stage, Fundrise is valued somewhere between $80M – $200M before this Internet Public Offering.
Then in 2Q2019, Fundrise did another Internet Public Offering to similar success. And now in 3Q2020, Fundrise is doing another Internet Public Offering.
In 4Q2023, another Fundrise IPO will likely happen.
Real Estate Is Here To Stay Long-Term
If you believe in the real estate crowdfunding model, as I do, then you must also believe that with proper execution, Fundrise should continue to do more deals, grow more revenue and profits, and ultimately grow its valuation.
It's important to always only invest in what you can afford to lose. Investing in private equity is illiquid, and can often takes 5 – 10 years for anything to emerge, if at all. Fundrise currently manages over $3.3 billion in assets and has over 400,000 investors, so it's doing well. However, real estate is currently in a freeze due to 17-year high mortgage rates.
It's my personal opinion that investors should keep private investments to no more than 10% of one's investable assets e.g. $10,000 in private equity if you have $100,000 in investable assets. Although real estate crowdfunding seems like a long-term winner due to deregulation, the space is still relatively new.
Making individual private equity investments is extremely risky. But if a private equity investment can hit, you may be handsomely rewarded. I personally no longer invest in individual private equity investments. However, I do invest in a venture capital fund run by Kleiner Perkins.
How Much Can You Invest In The Fundrise IPO?
The good thing about investing in the Fundrise IPO is that it LIMITS how much you can invest based on the amount of money you've invested on the Fundrise platform. This way, the invest is more aligned with an individuals' risk tolerance and capital.
The maximum investment in the Fundrise IPO is the greater of 1) 50% of your total cost basis or 2) $1,000 at the time of investment.
The Fundrise IPO is a new and separate investment from your real estate portfolio. Your current investments will remain unchanged.
Below is an example of an e-mail you'll get from Fundrise showing how much you're able to invest in its latest IPO. Depending on how much you invest, it's really not that much in the grand scheme of things.
You've got to ask what the value of the company is upon purchase, how many shares outstanding, what was the previous value of the company during the last Fundrise IPO and so forth.
Here's some more information about Fundrise so you can make the best decision possible whether to invest in Fundrise the company, or the real estate crowdsourced deals on Fundrise's platform. I prefer inesting on the platform.
Fundrise Company Update 2023
Total Equity Funding: $41+ million
Headquarters: Washington DC.
Description: Fundrise is the leading online real estate investment crowdfunding platform. Starting in 2012, Fundrise was the first company to take commercial real estate public online and offer true equity ownership in local properties.
Founders: Brandon Jenkins, Benjamin Miller, Kenny Shin
Categories: Real Estate Investment, Crowdfunding, Financial Services
Founded: January, 2011, Seed funding in 2011
Sign up link: Fundrise
Latest Fundrise Assets Under Management And Performance
According to the latest public offering documents by Fundrise for its IPO, the firm manages over $3.3 billion in assets under management, has over 400,000 active investors, and 100 employees as of 2023.
Fundrise's five-year average platform portfolio has also done quite well, yielding a 10.79% return versus 7.92% for the Vanguard Total Stock Market ETF and 7.4% for the Vanguard Real Estate ETF. However, real estate is currently in a freeze / downturn, likely until 2025. The good thing is you can buy lower now.
Here are the latest Fundrise returns. Fundrise outperformed the stock market and public real estate market during the 2022 bear market and 2018 downturn.
Below is a snapshot of Fundrise’s historical returns.
Fundrise is the leading online real estate investment crowdfunding platform. Starting in 2012, Fundrise was the first company to take commercial real estate public online and offer true equity ownership in local properties.
Comprehensive Fundrise review here.
Fundrise Funding History Details
Fundrise Management Team
Real Estate Crowdsource Investing
One of the most efficient ways to invest in real estate around the country is through real estate crowdsourcing. Instead of flying around the country to kick some sheetrock, one can simply invest as little as $1,000 – $5,000 in various pre-vetted deals on Fundrise's great platform.
Fundrise only chooses the best commercial real estate investments and pools them into an eREIT. It focuses on Sunbelt single-family and multi-family properties.
What's awesome about Fundrise is that it has easy eREITs to invest in. Each eREIT (West, Midland, East Coast, Growth, Income) is open for all investors where there is supply.
An investor can simply ride the geographic/strategic decisions the eREIT manager chooses to make a potentially healthy 8% – 16% return based on historical performance. However, with high mortgage rates, the real estate market is in a downdraft currently.
You can listen to an hour-long conversation with Ben Miller, Fundrise CEO about his outlook on real estate. He is quite cautious. But as an investor, that's a good thing to have a cautious CEO to preserve the profitability and growth of the company.
Real Estate Versus Equities Performance
The following chart compares the performance between real estate and the S&P 500. I'm surprised to see such massive outperformance by the FTSE NAREIT ALL REITs asset class.
But I guess it makes sense because after the NASDAQ bubble burst in March 2000, real estate started taking off partly because the Fed aggressively lowered interest rates, and partly because equity investors looked at hard assets to park their money.
I'm in the camp that interest rates will stay lower for longer. Australia has now joined Japan, Denmark, and Sweden with negative real interest rates by the way. I'm also looking for yield as a retiree. As a result, I continue to see real estate as an attractive long-term asset class.
Here's another chart highlighting Fundrise's returns versus the S&P 500, NAREIT Composite Index, and NASDAQ. With my personal investment return goal of 3X the risk-free rate of return (10-year bond yield), anything above 6% looks attractive, depending on risk.
The historical average return for Fundrise's platform is between 7% – 13%.
They've made investments in commercial real estate projects all across the US. To date they've been most active in the New York, Los Angeles, DC, Seattle, Atlanta, and Phoenix markets. I'm glad, because I'm looking at areas outside of San Francisco to invest.
Real Estate Investing Sweet Spot
Historically, there's data that shows investors with roughly 20% allocated to real estate have outperformed those who only own stocks and bonds.
The 20% real estate model was made famous by the ~$25B Yale Endowment, which outperformed traditional allocations 22.6% annually for decades by investing at least 20% of its portfolio in real estate.
However, in the past, the best private real estate opportunities require minimums of $100,000 or more. This made them inaccessible unless you’re very wealthy. The only other option is to go through middlemen who charge high fees, thereby negatively impacting returns.
This is where Fundrise and their technology comes in. Fundrise has a minimum investment amount of only $10.
Below is a chart highlighting the different sized real estate markets. You and I can't buy trophy properties like the Empire State Building. These properties are just too large and expensive. You and I can buy fixer uppers to make some sweat equity. I did so in 2014 and am still working on my house slowly today.
But fixers can be risky and stressful if you don't know what you're doing. So it seems like the Midsize market is the sweet spot for investing. There's less competition, a more inefficient market to exploit, and potentially higher risk-adjusted returns. This is where the real estate crowdsourcing industry currently operates.
Diversify Your Investments
Everybody should seek to own their primary residence to get neutral inflation. After that, consider investing in stocks, bonds, and real estate crowdsourcing investments through a company like Fundrise. They've opened up new opportunities for everyday investors to gain access to properties.
Low interest rates are here to stay for likely the rest of our working lifetimes. It's therefore best to invest in income producing assets. Thy provide a higher income stream and attract more demand. As a result, it will boost the principal value of your income investment.
I like investing in the heartland of America because:
- There will be a net migration out of Blue states into Red states due to valuations and the permanent “spreading out of America” post pandemic.
- As our country gets older, more retirees will move out of Blue states to stretch their retirement dollar.
- The remote work trend will continue due to technology and a tight labor market.
- Sanctuary cities are at risk of seeing their federal funding pulled and reallocated to Red cities.
- Income growth should be higher in Red states due to demographic shifts.
- Now that investing in real estate is more efficient, Red State 10%+ cap rates compared to <4% cap rates in Blue cities are too hard to ignore. The spread should narrow.
- A potential expansion of who can invest in real estate crowdsourcing will lead to an increase in demand and prices.
- The rise of real estate crowdsourcing platforms increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments.
- The new tax plan for 2018 and beyond limits state income tax and property tax deduction to $10,000 and reduces the mortgage amount for interest deduction to $750,000, thereby hurting coastal city real estate, and benefitting heartland real estate.
- Relocation from expensive cities to cheaper cities due to the coronavirus and the ability to work from home.
Personally, I'd rather invest in one of Fundrise's diversified private real estate. However, being able to invest in a Fundrise IPO is also a great way to align yourself with the company.
Invest In Private Growth Companies
In addition, I would consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
Investing in the Fundrise IPO is a specific bet on Fundrise. However, investing in the Innovation Fund provides diversified exposure to various private growth companies. This may be the more prudent bet.
The investment minimum for the Innovation Fund is also only $10, whereas most venture capital funds have a $250,000+ minimum.
In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
About the Author:
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
In 2012, Sam was able to retire at the age of 34 largely due to his investments. They now generate roughly $250,000 a year in passive income. He spends time playing tennis, hanging out with family, and writing online to help others achieve financial freedom.
Fundrise is a sponsor of Financial Samurai and Financial Samurai has invested over $134,000 in Fundrise funds. Sunbelt real estate has lower valuations and higher yields. It is a great way to diversify away from expensive San Francisco real estate, where Sam owns multiple properties.
About Financial Samurai. FinancialSamurai.com was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.
The information contained herein neither constitutes an offer for nor a solicitation of interest in any securities offering. The publicly filed offering circulars of the issuers sponsored by Rise Companies Corp., not all of which may be currently qualified by the Securities and Exchange Commission, may be found at www.fundrise.com/oc.