With all the talk about rents and the overall U.S. housing market, I thought it would be good to see how Fundrise's various real estate funds have performed in this environment. At the end of the day, we can talk all we want. But, investment performance is what matters most.
Fundrise is a real estate investing platform that began in 2012. It specializes in private residential real estate, but has investments in various types of commercial real estate as well.
As of 2023, the company currently manages over $3.2+ billion in assets under management, $7+ billion in total asset transactional value, and over 387,000 accredited and non-accredited active investors.
Fundrise 2022 Returns
How did Fundrise perform in 2022? It was a challenging year for risk assets in general. However, Fundrise was able to meaningfully outperform.
They were up 1.5% while public REITS were -25.10%. Meanwhile, public stocks (net of dividends) were down -18.11% and bonds net of coupon payments were down -11.99%.
Here are some of the main reasons why Fundrise was able to perform so well in comparison to public REITS, stocks, and bonds.
- 40% LTV vs 70+% for other funds, ie Fundrise had less leverage
- Strong rent growth in the Sunbelt/Heartland where Fundrise has a concentration of properties
- Single-family and multi-family property investment concentration, which outperformed other commercial real estate
Here are the latest Fundrise returns. Take note of the amount of outperformance during public stock bear markets.
Fundrise Past Investment Performance
With permission from Fundrise, I also want to share with you their 3Q 2021 investment letter to shareholders. Given the strength of the returns, I had to double check to verify the performance figures were indeed quarter-over-quarter and not year-over-year.
You will see a consolidated performance chart at the end of the post.
Fundrise Investment Performance Update 3Q 2021
To paraphrase Hemingway, megatrends happen gradually, then all at once. While the notably strong performance of the portfolio over the last quarter may feel sudden, it was in fact many years in the making and the result of a number of different factors, rather than a single event.
For Q3, several of our funds (driven mainly by equity investments in residential assets) experienced a level of price appreciation that is uncommon in the world of real estate.
In some instances, certain investments saw quarter-over-quarter price appreciation at the property level in excess of 50%. Our balanced and growth focused funds reporting NAV increases over the last quarter ranging from 0.59% to as much as 20.91%.*
We focus specifically here on our balanced and growth strategies. It is those funds that derive their returns primarily from asset appreciation and as a result saw such strong results.
All told, performance over the last 90 days from an appreciation standpoint was arguably the strongest we’ve experienced since the inception of the Fundrise platform.
Today, our conviction about our general investment thesis is as high as it’s ever been. However, it’s worth calling out this type of disproportionate performance over a single quarter is not likely to be repeated.
Focusing On The Long Term
That isn’t to say that we do not expect to see strong performance going forward. In fact, quite the contrary. We seek to identify and invest in large macroeconomic trends to drive outsized growth. This in in turn can deliver better than average performance.
Of course investors who have been with us for a while will also be familiar with the refrain that such success is never guaranteed. All investments carry risk which could lead to loss.
Instead, it is recognition of the fact that a fundamental advantage of being a long-term investor is we do not have to attempt to time the market. Rather we can be patient. We can design and execute strategies that allow those trends time to play out at their own natural pace.
Focusing on the long-term also ensures we capture those rare moments when a confluence of factors come together to bear truly remarkable fruit.
Reasons For Strong Performance
While the broader portfolios of our various funds saw positive overall performance, the primary contributor to the outsize returns came from equity investments in and ownership of well-located, affordably priced residential properties.
More granularly, the primary contributors to this price appreciation were:
- Outsized rent increases caused by a post pandemic spike in demand combined with ongoing limitations on the supply of housing
- Accelerated Sunbelt growth whereby the existing dynamics of strong population and job growth that we’ve discussed previously were amplified by the pandemic-driven migration of both people and companies to the region
- Increasing institutional demand for well-located, cash-flowing residential real estate assets paired with record low interest rates and compressing cap rates (i.e., return expectations)
Although most of these trends have existed for several years and are likely to continue for the foreseeable future, the coronavirus pandemic created a unique inflection point. It resulted in what otherwise may have been 10 years of gradual change being condensed into the span of 12 months.
Multifamily Rent Growth And Cap Rate Compression
The above graph shows the surge in residential apartment rents that have occurred over the past 6-12 months.
While the below image demonstrates the “cap-rate compression”, or in other words the lower overall return demanded by the market for the same assets. (Falling cap-rates and discount rates result in higher property prices, all else being equal).
Real Estate Price Expectations
Looking ahead, we continue to believe many of the same macro trends that we’ve been focused on over the last few years will continue to be dominant drivers of growth going forward. While a few new pandemic created norms will likely also have an impact on our investment strategy. Specifically we believe that:
1) The Sunbelt will continue to outperform
The same tailwinds that have driven so much price appreciation in the region over the past year should continue to exist: population growth, job growth, housing affordability, warmer weather, demographic shift.
And now, with remote work seemingly here to stay, we believe the area is only that much more likely to attract new residents who otherwise would have been tied down by jobs in cities such as New York, San Francisco, Los Angeles, and Washington, DC.
Related: Focus On Trends: Why I'm Investing In The Heartland Of America
2) Remote work will permanently alter both office and residential real estate
We see technology enabled remote work as a megatrend with parallels to e-commerce adoption in the early 2000s. More and more people will now have greater control over their time. They will have increased flexibility over where they choose to both work and live.
As a result, we expect many people will choose to move from high cost of living cities with cold winters to low cost of living cities with milder winters.
According to Redfin, the average single family home in northwest Washington DC costs $1.5 million vs., for example, Raleigh where it is $427,000. That extreme gap in value provides a compelling reason for a millennial family or retiring Boomer to move southward now that they can do so without sacrificing their career.
Anecdotally, we at Fundrise the company opted to shift to a remote first working environment during the pandemic. We recently completed a survey where we asked our team members if they would prefer to continue under that model or switch back to a traditional full-time in-office environment. More than 85% of respondents said they preferred either a majority-remote or full-remote model.
We believe the long-term consequences of this playing out across thousands of companies nationwide. As a result, there will likely be a shift in value from traditional big core office and apartment properties in dense urban areas to single-family homes and more suburban environments.
3) E-commerce will continue to eat retail
While this trend is nothing new, the move towards greater e-commerce adoption only accelerated over the past 18 months. Many customers who otherwise may have never considered shopping online for items like groceries or everyday household goods were forced to make the switch.
Now they will likely never fully give it up. This same trend can be seen in data around meal delivery and other consumer shopping trends as well.
The end result of ever increasing online sales with the constant expectation for 2-day, 1-day, or even same day delivery means a greater need for well located industrial logistics facilities.
4) The rise of software technology as an integrated part of our physical spaces
Marc Andreesen said software is eating the world. But until very recently the physical world and the digital world were very much separate. But a wave of new software tech such as AR, VR, voice command, along with innovations in new and greater mobile and other hardware (watches, rings, glasses, etc…) is starting to blur that line.
Smart home systems can not just control your thermostat or notify you when someone is at the door. Increasingly they are predicting and preventing costly home maintenance issues. Or they are providing on-demand service solutions for everyday chores like house cleaning or lawn care.
Mobile-only restaurants now exist where the entire brand and experience of the business exists only digitally while the food is prepared in a ghost kitchen and sent out via a delivery app.
For a long time real estate investing and technology investing were two very different spheres. But looking ahead the two may become increasingly one world.
3Q 2021 Performance Review Wrap Up
The table below reflects the NAV changes of only balanced and growth focused funds. Income focused funds, which collectively saw NAV changes of between approximately -0.30% and 0.39%, have been excluded due to the fact that the majority of the returns realized by such funds are through distributions and not appreciation.
| Fund Name | NAV as of Jun. 30 | NAV as of Sep. 30 | Change |
|---|---|---|---|
| Interval Fund | $10.79 | $12.10 | 12.14% |
| Growth eREIT | $14.90 | $17.67 | 18.59% |
| East Coast eREIT | $12.68 | $13.68 | 7.89% |
| Heartland eREIT | $11.42 | $13.29 | 16.37% |
| West Coast eREIT | $10.14 | $10.20 | 0.59% |
| Growth eREIT II | $11.22 | $12.41 | 10.61% |
| Growth eREIT III | $11.43 | $13.82 | 20.91% |
| eREIT XIV | $10.11 | $10.28 | 1.68% |
| Growth eREIT VI | $10.53 | $11.07 | 5.13% |
| Balanced eREIT | $10.48 | $11.50 | 9.73% |
| Growth eREIT VII | $10.23 | $10.65 | 4.11% |
| Balanced eREIT II | $10.24 | $11.63 | 13.57% |
In summary, we are thrilled to see such exceptional returns over the past quarter. They are a testament to both the hard work of the team as well as the value of identifying the right macro trends. However, as usual, we also want to manage expectations. It would be a mistake to celebrate this performance without acknowledging that it represents years of groundwork previously laid.
The nature of great performance is that it is non-linear. Sometimes, it pops. Sometimes, it slows. The key is to always be making steady progress. And again, while success can never be guaranteed, we've intentionally designed Fundrise with this idea in mind.
Our goal is to make it possible for our investors to leverage technology and benefit from the opportunities that it can unlock over the long-term. Fundrise will continue to work everyday to build on the foundation we’ve created.
Until then, onward.
Ben and the entire Fundrise team
Can anyone comment on the safety of investing with them? i.e. Are they regulated? Will I wake up one day to find an owner has run off with investors capital? Also, how do you get your $ out? Can you just do a ACH Transfer out of Fundrise and back to your bank account? Thx!
Good Questions! It is always good to know the exit strategy and reliability. Can someone add details?
This is my very first post for this community. I hope to be able to reach members and The Financial Samurai himself haha. Have you heard of emerging real estate technology companies like ReAlpha? I believe they’re incorporating eREITS to a different level that will positively disrupt the market. Let me know your thoughts on the company as I am looking to invest in their REG-A offering!
I invest in fundrise myself but I don’t see the tax benefits that one could obtain investing in private syndications or funds available to accredited investors, curious for your thoughts here Ben . Cheers
What is the advantage of Fundrise vs VANGUARD REIT(VGSLX OR VIX) in terms of return ? Isn’t it more risky with Fundrise ($1B company) than Vanguard REIT considering the return is a matter of few percentage points? Just wondering what your thoughts are for my financial education . Thank You
The main differences are:
1) public REITs are way more volatile. During the March 2020, public REITs dropped even more than the S&P 500, which makes them a poor diversification asset
https://www.financialsamurai.com/how-does-real-estate-get-impacted-by-a-decline-in-stock-prices/
2) You can invest more surgically with a Fundrise REIT into a particular region of the country you find more attractive
Personally, I got really bullish on the heartland in 2016, and wrote this post which has since been updated. https://www.financialsamurai.com/focus-on-investment-trends-why-im-investing-in-the-heartland-of-america/
I have large REITs too.
Given the cap rate compression, are you expecting lower returns on your funds going forward? While I suppose caps could continue to go down, seems wishful thinking they will.
doesn’t mean fundrise isn’t a good investment going forward, but does take some of the wind at your back away…
Yes. I highly doubt returns will be as good as Q32021’s. The housing market is normalizing from 95 mph to 65 mph IMO.
But Zillow is still expecting 11.4% price growth in 2022 and GS is expecting 16% growth. Seems very aggressive. Time will tell!
Not a comment on their quality, but from the few times I have viewed their website since it began being plugged on FS, I found it interesting that their performance comparisons are with all their clients portfolios, public REITS and the S&P 500. I think it is a strange comparison to use the S&P 500 as representative of “stocks”, possibly could be considered misleading. The largest 500 companies vs private REITs doesn’t seem like a great comparison. Would not the Total US Stock Index make more sense (all cap) if comparing to “stocks” or if you are trying to compare against a stock income strategy, something yield focused a la Morningstar High Yield Focused Index?
I’ve never heard of the S&P 500 not being a good representation of the stock market. I’ll have to think about that one. Thanks.
It is probably a bit nitpicky on my part. The S&P 500 makes up about 75% of the Total US Stock Market. Annualized, there is about .3-1.2% variation in return one vs. the other. Yield difference isn’t worth mentioning.
My bias would be to have the equity comparison be high yield stock and not something broad based. Though I typically look at REITs as income producers and that is not how I would view either the S&P or US Total Stock at a 1.3% TTM.
Sometimes I have hard time telling whether you’re being sarcastic or not Sam, you need to start using the /s.
I have been investing with Fundrise since 2016, and it has been a very steady return for me. Love the low volatility and mostly transparent setup. Will hold my investments there for long term. Initially I was suspicious about the safety of their business model and I had a bad experience with LendingClub and initially thought they are similar. Fundrise is the leader in the crowdfund investing in RE field and I had some interactions with their team. They seem trustable people.
What do you think about the efund ? Primarily invested in los Angelos and DC and some in Atlanta. It is only for the Advanced plan but claims to have more alternative investment strategy and taxed as partnership. Looks like they purchased most homes over the last 2-3 years but the NAV has only increased 15% or so. I am wondering if there is a lot of Gains not recognized yet due to unrealized housing price increases.
Hmm, I wonder if there is a good arbitrage opportunity there. I’ll check and see, because I don’t know. It’s worth reaching out to them directly as well and asking.
Thanks, I have reached out as well. Let me know what you find out. I am wondering if NAV has not caught up to reality.
I’m an in Fundrise since 2017, and overweight in the eFund. It seems to have been an experimental investment vehicle that has not panned out.
There were originally three eFunds (Los Angeles, Washington DC, National). The Los Angeles eFund had small returns and Washington DC eFund had a return of 0% before the merger. The reason for the poor performance was never really explained. The only really plan seems to be to merge the three funds into one eFund to reduce costs. I dug into the details on the Washington DC eFund and homes that were supposed to be held 6-12 months weren’t sold for 2+ years. Something structural is amiss and I haven’t heard anything to interest me in putting any more into the eFund.
On top of that, the Schedule K required for the eFund complicates matters. I would recommend to avoiding it, at least they sort things out. The other offerings, and the platform as a whole, has plenty of attractive alternatives.
For my money the “new” (less than a year old) Fundrise Flagship Interval Fund is preferred. It offers much simpler liquidity, lower fees, and better diversification than the other funds offered by Fundrise. The fund is in the “ramping up” phase so holding for the long term is still the best strategy. But if for some unforeseen life event, it is MUCH easier to liquidate than any of the other funds. I feel more comfortable with my money in the Interval Fund. Also, since my investment in Fundrise is tax deferred (IRA) money, Fundrise’s contract with Millennium Trust can’t be beat. Well done Fundrise.
I have been in Funrdrise for 3 years and it is a fantastic platform, brilliant web interface and the returns have been solid.
I’m in Growth VII, which has only gone up 4% vs Growth III which is up 20%. Should I change? Or just the stage it is in? Though most of my money is in the Interval fund.
Hard to say. Chasing performance is an iffy strategy. I remember observing the top Morningstar rated funds of the year constantly under performing the subsequent year.
Hence, diversifying your exposure probably the best bet.
Due to Financial Samurai articles
On fundrise we have evaluated both Fundrise and Crowdstreet. Both my dad and I are going to plunge Fundrise as a means of diversification les volatile investments.
But holy crap! These returns are ludicrous! Like Spaceballs ludicrous! That heartland ereit is what we have been eye balling. Wish we would have committed already.So we are committing to fundrise.
I am hesitating on crowdstreet. The returns seem too good to be true. Most investments have capital call provisions which is big boy land for private equity real estate. Crowdstreet seems to cater to a more Saavy investor, hence the need for accreditation ( which we are). I feel over my head.
We are also looking at groundfloor. Short term lock up on SFR home rehabs. It’s interesting but seems risky if market turns.
Fundrise looks like a better overall investment to me.
Ive been on Fundrise for a year. Love their app, easy to use, and get updates each time they acquire a new project. This latest quarter did not disappoint! I’m set up to contribute $500/ month and hope to one day use this as a means of steady income stream from real estate
In general, I like investing in funds because I don’t have time to analyze each individual investment, and, a lot of the most interesting individual investments sell out before you can even invest.
So I think the higher return on effort strategy (ROE) is to invest in the right manager that has the right vision. My vision has been to invest in the heartland of America and residential real estate for a long time now. As a result, Fundrise is a synergistic partner.
I’ve read all their annual reports the past for years and our outlook is very much aligned.
Crowdstreet’s returns are in line with typical private underwriting for similar projects. Of course to get the same diversification as Fundrise, you need a lot of dough.
I didn’t realize Fundrise has been around since 2012. Impressive returns! And very interesting feedback on 85% of Fundrise employees voting to stay remote the majority of the time. Makes sense to me. Although I do enjoy the camaraderie of an office environment on occasion, I much prefer to work from home. And it really seems like most people do as well. Makes me wonder if new office building will even be built anymore in 5-10 years.