I'm bullish on real estate for the next several years. With multiple efficacious vaccines, high inflation, continued low and negative real mortgage rates, plenty of stimulus, work from home here to stay, and the desire to own income-producing assets, real estate has a bright future. Here is the latest Fundrise overview.
Fundrise is a leading real estate crowdfunding platform for unaccredited and accredited investors alike. Founded in 2012, Fundrise pioneered the eREIT asset, a private diversified real estate investment trust that enables everyday people to invest in private real estate once reserved for ultra-high net worth individuals or institutions.
As of 2022, Fundrise manages over $3.2 billion in equity and has over 400,000 active investors on its platform. This is an acceleration of assets under management and investors versus 2021. Back in 1Q2021, Fundrise managed $1 billion and had 150,000 investors.
For those of you looking to diversify into real estate passively or increase your real estate exposure, below is an in-depth interview I did with Ben Miller, Founder and CEO of Fundrise. I also had a one-hour video conference call with Ben in 2022 to provide us the latest Fundrise overview.
Not only do I appreciate the innovation that has come out of Fundrise since the company began, I also appreciate their investment analysis and annual market outlook. Their focus on market fundamentals is something I really appreciate. As you'll learn further in this Fundrise overview, their investment philosophy is also aligned with my own.
Fundrise Overview: Interview With Ben Miller, Founder Of Fundrise
Let's go over why Fundrise is one of the leading real estate platforms with over $7 billion in total assets transaction value to date. In addition, they've helped investors earn over $226 million in net dividends and that number continues to rise.
Now let me share with you my detailed Q&A with Ben Miller. This detailed Fundrise overview will help you understand why they stand out from the competition and where they're headed.
What is Fundrise’s value proposition? What are the big ideas behind your platform?
Everything starts with our mission — to build a better financial system for the individual investor — and then flows from there.
In our opinion, very few financial services companies or investment managers actually focus on doing right by the individual (with the exception of maybe Vanguard). This has been especially true in the world of private equity and real estate investing.
From the beginning, our goal has been to take really great investments, ones that have traditionally only been available to ultra high-net worth investors, and make them available to everyone through a low-cost and extremely user friendly platform.
It’s this combination of a historically strong investment asset, i.e. private real estate, with a new direct-to-consumer, online approach that really makes us unique. Until we started the company no one had ever really done that before. And a lot of the existing industry insiders actually told us they thought it was a bad idea.
It’s not entirely surprising that they felt that way. For old school fund managers, accustomed to working with only a handful of institutions that would be investing hundreds of millions — or even billions — of dollars at a time, the notion of having individuals invest $1,000 or even $100,000 at a time seemed ludicrous. They couldn’t appreciate the scale that could be achieved by leveraging technology.
It was only recently once we got large enough to the point that we were raising and investing amounts similar to what they were used to that the traditional players actually recognized what was going on, and how much potential there is in our space.
Managing Over $3.2 Billion Of Equity – Fundrise Overview
Today, we manage more than $3.2 billion of equity. With all of that having been invested by our over 371,000 active individual investors. And it’s this scale combined with our technology driven vertical integration that creates the benefit for our investors.
By cutting out layers of middlemen who otherwise typically sit between the investor and the actual real estate they’re investing in, we’re able to reduce overall costs. We pass these cost savings on to our investors. We charge much lower fees relative to other private real estate managers.
The result is the potential for higher risk-adjusted returns, which, again, gets back to our mission of empowering the individual. Here's a good chart that provides a Fundrise overview of how our business works.
Can you tell me what differentiates Fundrise from other real estate crowdfunding platforms?
Although we were one of the first groups to pioneer the online real estate crowdfunding model, I think it’s helpful for prospective investors to understand that we no longer operate under the structure that most people commonly think of when they hear “crowdfunding.”
That is to say, we do not operate a deal-by-deal, best-efforts fundraising model. Meaning, our goal is not to post individual deals and hope that enough investors will come along and opt into investing, so that the deal secures the capital it needs. Today, our model is much more sophisticated.
Although early crowdfunding innovations were important in continuing to open up access to more individuals, in our opinion, the nature of that model creates inherent limitations when it comes to sourcing the highest quality investment opportunities.
Instead, we are today — to our knowledge — the only investment platform that allows individuals (regardless of net worth) to invest directly (not through a broker or other intermediary) into a diversified pool (our eREITs and other investment vehicles) of assets that are institutional quality in nature (of a certain, size, scale, partnership quality, and risk/return profile).
Our goal was always to give our investors access to the type of institutional quality assets that private equity funds would traditionally invest in. We’ve worked hard over the last five years to accomplish the successive steps and evolutions that have gotten us to this point.
Today, investing with Fundrise is much more akin to investing in Blackstone’s BREIT than another real estate crowdfunding platform. With the exception that there are no brokers or other intermediaries. And thanks to our technology and performance tracking tools, our overall fee structure is significantly lower.
What is your take on real estate as an asset class as we navigate out of COVID-19?
Like most assets right now, the answer is, “It depends.” We generally feel that real estate as an investment is well positioned to weather the storm. We also see certain property types emerging as winners while others likely will struggle for the foreseeable future.
Specifically, hotels, traditional retail, large urban office buildings, and luxury urban apartments all have seen fairly significant negative impacts as a result of the pandemic.
Whereas e-commerce focused industrial assets, suburban housing, and relatively affordable apartments in the south and southeast, generally speaking, have fared much better.
As you read this Fundrise overview, we want to be clear that part of our core investment strategy is to always stick to fundamentals. Meaning, we aim to protect the upside while minimizing the downside. Having lived through three financial crises myself, I know that it’s always only a matter of time before the next one occurs. It’s naive at best and negligent at worst to believe otherwise.
One of the great benefits of investing in alternatives is the opportunity to anchor your portfolio to something stable. In this way, you’re ready when the really savage storm hits.
We actively communicate this to our investors often. For example, here is one of our investor letters from 2018. What you should expect from Fundrise during the next financial crisis.
Fast forward two years, and in April 2020 we wrote another investor letter where we detailed how our years of planning were being tested and holding up. In the letter, we showed the way we’d designed our portfolios to serve as a fortress for our investors.
We also included a detailed stress test. Further, we broke down the financials and outlook of every property in our portfolio. This was a way to help our investors see, with increased transparency, the ways their portfolios had been carefully architected to withstand the worst.
Outperformance During Volatile Times – Fundrise Overview
Now, looking back, our portfolios vastly outperformed our very conservative stress test assumptions. Reviewing our Fundrise returns performance shows just how well positioned we were.
It’s our belief that private real estate assets — meaning investments that are actual, physical buildings like what you can access through Fundrise — will tend to provide more stable returns than stocks or publicly traded REITs.
It was interesting to watch our platform performance in 2020, in the midst of the pandemic. Fundrise’s performance was significantly stronger than the public markets. And it was also significantly less volatile.
Fundrise Overview Performance Analysis
Fundrise tends to outperform when the stock market goes through volatility. Why? Investors seek the shelter of real estate to navigate through more difficult times.
Therefore, if you expect another potential correction in the stock market, Fundrise offers an effective way to smooth out volatility. Stock valuations are extremely high in 2022.
Over time, the impacts of the government's response to the crisis will also become increasingly relevant on long-term investment performance. The Federal Reserve has undertaken an unprecedented level of financial stimulus in an effort to prevent a complete economic meltdown.
And while that has been critical in the short term, it’s almost certain to have wide ranging and dramatic implications for markets and investment assets over the next few years. The behavior of the stock market since the onset of the pandemic is just one manifestation of this.
For us, physical real estate — a hard income producing asset — is a valuable buffer to both the potential for inflationary and deflationary pressures that may emerge and skew markets in unpredictable ways.
Overview Fundrise Platform Performance 2014-2022
2014 Through 2020
Below shows the historical Fundrise platform portfolio returns from 2014 through 2020 compared to the Vanguard Total Stock Market ETF and the Vanguard Real Estate ETF. Notice the stability of returns during difficult stock market years.
Below is Fundrise's 2020 weighted average returns by objective and age of account.
Fundrise 2021 Investment Performance
With 2021 in the books, here is Fundrise's 3Q 2021 investment performance and 2021 overall performance. It was the best performing quarter of the year with some funds up double digits in just one quarter. 2021 was also the best year for performance in Fundrise's history since 2012.
Annualizing the figures blow away the performance of the average S&P 500 return of 10%. That said, 3Q 2021 was likely an outlier and growth rates should slow down.
Below are Fundrise's 2021 returns by investment plan objective. An overall 22.99% return is strong. Further, the flagship Interval Fund was up 28%, and up 40% annualized.
Fundrise Returns 2022
Year-to-date through Q3 2022, Fundrise has returned 5.4% to all clients versus -28.34% for Public REITs and -23.87% for Public Stocks.
Take a look at the chart below showing Fundrise returns for 2022 through Q3. Look at the strength of Fundrise's performance compared to public stocks and REITs during stock bear markets.
What is Fundrise’s investment strategy? Are there any regions that you specialize in?
Generally speaking, we start by looking at broader macroeconomic trends and how those then translate into physical real estate. We try to answer the questions, “What will be the primary economic drivers over the next few decades? How will they impact demand or lack of demand for certain types of properties?”
We then follow fundamental value investing principles. We look to invest in assets at a basis that is typically less than what is considered replacement cost. In other words, if we are looking at purchasing an apartment building that already exists. Then we will look at what it would cost to build a similar apartment building today in a similar location.
Let’s say it costs $100 million to build that building today. We might look to buy the existing building for $85-$90 million. This way, our basis (what we paid) is less than replacement cost (what it would cost to build the same). This helps protect us against the construction of many new apartments. Which would have difficulty renting at a lower cost than the property that we are purchasing.
A good example of these two ideas at play is our focus on acquiring and renovating affordably priced apartment communities through the sun-belt region of the country (aka the smile states). The article provides a great Fundrise overview of our investment strategy.
These areas have experienced — and are projected to continue to experience — greater than average population and economic growth as a result of their mild weather, more affordably priced housing, and relatively strong job markets.
These factors mean that the demand for reasonably priced apartments in many of these areas is outpacing both the existing supply and the new supply being built. Thus, our assets in these areas have seen stable occupancy rates and strong rent growth.
What specific types of assets do you invest in?
Similar to how we develop our strategies around what regions to target, the asset types that we aim to invest in are largely driven by our long-term macro trend philosophy.
A large portion of our portfolio has primarily been allocated to cash-flowing apartment communities. However, we’ve continued to evolve our thinking to take into consideration some of the impacts that we have seen from COVID-19.
A great example is our increased focus on last-mile, e-commerce-related industrial assets. These properties specifically serve the function of providing retailers and third-party logistics companies with the ability to make large volumes of deliveries to highly populated metro areas in very short time windows.
Of course, this whole market space has been growing rapidly for several years. However, the recent surge in online shopping due to the pandemic has only increased the already strong demand for these assets. This creates an opportunity that we anticipate will continue to grow.
Before we acquire any property and add to one of our funds, our team goes through a rigorous underwriting process. The results are a 1-2% acceptance rate of the many, many potential deals that cross our desks.
If you look at the asset updates we share with investors — we aim to send extensive updates about individual projects on a regular basis — you’ll see we specifically detail why we think an asset has a strong business plan, and we talk about why we think it has considerable security.
For example, our debt deals are structured in such a way that we are inherently insulated from short-term economic volatility, simply by the nature of how that sort of loan functions.
Why is Fundrise different from investing in a traditional public REIT?
We wrote an in-depth article on this topic to help potential investors understand the difference between investing with us versus investing in something like a Vanguard REIT index. The short answer is that Fundrise investors are investing directly in a primary issuance of non-traded private real estate.
With a traditional public REIT, an investor is buying shares in a secondary trade from another investor. This is done typically through a broker, in a publicly traded company.
This difference means a few things. First, by buying direct in a primary issuance, investors are essentially cutting out a series of middlemen and getting into the investment without all the associated costs and fees as a result. Imagine the difference in buying a new car direct from the factory versus buying a new car from a second hand dealer.
Second, because Fundrise investments are private and non-traded, the returns tend to be less correlated to the stock market. As a result, the returns are less volatile. That means performance is driven more by the actual operations of the underlying physical assets than market sentiment. Markets can be fickle and inconsistent.
Our assets’ stability can be seen in the historical returns of our platform over the past 5+ years.
What type of investor will reap the most benefit investing with Fundrise?
The simple answer is really any investor who is looking to diversify beyond the public markets. Investors who are comfortable with the long-term, inherently illiquid nature of real estate investing. And what’s great about Fundrise is that regardless of whether you're an investor with $5,000 or $5,000,000 we make that opportunity available to you.
We find that a lot of our investors come to us specifically because they want to own real estate. They understand the potential that it has to produce more stable returns over the long-term. At the same time, they don’t want to deal with the expense and hassle of being a landlord themselves.
Most investors get somewhat contradictory advice. On one hand, they’re instructed to buy and hold investments for decades, until they retire. It's wise to set those investment horizons early. But on the other hand, they’re pushed toward assets that have built-in, expensive liquidity premiums in order to provide daily trading, like stocks.
That doesn’t make sense to us.
Any institution run by professional investment managers that has a long-term investment horizon is going to have a significant portion — if not a majority of their investments in illiquid private assets. It was only a matter of time before technology made that same sort of investment strategy available to anyone in a low-cost, low-fee model.
If an investor had $10K to invest, how do you recommend they get started on Fundrise? What will the experience be like in the first weeks on the platform?
Our platform is specifically designed to handle this question. When you first join Fundrise, you’ll be asked a few questions about your investment goals. Then you’ll select an account type and investment plan that best aligns with meeting those goals over your specific investment horizon.
Our system then allocates your investment across a range of our existing funds. We automatically create a portfolio that will continue to diversify over time. It literally takes a matter of minutes to sign up. Once you join you’ll immediately be able to see every asset that you're invested in.
As we acquire new assets and add them to your portfolio, you’ll receive frequent updates. These updates keep you apprised of how your account is evolving, how new properties are driving growth, and how your portfolio is expanding across the country.
The same is true of payoffs and progress reports. Transparency is ultimately the core of our product experience. We give investors a front row seat to the dynamic nature of investing in real estate properties.
Unlike most other investments you hold, with Fundrise you’ll actually know what you are invested in. We strive to keep you updated as to how that investment is performing.
Fundrise has now existed since 2012. What has historical performance looked like for investors and how does that compare to similar investment opportunities?
We publish all our historical performance data here on the website for anyone to review. As I mentioned earlier, what we’ve been most proud of has been the consistency of our performance over time.
Fundrise is not meant to be a get rich quick investment. Our goal isn’t to recreate the adrenaline rush of gambling or trading stocks.
Some years we have delivered higher returns than the stock market and other years we’ve been lower. However, if you overlay our performance on public market analogues, the fact that these are truly different types of investments becomes quite clear. As does the value of long-term consistency, which we aim to provide.
Ultimately, we believe that our performance over this time period is likely to have been as strong if not stronger than any other asset class that is publicly available to our investors base in any low-fee, passive manner.
Our hope is that as we continue to grow, the technology driven nature of our business model means that we continue to become more and more efficient. In turn, this translates to stronger and stronger returns.
Bright Future In Real Estate Investing
Thanks to Ben for sharing his thoughts on Fundrise's value proposition and market outlook. Hopefully this Fundrise overview has given you more confidence in the platform.
2022 has so far been a terrible year for both stocks and bonds. On the bright side, real estate has outperformed stocks by over 27%. I’ve been buying I bonds, Treasuries, dollar-cost averaging the S&P 500 on the way down, and accumulating cash.
What I’ve been enjoying the most, however, is investing in real estate funds focused on the Sunbelt through Fundrise. Although prices and rents are cooling, Sunbelt real estate should be a long-term beneficiary of demographic trends, technology, and work-from-home.
I'm focused on buying assets that can generate consistent cash flow. Further, I'm also focused on reducing portfolio volatility and keeping the gains I've made in stocks so far. The last thing I want to do is go through another March 2020 decline. Therefore, I'm overweight real estate going forward.
You can sign up and explore Fundrise for free here.