Fundrise Real Estate Investment Performance Review: 2014 – 2019

Fundrise is my favorite real estate marketplace for non-accredited investors. With mortgage rates plummeting to all-time lows due to coronavirus fears, real estate is an attractive asset class. Let's look at Fundrise real estate investment performance since 2014.

Owning real estate through Fundrise is attractive, not only because they have private eREITs and steady returns, but also because you don't have to leverage up and spend a fortune to buy property. Instead, you can invest just $500 into one of their eREITs to get diversified real estate exposure.

Here's a review of Fundrise's real estate investment performance from 2013 – 2019.

Fundrise Real Estate Investment Performance Review

Since 2014, Fundrise has averaged a 10.57% annual return versus 11.43% for the Vanguard Total Stock Market ETF and 10.72% for the Vanguard Real Estate ETF.

Fundrise Real Estate Investment Performance

What I find most interesting is that when the stock market underperforms, like it did in 2018, Fundrise significantly outperforms. In 2018, Fundrise returned 9.11% versus -5.13% for the stock market and -5.95% for the Vanguard real estate ETF.

But when there is tremendous performance in the stock market, Fundrise will tend to underperform.

Not only did the Fed not raise rates in 2019, they instead made a sharp 180-degree course change, lowering the target Fed funds rate three times and re-initiating a new form of quantitative easing by providing their balance sheet liquidity directly into the financial system’s repurchase (repo) markets.

As a result, the S&P 500 went up a significant 30.80% in 2019, reaching an all-time high, with similar performance from public REITs. At the same time, Fundrise ended 2019 with an overall net return of 9.47%.

Now let's look at the compounded annual returns of Fundrise versus the S&P 500. As you can see, Fundrise (in blue) has a much steadier performance figure versus the zig zag lines of the S&P 500.

Fundrise Compound Annual Returns - Fundrise Real Estate Investment Performance

To be clear, the overall return across the Fundrise platform is not necessarily representative of any individual investor’s performance. The performance of investors’ accounts is likely to vary depending on when they invested and the allocation of their portfolios.

The big interest now is what happens to the performance between Fundrise and the S&P 500 in 2020. This is where I think owning real estate through Fundrise and other private real estate deals stands out.

With the S&P 500 collapsing by 10% in the quickest amount of time in history, Fundrise is likely outperforming by at least 10%, if not more because real estate tends to go up with mortgage rates collapsing and money rotating into real estate and away from stocks.

I predict the performance of Fundrise investments will show equal or greater outperformance than it did in 2018.

Invest In Real Estate For Steadier Returns

There are of course no guarantees in real estate. However, if you invest in a diversified real estate portfolio, like the ones Fundrise offers, I think you will experience much steadier returns.

Fundrise Investment Options

From the beginning, Fundrise has sought to provide investors with better, more consistent returns over the long term, so they structure our investments with the intention to do just that.

In fact, it’s highly unlikely that the way in which Fundrise invests would return 30% in a single year. To achieve such short-term returns in real estate would require taking on what they believe to be an unadvisable level of risk.

So, while the investments Fundrise pursue are unlikely to return 30% annually, they believe that even in a downturn they are just as unlikely to risk a comparable principal loss by swinging wildly in the opposite direction.

More consistent over the long term is Fundrise's operating principle. Because Fundrise's goal is long-term consistency, they devote a considerable amount of time and energy to identifying and understanding the macroeconomic drivers that have the greatest probability of impacting the broader real estate market for the next several years to a decade.

Where To Invest In Real Estate Today

I'm very focused on investing in the heartland of America where valuations are cheaper, cap rates are higher, job growth is robust, and the populations are growing. Thanks to the internet and technology, the future of work is remote.

You are seeing big companies like Apple and Google move their operations to places like Austin. It is only logical that people will follow suit. Further, with coronavirus fears, I think there will more people who will appreciate less densely populated cities as well.

Below is a chart showing the best states to buy real estate based in valuations and migration trends. This is a proprietary analysis I've done since I'm a big believer and investor in real estate across the country.

Best states to buy real estate based on valuations and migration trends

For the new decade, it's important to think about “who, what, and where.”

  • Who, meaning specific, observable segments of the population that will be driving increased demand.
  • What, meaning for what type of real estate will they be driving demand.
  • Where, simply meaning where will they be driving demand for this type of real estate.

To illustrate the point, let’s look at the 2010s. Almost inarguably the most successful real estate investment of this period was: millennials (who), multifamily (what), major metro markets (where) — in other words, apartments geared towards young adults in big cities and close-in suburbs was (from a risk/return standpoint) the best investment one could have made.

In retrospect, this should have been obvious when looking at demographics, as the millennial “echo boom” was graduating from college and wanted to live in vibrant urban environments, but could not afford to buy.

A close second for best strategy was: tech companies (who), industrial or data centers (what), and major metro markets (where) — this strategy leveraged technology’s transformation of the rising generation’s consumer preferences that reshaped retail and media distribution over the past decade. Places such as San Francisco and Seattle where home run investments.

One of the worst strategies was likely: Baby Boomers (who), traditional retail (what) — think dead malls with aging brands and outmoded shopping patterns, in distant suburbs (where).

The Top Cities To Buy Real Estate

For the 2020s, here are some of my favorite cities to buy real estate:

Milwaukee, Wisconsin ($131,000 median home price)

One of the largest real estate projects of 2018 was the $524 million Wisconsin Entertainment and Sports Center, home of the Milwaukee Bucks NBA team.

A new modern streetcar, known as The Hop, will soon run downtown within a quarter-mile of the most densely occupied office towers, including the headquarters of Northwestern Mutual, who recently invested $450 million into their downtown space.

Milwaukee also has a lower cost of doing business, especially in comparison to its neighboring 24-hour city, Chicago, which has some of the highest taxes in the country. Several companies have already made the journey north from Chicago to Milwaukee, including Gold Standard Banking (bringing 300 jobs), Vonco Products, and Colbert Packaging.

Milwaukee Labor Force & Population Growth

Milwaukee’s manufacturing employment comprises 14.3% of the labor force, nearly double the national average. As automation continues to improve, the city’s exposure to manufacturing jobs could negatively affect employment

Columbus, Ohio ($171,000 median home price)

Columbus was the most commonly asked about city by people who read my Top States To Invest In Real Estate For The New Century. Due to positive net migration, specifically college-educated millennials moving to downtown Columbus, Columbus' population continues to grow handsomely.

Due to the millennial migration, Columbus has a higher than average population of prime workers (employees ages 25-44). As the labor market is extremely tight with unemployment below 3.0%, the influx of quality workers is welcomed.

Unlike other midwest cities, Columbus doesn’t have a large exposure to manufacturing, shielding it from potential job loss due to automation. Alternatively, a large portion of the labor force, 16% of overall employment, is employed by the state government, providing a sturdy backbone and less office rent volatility.

Sector diversity within an economy provides insulation against economic volatility. Other expanding sectors in Columbus include education, healthcare, professional services, and hospitality.

Columbus Labor Force & Population Growth

Approximately 7,800 multifamily units are currently under construction, with a majority of projects within the downtown core. Despite the boom in construction, multifamily vacancy remains near record lows at 6.1%. Net absorption (the amount of space that was occupied) was positive as over 3,000 apartments were occupied from June 2018 – June 2019, rounding out the extremely healthy fundamentals.

Columbus has also had a push of development in the past two years. Over 2.5 million square feet (MSF) of office space delivered, more than the previous ten years combined.

Fundrise Real Estate Investment Performance is held by Ohio real estate.

Charleston, South Carolina ($331,000 median home price)

When I first interviewed CrowdStreet about their favorite 18-hour cities, they chose Charleston as #1 due to its downtown vibrancy, and population and job growth.

Sales volume hit a record high in 2018 as 200 office buildings traded for a total of $330 MM, beating a record year in 2017. When the final numbers are tabulated, sales volume in 2019 will have likely continued its upward trajectory.

Employers such as Boeing and Mercedes-Benz have flocked to Charleston, among many others. Volvo recently expanded into a $1.1B factory that will hire an additional 4,000 employees. As a father of two now, I sure like the new Volvo XC90 SUV.

Charleston, South Carolina Labor Force

The Port of Charleston has also been a driving force in expanding job growth, specifically manufacturing jobs. The Port’s deepening of the Charleston Harbor will accommodate increased container volume.

Fundrise Real Estate Investment Performance is finding a boost in 18-hour cities.

Kansas City, Missouri ($159,000 median home price)

What's not to like about Kansas City except that they beat my 49ers in the 2020 Super Bowl.

A surge in downtown activity is driven by higher than average population growth, steadily growing since 2015 in large part due to a lower cost of living and the growth of jobs.

Kansas City’s unemployment rate of 3.1% is lower than the national unemployment rate of 3.6%. None other than Warren Buffet announced that GEICO selected Lenexa, a submarket of Kansas City, as its next service center. Kansas City offered an economic incentive package to the insurance company in exchange for GEICO adding 500 entry-level jobs to the economy. Incentivizing large corporations like GEICO to move into the market will continue to grow Kansas City’s employment growth.

Kansas City Labor Force & Population Growth - Fundrise Real Estate Investment Performance

Biotech research also has a massive presence in Kansas City. The healthcare IT giant, Cener Corporate, is rapidly expanding with already 900,000 sf of space in the market. After winning a $624MM contract, Cener is expected to employ more than 16,000 people over the next ten years. Additionally, Children’s Research Institute is expanding their research arm and will soon employ over 3,000 researchers.

Along with biotech research, telecom companies like Sprint Corp. and AT&T occupy over 2MSF of office space and are major employers of the area. Kansas City has historically been more dependent on large employers like these but recently the city has had a spike in small business creation, an indicator of positive market health and investor confidence.

Due to Kansas City being centrally located geographically, the industrial sector has room to grow. E-commerce has revolutionized warehousing and other retailers are under pressure to have Amazon-like shipping. The need to have warehouses in centralized areas like Kansas City is crucial to national distributors and supply chain operators.

Easiest Way To Invest In Real Estate

For most real estate investors looking to diversify across the country, the easiest way to invest in real estate is through Fundrise. They have highly diversified eREIT portfolios that give you steady exposure and a steady income. The good thing about private eREITs is that they are not as volatile as publicly-traded REITs as the chart showed above.

If you are an accredited investor, my favorite real estate marketplace is CrowdStreet. They are focused on 18-hour cities like the ones I've mentioned in this post. Further, they allow you to invest directly with the sponsors they vet on their platform.

Both platforms are free to sign up and explore. As always, due your research and be aware of all the risks involved. Diversify your investments, review your financial goals, and make the best choice possible. I have personally invested $810,000 in 18 commercial real estate projects across the country with an average return of roughly 13% so far. Below is my real estate dashboard where my equity investments are finally paying off three years later.

Financial Samurai Real Estate Crowdfunding Dashboard