Fundrise Review 2019: Real Estate Crowdfunding For All

Real Estate Crowdfunding Benefits

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 platform. Fundrise only chooses the best operators. From there, the individual can analyze each potential deal.

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.

Here are three examples of Fundrise’s eREITs. I’m partial to the Heartland eREIT due to the new administration that’s focused on bringing jobs back to middle America.

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 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.

In 2018, Fundrise returned 9.11% net of fees, a significant 14% outperformance over the Vanguard Total Stock Market ETF, and 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, and 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.

Take a look at their 5-year net returns comparison below.

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.

Sign up with Fundrise here today. It’s free to explore.

Fundrise Fees

Fundrise says its servicing fees are 30 basis points (a basis point is 0.01%) a year, which ranks quite favorably among real estate crowdfunding platforms. In the fine print, it says this can go up to 0.5% of invested capital per year.

Each deal’s annual returns are quoted gross, not net, of annual servicing fees. The platform has historically not taken a spread between income from the asset and payments. Fundrise also charges real estate companies a one-time 1% to 2% origination fee and $5,000 closing cost.

Currently, for all Fundrise eREITs, investors will not have to pay anything in asset management fees until they earn a 15% annualized return until December 2017. After this (or if you earn over 15%), asset management fees range from 1-1.5%, depending on the eREIT you have.

Fundrise, like other platform counterparts, touts the cost-saving advantages of crowdfunding over traditional investing models. Fundrise wants users to know that their advantages can boost returns on a theoretical project with a 14% gross annual return on a $100,000 investment. On Fundrise, the investor would get a net return of 13.7% or $68,500 versus a 7.7% net return, or $38,500 on a non-traded REIT.

Real Estate Investing Sweet Spot

Historically, data shows investors with a 20% allocated to real estate have outperformed those who only own stocks and bonds. The 20% real estate model was made famous by the ~$30B 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, making 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 because their investment minimum can be as low as $1,000 for some deals.

Below is a chart highlighting the different sized real estate markets. You and I can’t buy trophy properties like the Empire State Building because 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 given less competition, a more inefficient market to exploit, and potentially higher risk-adjusted returns.

Diversify Your Investments

Low interest rates are here to stay for likely the rest of our working lifetimes. They’ve been going down for 35+ years in a row now. It’s therefore best to invest in income producing assets because not only will they provide a higher income stream, they’ll also attract more demand, thereby boosting the principal value of your income investment.

Fundrise says that of the hundreds of projects it reviews every month, fewer than 5% are approved. It performs due diligence and pre-funds all its investments from its own balance sheet before offering them to investors. Fundrise wants to align its interests with all of its investors.

The following diagram shows the approval process for a project at Fundrise.

As a real estate crowdfunding investor with over $800,000 in exposure, proper due diligence is vita. Of the less than 5% of deals that make it for investment consideration on the Fundrise platform, I will then do my best to choose the best of the best.

Finally, in mid-2017, Fundrise introduced the first low-cost private market investment portfolio. When you invest with Fundrise, your money is automatically diversified across their proprietary eREITs and eFunds, investment products specifically designed to be low-cost and tax efficient.

For those who want to diversify their investments, own an underlying hard asset, not have to deal with maintenance and tenants, and take advantage of lower valuations and higher rental yields across the country, take a look at Fundrise. It’s free to sign up and explore.

About the Author: Sam spent 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 that now generate roughly $200,000 a year in passive income. 

About Financial Samurai: FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 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.