Since its founding in 2012, Fundrise has raised over $400 million in capital from accredited and non-accredited investors as of 3Q2020. Fundrise is my favorite real estate crowdfunding platform today. This is a comprehensive Fundrise review.
The money has been used to invest in real estate crowdfunded projects in commercial office space and multi-family condominium complexes across the country. Fundrise is also the pioneer in eREITs, having raised over $150 million so far.
The average investment on the Fundrise platform is about $5,000 with annual returns of between 9% – 10% according to management. If you’re looking for an easier way to diversify your investments into real estate, investing in Fundrise is a solution.
Fundrise Review: Overview
PROS
- Prefunds all deals with their own capital, showing commitment and confidence in their deals.
- Low minimum investment (only $1,000), compared to $10,000 for other platforms.
- One of the longest track record in the industry.
- Well capitalized with over $50 million raised so far.
- High quality deal flow (they only approve about 2% of deals)
- Allows non-accredited investors to diversify into commercial real estate deals previously unobtainable by common retail investors.
CONS
- Still a relatively new space with less than a 10 year track record
- Government regulation (may be good for investors)
- A rising interest rate environment may put a damper on property prices in the short run, but should raise yields in the long run as rising interest rates is a long-term sign for strong demand.
- You’ll be taxed on your distributions as regular income versus the 15% on qualified dividends
Fundrise Background
Fundrise is headquartered in Washington, D.C. and the platform allows individuals to invest as little as $1,000 in real estate development projects.
The inspiration for founders (and brothers) Ben and Dan Miller was to open up real estate investing to ordinary people and to give them a chance to own a piece of property in their communities. Their father was a major real estate investor, so they’ve grown up with real estate in their blood.
Fundrise Funding History Details
In early 2017, 2018, and 2019, Fundrise also raised over $14 million in funding from existing Fundrise investors through an “Internet Public Offering,” bringing total funds raised to over $60 million. They are well capitalized to continue growing in 2020 and beyond.
Fundrise Management Team
Fundrise’s leadership team gets high marks from industry insiders. The founding brothers, Benjamin and Daniel Miller, are sons of noted Washington D.C. real estate developer Herb Miller.
Benjamin Miller, who acts as CEO, has 15 years of experience in real estate and finance. He worked on $500 million of property as a managing partner of WestMill Capital Partners.
Brandon Jenkins, Chief Operating Officer – Brandon helps to run the design and tech teams to ensure the Fundrise software platform is running smoothly. He was previously an investment advisor and broker for Marcus & Millichap, the largest real estate investment brokerage firm in the U.S.
Kenny Shin, Chief Technical Officer – Kenny has been the CTO since Janary 2011 and has previously consulted for Fortune 500 companies in the finance and technology space, including Fannie Mae, Oracle, Department of Defense and NATO.
Fundrise Growth And Performance
According to the latest public offering documents by Fundrise for its IPO, the firm manages roughly $488 million in assets under management, has 63,271 active investors, and 76 employees. Their AUM grow and investor signups have been very promising.
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.
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. Mortgage rates collapsed and investors wanted to buy hard assets. The situation is very similar to today in 2020. 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 6-year net returns comparison below. As you can see from 2013, Fundrise’s investment performance has been quite steady. I expect continued steady performance in 2020 as investors rush out of stocks and to real estate.
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 Review: 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. The endowment outperformed traditional allocations 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. These deals were inaccessible unless to most unless you were 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. Their investment minimum can be as low as $500 for some funds.
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.
Fundrise Review Conclusion: 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. Not only will they provide a higher income stream, they’ll also attract more demand. As a result, the principal value of your income investment may go up.
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 $800,000 in exposure, proper due diligence is vital. Always take your time to research the funds or individual opportunities.
Finally, 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. These 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. I hope you enjoyed my comprehensive Fundrise review.
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. Financial Samurai began in 2009. It is one of the leading personal finance websites today.
