Let's take a look at how Fundrise is doing and its business outlook for 2023 and 2024. Fundrise put to work over $400 million in cash it was holding onto as it expected a slowdown with better deals in 2023. For 2024, Fundrise remains relatively cautious, but believes real estate prices could recover as mortgage rates get cut.
Certain types of commercial real state got hit hard due to the coronavirus pandemic, most notably retain and hospitality. However, signs of life returned in 2021 and prices for hotel and vacation rentals started rebounding as the economy opened up.
How Is Fundrise Doing in 2023?
Even with a bumpy 2022 in the stock markets largely due to high inflation and rising interest rates, Fundrise held on. In fact, Fundrise returned 1.5% overall in 2022 compared to -25.10% for Public REITs, -18.11% for Public Stocks net of dividends, and -11.99% for Bonds net of coupon payments.
Please see our article on Fundrise returns for further details of their performance in 2022 and prior years.
Out of the hundreds of real estate crowdfunding platforms, Fundrise is my favorite real estate crowdfunding platform today.
I've had many conversations with the CEO, Ben Miller, and regularly track their performance and growth. Fundrise continues to expand its customer and sponsor base. And I expect even greater things in their future.
Latest Fundrise Growth And Performance
Fundrise specializes in Sunbelt single-family, multi-family, and industrial real estate. The company began in 2012 and has grown exponentially.
In 2023, Fundrise has surpassed $7 billion in total asset transaction value, has over $3.3 billion in assets under management, and has roughly 200 employees. In addition, the real estate crowdfunding platform now has over 400,000 active investors.
To help get a deeper perspective of this growth, in 2021, Fundrise had about 150,000 customers with over $1 billion in assets under management. At the start of 2019, the firm was managing roughly $488 million in assets under management, with 63,271 active investors, and 76 employees. And at the end of 2017, Fundrise had $251 million in AUM, around 25k active investors, and 49 employees.
Clearly, Fundrise has had fantastic growth and is undoubtedly one of the leading institutional real estate investors today.
Fundrise Continues To Innovate
I’ve also worked with Fundrise since 2016, and they’ve consistently impressed me with their innovation. They are the pioneers of the eREIT product. And they've raised over $355 million in 8 funding rounds. Fundrise also found a way to directly raise capital through their “Internet Public Offerings” directly from investors on their platform. As a result, they are well capitalized to continue growing.
Fundrise also launched an Opportunity Fund, a first in the real estate crowdfunding space looking to take advantage of new tax laws. Over 8,000 Opportunity Zones have been created to allow for investors to reinvest their capital gains into these O-Zones for significant tax savings.
In addition, Fundrise is open to non-accredited investors (e.g. everyone), unlike many of the other real estate crowdfunding platforms.
Most Exciting Business Develop By Fundrise
Finally, the most exciting business development in 2023 is the public launch of the Fundrise Innovation Fund. It is an open-end venture capital fund investing in private growth companies.
The Innovation Fund invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much.
Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Fundrise Business Overview For 2023
Fundrise offers “an expansive portfolio, calibrated for steady growth. With deep industry expertise and a dedication to market fundamentals, we’ve honed a strategy that captures real estate’s famed potential for stable returns, from fixed-income deals to opportunistic acquisitions.”
2022 marked Fundrise's strongest-ever year of outperformance vs. benchmarks. Here's a quick look at some key Fundrise stats as of 12/31/22:
In January 2023, Fundrise released a 2022 year-end letter to investors discussing the prior year's performance as well as the company's outlook for 2023.
Here are some excepts from the letter.
Although we do anticipate inflation to continue its relative decline over the full course of 2023, we still expect that both inflation and interest rates will remain elevated through the first six months.
Over this period, we once again expect the core of our portfolio, primarily residential and logistics properties located in the Sunbelt region, to remain more resilient and generate positive income growth.
Over the next year or so, some of the best investment opportunities are likely to present themselves merely as a function of a disparity between those with or without liquidity, where even borrowers of strong credit with extremely high-quality assets are forced to borrow at rates 3x higher than they were only 18 months prior.
We are already starting to see this once-in-a-cycle opportunity play out, as evidenced by the growth in the dividend of the Income Fund, which, as of January 1st, is at 9.0% — and we expect that this window of opportunity may only exist for the next 6-12 months.
As we look ahead now to 2023, we see perhaps the best opportunity yet to validate our core mission and give our investors, who we believe hold a similar temperament and long-term outlook, the opportunity to capitalize on the over-leverage and short-sightedness of too many in the financial markets.
You can also learn more about Fundrise performance and growth here.
A Historical Look At How Fundrise Is Doing
Given Fundrise is a private company, only senior employees know its company financials. However, Fundrise did report their Form 1 Semi Annual report with the SEC. In this document, you will see a wealth of information that provides clues into the health of their business.
Here are some key points from their Form 1 filing:
- In 2020, we surpassed $1 Billion in assets under management under the Sponsored Programs.
- In 2020, we surpassed approximately $3.5 billion in total real estate property capitalized.
- July 2018: We sponsored Fundrise Opportunity Fund, LP, a Regulation D investment vehicle designed to leverage the novel suite of tax benefits being offered through the new Opportunity Zone program, which was established with the passage of the Tax Cuts and Jobs Act in 2017, and whose stipulations are promulgated in Internal Revenue Code sections 1400Z-1 and 1400Z-2.
Open to accredited investors, the fund is designed to deploy rollovers of eligible capital gains toward investments in real estate assets located in various qualified Opportunity Zone census tracts throughout the nation. The vehicle is among the first Opportunity Funds to launch, and intends to offer what we believe to be industry-leading fees and reporting transparency.
More Fundrise Highlights
Here are some additional past highlights
- In August 2018, Fundrise earned position #35 on Inc.’s 2018 list of the 5,000 fastest growing companies in the US and #1 in the financial services category.
- Based on data from the 2017 PERE 50 Rankings, the issuers sponsored by Rise Companies Corp. are on track to raise enough in a single year as that raised annually by approximately the lower quintile of real estate private equity managers in the PERE 50 Ranking 2017.
- Our annual fundraising would be equivalent as to those that rank in approximately the top 25 in 2019 and top 10 in 2020; however, there can be no assurance that such performance can be achieved.
- Fundrise launched a new Starter Portfolio product in August 2021. The Starter Portfolio produce is aimed at first-time investors with an investment minimum of only $10.
New Fundrise Funds And Features
- Launched Fundrise Pro, a membership feature for real estate enthusiastic to have better customization of their investments.
- Launched the Innovation Fund to invest in private tech and AI companies.
- Launched the Opportunistic Credit Fund to take advantage of dislocations in the market due to an inverted yield curve.
I keep in touch with Fundrise over the phone regularly, and their indications to me are that business continues to do well. Although as always, past performance doesn't indicate future performance.
Fundrise Company Overview
You can check out my latest Fundrise Overview here. Bottom line, Fundrise is doing very well.
The average investment on the Fundrise platform is about $5,000 with annual returns ranging from 8.5% to 12.5% according to management. If you're looking for an easier way to diversify your investments into real estate, investing in Fundrise is a solution.
You can view Fundrise's list of current deals by requesting access to their platform here. It's free to sign up and explore.
Fundrise Posted Solid Returns
Take a look at Fundrise's recent returns for 2022, their best year of outperformance vs. benchmarks.
From the beginning, Fundrise has leveraged technology to enable investors to purchase real assets directly, at lower costs, closer to true intrinsic values, and as a result generate higher potential yields.
As you can see from the data, Fundrise returns are much more stable than returns from public stocks and public REITs.
It will be up to the Fundrise asset management team to highlight and invest in properties at a reasonable price in a more difficult return situation this year. Fundrise has detailed how they plan to operate in an economic downturn, which is why I really like their investment philosophy. A great platform is always thinking ahead.
Fundrise Is The Leading Real Estate Crowdfunding Platform
Here is a look at some of the pros and cons of Fundrise
PROS
- Prefunds all deals with their own capital, showing commitment and confidence in their deals.
- Low minimum investment (only $10), compared to $10,000 for other platforms.
- One of the longest track records in the industry.
- Well capitalized with over $355+ 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
- 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 15% on qualified dividends
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 $10 in various funds on the Fundrise platform.
Fundrise offers its Flagship Fund and Income Fund as the two main funds for investors. You can dollar-cost average into the funds and take advantage of weakness in the real estate market due to higher mortgage rates. The Fed is set to cut interest rates in 2024 and 2025, bringing back demand in the real estate market.
Real Estate Investing Sweet Spot
Historically, there's data that shows investors with roughly 20% allocated to real estate have outperformed those who only own stocks and bonds. The 20% real estate model was made famous by the ~$25B 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 is so low.
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. We can buy fixer uppers to make some sweat equity. I did so in 2014 and learned the pains of remodeling.
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. This is where the real estate crowdsourcing industry currently operates.
Diversify Your Investments
Everybody should seek to own their primary residence to get neutral inflation. After that, consider investing in stocks, bonds, and real estate crowdsourcing investments through a company like Fundrise. They've opened up new opportunities for everyday investors to gain access to properties they otherwise would not have access to in the past.
Low interest rates are here to stay for likely the rest of our working lifetimes. 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.
I'd particularly focus on the Heartland for the following reasons:
- There will be a net migration out of Blue states into Red states as more people realize it’s a great deal living in Texas if you can get 3X as much for 1/3rd the price.
- As our country gets older, more retirees will move out of Blue states to stretch their retirement dollar.
- The remote work trend will continue due to technology and a tight labor market.
- Sanctuary cities are at risk of seeing their federal funding pulled and reallocated to Red cities.
- Income growth should be higher in Red states due to demographic shifts.
- Now that investing in real estate is more efficient, Red State 10%+ cap rates compared to <4% cap rates in Blue cities are too hard to ignore. The spread should narrow.
- A potential expansion of who can invest in real estate crowdsourcing will lead to an increase in demand and prices.
- The rise of real estate crowdsourcing platforms increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments.
- Tax policy hurt expensive coastal city real estate due to the $10,000 SALT deduction cap and $750,000 mortgage interest deduction limit.
How Is Fundrise Doing Today? Fantastic!
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 began investing his own money ever since he opened an online brokerage account in 1995. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $380,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
Fundrise is a sponsor of Financial Samurai and Financial Samurai has invested over $134,000 in Fundrise funds. Sunbelt real estate has lower valuations and higher yields. It is a great way to diversify away from expensive San Francisco real estate, where Sam owns multiple properties.
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.