Fundrise, a leading real estate crowdfunding platform, was founded in Washington DC in 2012. Today, they have over 400,000 investors with over $3.3 billion in assets.
Fundrise is now a leading domestic institutional real estate investor competing against the best in the business.
What makes Fundrise unique is that they are pioneers of the eREIT product. They’ve not only raised $55 million from venture capital, but they also found a way to directly raise capital through their “Internet Public Offerings” directly from investors on their platform (past 9 months).
Most recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws that were passed in the 2018 Tax Reform Act. I like how they are always think of new ways to provide value to investors.
Bullish On Real Estate Overall
I've been a big fan of real estate since college, building a multi-million dollar real estate portfolio in San Francisco, Lake Tahoe and Honolulu. But I've only invested in actual physical property since 2003 until 2016. That's when I finally started to take advantage of lower valuation properties around the heartland of America through real estate crowdfunding.
With Fundrise, investors can invest with as little as $1,000 in various types of real estate deals across the country with no hassle. In the past, these deals would have required hundreds of thousands of dollars or even millions to access. No more.
Ever since I sold one of my San Francisco rental houses in 2017, I was able to reinvest $550,000 of the proceeds in real estate crowdfunding that is giving me a net rental yield of over 10%, with zero hassle, versus just a 2.4% net rental yield previously with tons of hassle.
With mortgage rates set to come down in 2024 and beyond, the demand for real estate is going to snap back and drive home prices higher in my opinion.
Let's take a look at the leading real estate crowdfunding platform today.
Fundrise Company Overview 2024+
Fundrise is a leading real estate crowdsourcing platform founded in 2012. They are based in Washington DC. Here is their profile overview for your review.
Total Equity Funding: $41 million + $16 million from Fundrise members through their “Internet Public Offerings” in 2017, 2018, 2019, and 2020.
Headquarters: Washington DC.
Description: Fundrise is the leading online real estate investment crowdfunding platform. Starting in 2012, Fundrise was the first company to take commercial real estate public online and offer true equity ownership in local properties.
Founders: Brandon Jenkins, Benjamin Miller, Kenny Shin
Categories: Real Estate Investment, Crowdfunding, Financial Services
Founded: January, 2011, Seed funding in 2011
Sign up link: Fundrise
Fundrise Management Team
Real Estate Crowdfunding Platform Investing
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 based on their careful vetting process. From there, the individual can analyze each potential deal to fit what suits them best.
What's awesome about Fundrise is that it also has eREITs to invest in by region for non-accredited investors. 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 President's focus to bring jobs back to Middle America. Withith the new tax plan for 2019 limiting state and property deductions to $10,000 and mortgage interest deduction to mortgages of $750,000 from $1,000,000 in the past, expensive coastal city real estate markets are going to be hurt at the margin.
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 I guess 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.
I'm in the camp that interest rates will stay lower for longer. As a result, I continue to see real estate as an attractive long-term asset class given real estate provides a relatively good yield relative to the 10-year government bond yield at ~2.7% as of 2019.
Many REITs such as OHI and O drastically outperformed the S&P 500 in 2018 and when the stock market melted down in March 2020.
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 ~$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.
Various Real Estate Markets To Invest In
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 by buying a panoramic ocean view property in the Golden Gate Heights neighborhood of San Francisco.
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.
An Easier Life With Real Estate Crowdfunding
The biggest benefit of not owning physical rental property is never having to deal with people. For the most part, tenants are fine to deal with if you've vetted them properly. But sometimes, no matter how nice they can be on paper and in the interview, conflicts may arise.
If I can invest in real estate and make a 7% return a year, let alone a 8% – 12% annual return based on Fundrise's previous performance, I'll double my investment after 7-8 years.
The main “drawback” to investing in REITs and a real estate crowdsourcing platform is that I can't leverage up 5:1 like I can with a mortgage on a physical property. However, be careful of publicly traded REITs. During the March 2020 crash, REITs actually declined even more. Therefore, if your objective is to dampen portfolio volatility, investing in a private REIT like the ones from Fundrise is a better bet.
But sometimes, not leveraging up can save your hide, especially now that real estate prices in the coastal city markets have risen so much and are finally softening.
Diversify Your Real Estate 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 to generate passive income for financial freedom.
If you ever want to retire early and be free, it's important to invest beyond traditional pre-tax retirement accounts like your 401(k), IRA, and so forth.
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.
Fundrise is doing well and is one of the leading private real estate platforms today with over $3.3 billion in assets under management for over 450,000 investors.
About the Author:
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. Sam owns properties in San Francisco, Lake Tahoe, and Honolulu. He has invested a total of $954,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $220,000 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.