Fundrise is my favorite real estate crowdfunding platform today. I’ve worked with Fundrise since 2016, and they’ve consistently impressed me with their innovation. This post takes a look at the fees Fundrise charges.
Fundrise was founded in 2012 and are the pioneers of the eREIT product. 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 allow for tax deferred or a complete elimination of capital gains tax.
Fundrise is open to non-accredited investors (e.g. everyone). Further, their business model of creating tailored funds like the Heartland eREIT is attractive to someone who wants to diversify into real estate, but who doesn’t want to pick and choose individual investments on the platform, despite these investments also being carefully vetted first.
How Much Does Fundrise Charge In Fees?
Fundrise charges investors a small fee for our unaccredited investor offerings — 0.15% in annual advisory fees, to be exact. This means that over a 12-month period, you will pay a $1.50 advisory fee for every $1,000 you’ve invested with us. For the sake of comparison, Vanguard’s famously-low advisor fee is 0.30%.
The advisory fee exists to reimburse Fundrise for the time and money that’s invested on your behalf into building our industry-leading platform. Things like:
- Project-level performance reporting
- Automated dividend distribution system
- Composite tax management
- Customer support and investor relations,
- Asset rebalancing and fund administration
Fundrise also manages all of those things, and a lot more, in-house. Their team of engineers, accountants, and other specialists have literally invented new ways of doing old things that save our investors millions of dollars.
Fundrise's focus on doing everything themselves, rather than relying on a bloated list of third-party service providers, necessitates that they charge the annual advisory fee — but it’s also the main reason why their annual advisory fee is so low.
Compared to Blackstone and Starwood, two of the largest private real estate companies, Fundrise's fees are much lower.
Fundrise Asset Management Fees
We’ve covered advisory fees now, but it’s important to note that most real estate investment companies — along with virtually every mutual fund, ETF, and REIT — incur expenses at the asset or fund level. These are often offset by investors via annual management fees.
The expenses inherent to Fundrise’s funds — their family of eREITS and eFunds underlying your portfolio — are covered via an annual 0.85% flat management fee. That’s $8.50/year for every $1,000 invested.
This money goes toward the ongoing operating expenses of the 100+ real estate projects in our investor portfolios. These expenses can come in the form of things like project-specific accounting, zoning, and construction.
Again, Fundrise handle virtually every piece of the real estate business in-house. Unlike their competitors, they've consolidated all of the usual real estate and financial functions. Fundrise works directly with real estate developers and operators, handle our own financials, and manage our own deals. Because there are no intermediaries, they are able to keep our expenses as low as possible.
That’s how Fundrise is able to charge those who invest in their unaccredited offerings a management fee that’s so low it’s essentially unheard of in the real estate world.
Fundrise eFunds also reserve the right to apply a Development Fee and Liquidation Fee. These are non-recurring fees applied at the fund level — not directly to investors. eFunds are portfolios that allow investors to access for-sale housing, which is typically development intensive.
These fees, rarely charged, are industry-standard, and they’re what enable us to manage the large amount of work that for-sale real estate requires in-house, eliminating more costly third-party providers. Similarly, whereas eREIT projects usually cover acquisition fees with funds from outside borrowers, eFunds often pay these expenses directly.
Related: Fundrise Review: The Best Way To Invest In Real Estate
Fundrise Focuses On Minimizing Fees
Fundrise uses technology and staff of specialists to execute as if they are simultaneously a real estate private equity firm, private REIT manager, and an investment advisor for tens of thousands of clients of our unaccredited offerings. Let's talk about how Fundrise goes to such extreme lengths to maximize your earnings.
The real estate industry has been traditionally riddled with inefficiencies, from blatant mismanagement to bloated fee structures. But maybe no one noticed because: (1) it’s been extremely profitable, historically speaking, and (2) outdated regulations ensured that only the largest institutions and wealthiest investors could participate in the first place. What’s a few dollars here and there when there are billions on the table?
Fundrise was built with a simple idea: what if anyone could invest directly in high quality real estate, without the middlemen? Fundrise knew that unlocking this world for the everyday investor would demand a nonstop stream of innovations.
That’s Fundrise works tirelessly to build the most simple, intuitive real estate investing platform ever. It’s also why Fundrise works so hard to flush out industry inefficiencies and use every tool at their disposal to maximize the dollars you earn on our platform.
This sort of approach is not the norm for the real estate world, or the investing industry at large. It requires more responsibility and an intense consolidation of a long list of necessary expertise. But it’s a model that puts the investor first, so Fundrise believes it offers the maximum benefit in the long run and much-needed innovation for an otherwise stale industry.
Related: How To Earn Income With Fundrise eREITs
Fundrise Growth And Performance
According to the latest public offering documents by Fundrise for its IPO, the firm manages over $3.3 billion in assets under management, has over 450,000 active investors. Their AUM grow and investor signups have been very promising. It is clear that Fundrise is the leading real estate crowdfunding platform today. And when you invest, you should invest with the best platforms.
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. Their massive 14%+ outperformance in 2018 versus the Vanguard Total Stock Market ETF is particularly impressive.
By generating a strong 5-year return, Fundrise has taken a huge step forward in proving out what they have believed for so long: that a model of individuals diversifying into real estate through a direct, low-cost technology platform is a superior investment alternative to owning only publicly traded stocks and bonds.
Fundrise Is Best In Class
Fundrise carefully vets every single real estate investment that makes it on their platform. Only about 1% of the investments make it for purchase, as you can see from the funnel graphic above. It's important that Fundrise keep the quality of investments high so that everybody gets the best experience possible.
Sign up for Fundrise today for free and see whether real estate crowdfunding suits your investment diversification needs. Real estate crowdfunding allows for everyday investors to participate in commercial property and multifamily deals that were once only available to high net worth individuals or institutions.
I've personally got $954,000 invested in real estate crowdfunding after selling an expensive San Francisco rental home for 30X annual rent and reinvesting the proceeds in heartland real estate where valuations are cheaper and net rental yields are 3X-5X higher. Best of all, the higher income earned is completely passive as I no longer have as much time being a landlord with a little boy to take care of.
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. He owns properties in San Francisco, Lake Tahoe, and Honolulu.
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.
How Much Does Fundrise Charge In Fees is a Financial Samurai original post.
