Real estate crowdfunding returns have been solid over the past six years. Real estate crowdfunding returns tend to be much steadier than stock market returns as well.
By nature, real estate is a more defensive asset that benefits from uncertainty given a decline in interest rates and a rotation out of stocks during times of uncertainty. After all, real estate provides shelter, income, and utility.
Real estate crowdfunding began in 2012, after the JOBS Act was passed that allowed crowdfunding to be used as a way for private companies and private investment projects to raise money from the public.
Since 2012, Fundrise in Washington DC has emerged as the leader in the real estate crowdfunding space. I've spoken and met with the team extensively, and I'm bullish on Fundrise's business prospects over the long term. They've raised a lot of funds and have done a lot of deals since founding.
By way of background, I've invested in physical real estate in Honolulu, San Francisco, and Lake Tahoe since the mid-1990s, REITs since the late-1990s, and now real estate crowdfunding since 2015 ($260,000 invested).
I spent 13 years working in the equities department of Goldman Sachs and Credit Suisse, got my MBA from UC Berkeley, and have been writing about real estate investing online since 2009.
Real Estate Crowdfunding Changing Investor Access
Until recently, and because of the typical minimum investment thresholds for most private real estate deals ($250,000+), REITs have been the only viable option for investors wanting to diversify their portfolio by investing in real estate.
Now with real estate crowdfunding through a company like Fundrise both accredited and non-accredited investors have direct access to pre-vetted real estate investments with lower investment minimums (currently as low as $500). Thus, for the first time Fundrise gives investors the true ability to achieve a mixed-asset investment portfolio.
eREITs For Investors
Fundrise's eREIT option is like a hybrid of individual real estate crowdfunding investments and private REITs. The fees are a little higher, but you get to access a more focused real estate region in America.
Here are the current three eREIT choices from Fundrise.
Real Estate Crowdfunding Returns
Real estate has done incredibly well compared to the S&P 500 since 2000. Real estate crowdfunding has done even better than the 10.71% annual return since 2012 due to fragmentation in the space. I'm regularly seeing deals return 12% – 16%, although such drastic outperformance may narrow with more capital flooding to the sector.
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.
For 2019, Fundrise returned 9.47%. The returns are very stable.
Fundrise’s six-year average platform portfolio has also done quite well, yielding a 10.57% return versus 11.43% for the Vanguard Total Stock Market ETF and 10.72% 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.
In 2020, mortgage rates have collapsed down to all-time lows, drawing a lot more people into real estate again. Check out Credible to refinance your mortgage.
Real estate crowdfunding is going to be a huge opportunity for investors in the coming decade. The technological platform will open up a flood of capital from expensive coastal cities like NYC, SF, LA, and Washington DC, towards inexpensive midland states. Further, the income growth opportunities in the heartland look to have some of the largest upside in the country.
Good investors always think about secular changes, regardless of where they stand on the political spectrum. Thus, I believe heartland real estate should outperform over the next 10 years because:
- 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.
- 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 such as Fundrise increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments.
If you're looking to diversify your portfolio with real estate, and you don't want to go through the hassle of maintaining a property and managing tenants, then real estate crowdfunding is a good solution. It's free to sign up.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 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.
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