In this podcast episode, I speak with Ben Miller, Co-Founder and CEO of Fundrise. We discuss the various opportunities and risks he sees for real estate and stock investors over the next 12 months.
For the several years that I've known Ben, he has always demonstrated a more measured outlook than other CEOs and investors I've spoken with. Like me, he's in his mid-40s and went through the 2000 Dotcom bust while working in tech. Then he experienced the real estate downturn starting in 2008 while working in real estate.
As a steward of capital, I would rather have someone who is more cautious than someone who is not. We are more interested in hitting singles and doubles on our way to financial independence rather than home runs. Avoiding major blowups is one of the keys to being a successful long-term investor.
Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise funds.
Aligned Investing Outlook
I also like Fundrise because we both believe in investing in the Sunbelt region. In 2016, I wrote the post, Focus On Trends: Why I'm Investing In The Heartland Of America. My thesis was that Americans would “spread out” to lower-cost areas of the country thanks to technology. Today, Fundrise predominantly invests in residential and industrial real estate in the Sunbelt region.
Fundrise was founded in 2012. It is a vertically integrated private real estate platform that manages over $3.3 billion in equity for over 500,000 investors.
Since 2016, I have invested $954,000 in various private real estate funds and individual deals. My main goal is to diversify away from expensive coastal city real estate and earn more passive income.
Listen To The Podcast Episode With Ben Miller, CEO Of Fundrise
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I hope you enjoy this deep-dive episode with Ben Miller. Fundrise is a proud partner and sponsor of Financial Samurai. You can sign up for Fundrise here and invest with as little as $10. Dollar-cost averaging into a weak market makes sense.
Discussion Points:
- The history of the founding of Fundrise
- Savings and Loan crisis and its impact
- The pros and cons of being conservative
- Mental model for identifying and investing in mega trends
- Prediction of a recession in 2H 2024, “It’s not that you’re not active (in a recession), it’s what that activity is.”
- Why the Fed can’t do its job better
- Why there's a window of opportunity to lend for construction loans and refinances
- Capital constraint, not opportunity constraint for lending deals
- Why the Income Fund looks the most attractive currently with a $10 minimum
- The launch of the Opportunistic Credit Fund with a minimum investment amount of $100,000
- Why investing in the right sponsor is everything
- Why it's more attractive to invest in value versus risk today
- The launch of the Innovation Fund, which is a venture capital fund that invests in private growth companies in the artificial intelligence, prop tech, fintech, and SAAS space.
Related posts:
Private Real Estate Crowdfunding Learning Center
Private Real Estate Investing: Seven Takeaways After Seven Years
Update 2024 Real Estate Outlook
Past The Real Estate Bottom – This is an updated view of Ben's thoughts about real estate. He is now bullish for 2024 and beyond.
Join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai began in 2009 and is one of the leading personal finance sites today with roughly one million organic pageviews a month.
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.
Sam, can you compare their resturns vs the Public REITs the last Decade?. Appears like at the max, they are on par or below public REITs.
What makes you think that now their credit opportunistic fund targeting 10% – 14% return will outperform? We need more of your objective assessment.
Nothing is a guarantee. Public REITs have returned about 10-11%, but in a high interest rate environment, it makes sense lending rates would also be higher and I could see a 12-13% net return with the Opportunistic Credit Fund over the next 3-5 years. But of course, there are no guarantees, so diversification is important.
Sam
I enjoyed the podcast. Based on your positive review and experience with Fundrise I invested in them April 22. To date; my portfolio is down -4.5 % net annualized return. Seems like Sunbelt real estate is not immune to effects of interest and mortgage rates.
Hopefully, the performance of this comlany will improve as inflation and interest rates come down.
Hi Sean,
Unfortunately, 2Q2022 was the top of the real estate market, with prices looking to have bottomed in 4Q2022/1Q2023. Time frame is important and investing in private real estate is a long-term investment of 5-10 years or longer.
No risk investment is immune. It’s important to look at all risk assets in a set time frame. The S&P 500 was down 20% in 2022. I expect real estate to rebound and catch up with the rebound in the stock market this year.
Dollar-cost averaging over the long run has proven to build wealth over time. If anybody is still working and hasn’t reached financial independence, downturns present great opportunities to invest. I’m buying real estate now.
See: A Window Of Opportunity Has Emerged To Buy Real Estate
Sam
I worked for a local government homeless program for 6 years. Before that I worked for a non-profit and before that I worked in tech. I quit tech. I bought my CA place so that I could live in it though I will probably eventually rent it out and move to the family home in Ohio. But I will probably come back after my mom dies to hopefully die in my CA condo. If you all want to learn about the homeless situation there’s plenty of freely available sources of information like Cal matters, shelter Force, that book evicted, and numerous other publications and there’s publicly available data from HUD. I have investments in stocks, index funds, employer retirement accounts, the I Bond thank you financial samurai, t-bills, crypto. I’m not going to make myself poor that would be stupid and pointless. There’s not one single solution to homelessness but at least I can try not to exacerbate the situation in a small way. I have friends who rent out affordable properties and they have not jacked up rental rates which would result in evictions like investment companies do. There’s value in long-term tenants. When I rent my place I would seriously consider renting to a permanent supportive housing program with the local government.
Fundrise acquired land and builds homes mainly in the Sunbelt. It is adding to the supply of homes.
I’d love to hear more about the cumulative default history in the universe of loans that he has specifically done and others in this specific food group (smaller sponsors, lower size, non tier one city, and high risk construction) as well as the average recovery.
The 13/14 sounds great, but the document that secures the mezz/pref position is incredibly important and the rights and remedies that he can negotiate would be very important to me.
Also, what types of liquidity do the PE style funds hold back to stabilize the situation in case you need to step in and protect the position.
Lastly, what types of pref does the manager make on the investments and at what hurdle rate and are the prefs crossed or does each investment have its own carry to the GP?
I do agree that sponsorship is absolutely the first and most important part of the transaction. I would never ever invest or lend to any firm or person with questionable character or a background where they were unwilling to work with getting their capital providers back their investment before worrying about their own position.
Sam, I was the guy who wrote how the sound was very uneven on the RISE podcase. Just to let you know that listening to your Digital Nomad Lifestyle and absolutely no problems here. Both of you are clear and even volume. Make sure your guests are close to the MIC! Thanks.
Thanks. For some reason, I hear Ben just fine.
Thoughts on your real estate outlook?
Any thoughts on the crowd street debacle?
I don’t know much. But it sounds like the sponsor, Nightingale, committed fraud by misappropriating funds that were raised partly by CrowdStreet. But I’m not sure how or why funds were released from escrow before signing the offer sheet to buy the target properties.
Personally, I have no time or interest in trying to pick individual deals to build a select portfolio at the moment. Maybe when my kids are in middle school, but not now as a FT parent. Hence, my preference in investing in funds with multiple property holdings.
Just the nature of risk, some investments will fail. But with a fund the impact on the downside and upside won’t be as great. And that’s why I want since we both don’t have day jobs.
Love your posts Sam but this is one thing I disagree with on ethical terms. It appears Fundrise is really Blackstone, et.al. These are parasitic organizations that are financializing American real estate. The future generations will have limited chance of the American Dream of home ownership. I can see good profits can be made but I personally do not support this type on investing on an ethical basis. If you feel this is not the case I would love to hear your argument.
I understand Capitalism can be hard to accept, especially if you were brought up in a different type of environment. But that’s what we’ve chosen here in America.
Fundrise does a lot of build-to-rent to provide more rental supply to the market. Further, many people can invest in Fundrise given the minimum is only $10.
What is it that you do for a living? I would love to learn more about people who work in nonprofit. Given your stance, what type of investments do you invest in that you think are OK? Thanks
Most people who are against Capitalism are Capitalists. They just aren’t very good at making money or have a fixed mindset, hence, feel like they are getting left behind.
I am a pharma consultant – in an industry that is overly profit motivated. I lean libertarian and I believe strongly in freedom. But that does not mean I would invest in anything at all that makes money. If heroine were to be legalized and I could make a larger profit I still would not put my money into it. I personally do not buy into the ESG/Woke/Climate BS but I am concerned about vampire squid like Blackrock destroying the American Dream that my grandparents helped build here. Money is a means to an end. More is not always better. Who wants to be wealthy behind guarded gates worried their children will be kidnapped from private schools. We must tread carefully or what kind of country will we leave to our grandchildren. As for my investments they are mainly real estate. I personally do not like stocks though I do have a 401k so I am stuck in either stocks or bonds. I invest mainly in certain Dow and some value though I am leaning more toward safe bonds/CDs as interest rates are up and I am nearing retirement. So there it is, nothing fancy and I am not a SJW but I am someone who believes we reap what we sow. “Our constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.” John Adams
You do realize big Pharma is considered one of the highest profit making and evil industries on the planet right? I’m assuming you are consulting with Pharma on how to make more money.
Profit margins are huge in big Pharma with regular price gouging. Lots of stories of corruption in Pharma and government to.
If you mainly own real estate, you are taking away supply and making real estate more pricey for renters and buyers too. So from an ethical point of view, you are completely inconsistent.
Wow I’ve obviously hit a nerve. That tells me people are indeed ‘butt hurt’ as my son would say. The blogger and commenters dost protest too much methinks. To respond about pharma – yes very profit driven and many unethical decisions are made every day but that’s not because of capitalism it is because of unethical people who have made healthcare into a racket all the while telling themselves it’s okay bc anything goes in the quest for profits – and that goes for the doctors, hospitals, etc. It’s not the system it’s the people and unless people consider moral and ethical decisions we will continue to the downward slope that is obvious across the West. To respond about removing properties from the market I do not rent out real estate – big assumption on your part but renting or investing in Blackrock is not the only way to make money in RE. We build/ renovate and sell (keeping way too long to call it flipping). In our area the houses are old ugly 50s splits and need major work. I do not have anything against landlords but most eventually sell their houses. Big corporations taking large proportions of SFH off the market forever… well I just will not invest in that. You can make your own choice if you see nothing wrong with it and we can agree to disagree. It is very hard to be ethical with all life’s temptations but one must try…. Try to evaluate your choices in good conscience – that’s the best we can do on this planet.
Try to fix the problem of Big Pharma, not be a part of it. What are you doing to make your most insidious, profit-driven industry better?
You buying homes, fixing them, and selling them for a profit makes homes more expensive. How is making homes more expensive not making homes more expensive for people?
Big real estate investors are also buying and renovating and selling for a profit. How is that different from what you’re doing? Some are buying land and developing new property and increasing supply.
There’s no such thing as “taking properties off the market forever” if you’re a real estate investor. You either have to sell or rent it out to capitalize.
Pretty soon you’re going to tell us you’re a communist, despite investing and working in Pharma. Bizarre!
Seriously. “D” is taking a stance on something he’s perpetuating and yet he doesn’t see it. It’s plain as day.
I like how you answer questions and then always ask a question at the end
It appears the future is already here, in my area houses are way above the median salary that two workers make and people struggle to find affordable housing. These finance companies can either add to supply or take it away. I wish that the small home builders that were around pre-2004 in my area still existed, now it is just big state and national builders that own the property in my area. It is a shame that this country has given up on small business and it will get worse going forward. Houses should not be investments and laws need to change to allow ordinary workers a chance to buy them again. Houses used to cost two times a person’s annual income in my area, now they are 10 times a person’s annual income.
We need reforms in the financial markets and the housing markets to level the playing field for ordinary Americans. We need higher taxes on passive income and dividends. They used to be taxed at 50%, now they are taxed at 15% if at all. Too much wealth is sitting on balance sheets and not doing anything to improve the lives of people who do actual work.
I am retired based on saving enough capital and I would be happy to pay much higher taxes on my passive income to help the next generation of workers have good lives. When ordinary Americans do well everyone does well. When I write my legislators they always ignore me when I ask them to raise my taxes. I get a response that I should donate to charity or something. Charity doesn’t work because Americans don’t want charity. They want high paying jobs to raise a family and you only get those through growth of wages and regulation at times to make sure the markets are healthy and functioning properly.
With the current nationwide housing shortage it is clear that reforms and regulations are needed so that the supply imbalance can be addressed. Clearly when big builders control the market they have no interest in truly addressing the market imbalance and that is the reason Sam will make money on Fundrise. When demand exceeds supply the profits are in the middle.
Long term if birthrates stay low many of the current areas where these funds are investing will lose money because there will not be any children to move into these houses when the current owners die or move.
All of that being said you are right in your thoughts, but the capitalists have won this round and will be in control for the foreseeable future. If only the young generation could have the political power to change the system to their benefit that would be awesome. Housing is a basic human right and is far too expensive in America currently. That was not always the case and I hope things come back into balance very soon.
Why not just cut a bigger check to the IRS and pay more taxes? Nobody is stopping you unless you’re simply virtue signaling.
Do what you believe!
I have actually done that before and the government sends any over payments back. I regularly don’t claim deductions that I qualify for to try and pay a higher rate, but the game is stacked in favor of the rich by design. I also don’t have children so I automatically pay a higher rate then people with kids as it should be. No virtue signaling just facts. It is funny now that I live on investments instead of having real work to do I get to keep more of my money because hardly any of it is subject to taxation. I should have quit my day job years ago because it costs a lot of money to do real work for a living. Now that I literally move money around on a screen I don’t pay much to the government anymore.
Very backward and weird system we have.
In a perfect world or democracy, some of your thoughts could have merit. The problem is the world, and our government, are far from perfect. Paying higher taxes does not flow down to help the less fortunate, or those priced out of the housing market, because the government is completely irresponsible when it comes to allocating our tax dollars. Just look no further than Social Security or Medicare. Politicians will waste every dollar you give them in order to increase their power base and influence. The best you can hope for is to keep every dollar you can, invest it well and hope that those you love can benefit from what you leave them, as well as the charities you choose to support.
Simply handing over more dollars to the government is as effective as buying a drunken sailor another drink.
The US government by virtue of king dollar is the best government and the best currency in the world and all the capitalist system does is redistribute income from one group of people to another and anything can have value in the system. Take the iPhone for example, if you were old enough to buy Apple stock at its lows in the late 90s and early 2000s and hold until now you made a fortune for doing nothing, that is the weirdness of the system and what it gives value too. Certainly there are more valuable things in this world than a cheap plastic cell phone, but the capitalist system can literally make anything valuable even when it really isn’t.
The US government generates $6 to $7 for every $1 it pays out in benefits to the working class according to some economists so the government needs more revenue to help people at the bottom of society. The problem with the government is not the spending which is low by historic standards, it is the low taxation of capital which is terribly low by historic standards.
If we had a 50% tax rate on unearned income and a 50% tax rate on real estate transactions those markets would function better and working class people could afford a good life. Since 1980 the private sector has made a mess of the working class to boost stock values. Decades from now the party will end and people will wonder what we all were thinking.
Social Security and Medicare have massive surpluses and are the most cost effective way to deliver health care to seniors. The private sector refused to offer health care to seniors and that is why Medicare exists in the first place. Also, the private sector doesn’t offer pensions to workers anymore so the burden will be shifted to the government while the profits stay with the companies.
The US government is the best investor in the history of the world and that is why the US is the wealthiest country the world has ever seen. I don’t understand why people bash the government so much. Everything must be kept in balance to make the future better for everyone. Bubbles help no one and actually make it harder for ordinary people to keep a slice of the American pie which can grow in unlimited ways when policies are correctly applied. Money is not a scarce resource. Politicians lie and say that it is.
This is precisely the reason why I have not invested in Fundraise even though it’s tempting, plus my family already owns real estate in Ohio lol.
People applying for mortgages to buy houses to live in cannot compete with all cash buyers no contingencies 10 days to close offers from investment companies and people like me who may happen to have some spare cash to buy affordably priced properties. I bought my place to live in but investment companies are buying to rent out. I live in the California Bay Area.
So the only people who can afford to buy housing are more wealthy people buying higher priced homes who end up engaging in bidding wars. We still have a low inventory problem. There are no affordably priced houses just sitting around waiting for an owner occupant with a conventional 30-year mortgage to buy them.
The situation exacerbates the problem even further by increasing overall housing prices. It would be a real pity for the same situation to happen in Ohio. Real estate has already increased dramatically. There’s still affordably priced houses that it seems like people can buy with conventional mortgages. But companies like fundrise and other investment companies are going to kill that and it’s going to become California.
If you want to increase the homelessness problem for the entire United States and make the whole country a truly s***** place to live for everyone rich or poor, by all means have at it.
Unless you don’t own any investments and work in non-profit, you are saying one thing with virtue signaling and doing another.
What is it you do and invest in?
Long time reader and relatively new to the podcast. Listened to the current episode this morning and heard your shout out to Mobile, AL where I live! Another quality episode.
Thank you for all the hard work you do. Great website and podcast!
Good to hear Jeremy! I was thinking of you when I mentioned Mobile, Alabama. I hope life is going swell down there. If you wouldn’t mind leaving a podcast review on Apple and/or Spotify, I’d appreciate ti!
Great podcast! What have you thought about Fundrise’s Innovation Fund and their three main investments so far?
I’m excited about the Income Fund, per the second half of the podcast episode. Stepping in to lend to great sponsors/projects at 13% – 14% gross so they can get their projects done is an attractive return. These construction loans will be in high demand b/c sponsors aren’t just going to quit on their project halfway in. They need to see the project through to completion.
Here are my initial thoughts on the Fundrise Innovation Fund. As of now, I’m focused on real estate, Fundrise’s bread and butter given I already invest in private funds with VCs such as Kleiner Perkins.
What are your thoughts?
What percent of your liquid net worth are you putting in fundrise?
Less than 10%. You?
I have no money in fundrise. I invested 8% of my liquid net worth to fund that flip and groundfloor.
My biggest worry about these crowdfunded companies is the risk of bankruptcy.At least groundfloor publishes financial statements. How do you know how well fundrise is doing if you have no access to their financials?
That’s great you are investing in what you believe in. Good to invest based on your risk tolerance too. Fundrise has quarterly reports on each of its funds.
I have never heard of Fund That flip and very little about Groundfloor, so good luck to you. I try to invest in the oldest, and most funded and financially sound platforms, partly due to platform risk.
Yikes, be careful of investing in Fund That Flip and Groundfloor in such a high interest rate environment. Their businesses are way down and it is highly likely these platforms are losing money.
Investing in Fundrise is a much safer bet given their portfolio is mainly for generating rental income and Fundrise can raise money directly from investors with their public offerings.
I’d be wary of platforms that specifically focus on lending. Rates have rocketed and volume has dried up. So you investing in Groundfloor and Fund That Flip are most at risk. Look at lender PeerStreet.
At least it’s only 8% of your net worth if something happens.
Lender platforms are unprofitable now.
They were not profitable even real estate was booming. That’s the only reason I am not increasing my allocation.
I’ve got some funds invested in Fund That Flip – almost all of it in their monthly bridge note funds that are a diversified mix of their investments. They have that have a fixed rate that they pay monthly and set maturity date. I like the monthly payouts, and have the equivalent of a ladder investment system with these fixed month funds. I have not seen any financial statements – they report their monthly performance about their loans and volume but not overall P&L figures. The only thing that has concerned me historically is that they don’t seem to have a social footprint or much awareness in the marketplace. But what makes you say they are not profitable? I know other platforms have collapsed, but those seem to have been structured differently. Have you seen or read something you could share? Thanks for any info!