Three Fundrise Real Estate Investment Strategies To Consider

Three Fundrise Real Estate Investment Strategies To Consider

Fundrise was founded in 2012 in Washington DC, and is one of the leading private real estate investment platforms today. Let's look at three Fundrise investment strategies to consider.

Fundrise is the pioneer in the eREIT space and offer both accredited and non-accredited investors a way to invest in commercial real estate across the country. Let's review the three fundrise real estate investment strategies to consider.

I like Fundrise the best because investors are investing in a portfolio of commercial real estate companies. It's hard to have the time to individually pick a real estate investment. Investing in a Fundrise eREIT makes real estate investing easy.

Real estate is one of the best investment classes to build long-term wealth. Unlike stocks, which can lose its value overnight, real estate is a much more stable investment. Real estate gives investors more confidence due to its collateral value and income streams.

Real estate is also easier to understand compared to individual stocks. If you own real estate in a good location with rising rental income that can cover costs, you've generally got yourself a winner.

Three Fundrise Real Estate Investment Strategies

You can be a landlord or you can be a real estate flipper when it comes to real estate. I personally like to buy and hold real estate for as long as possible. Inflation and positive demographics help real estate appreciate for the long term. Once any mortgage debt is paid off, the return are almost like gravy because it is possible for both rental income and capital values to appreciate.

But some investors like to purchase a property for capital improvement and then a sale down the road. We call this “fix-and-flip” properties. If you have the expertise to remodel at a reasonable cost while also properly identifying where we are in the real estate cycle, this fix-and-flip strategy could be very profitable as well.

But both investment types require the investor commit time and money to making sure their investments achieve the best possible returns. Given time is our more precious commodity, investing in a Fundrise eREIT is a smart solution to earning PASSIVE real estate returns.

After selling my San Francisco rental property for $2,740,000 in 2017 (30X annual gross rent), I reinvested $550,000 of the $1,800,000 in proceeds in real estate crowdfunding to diversify and earn higher returns. SF cap rates were only at 2.4% compared to 8% – 12% in the heartland of America.

Three Fundrise Investment Strategies

The three Fundrise investment strategies are: Supplemental Income, Balanced Investing, and Long-Term Growth. You can think about Supplemental Income more like investing in bonds and Long-Term Growth more like investing in stocks.

Fundrise Core Investment Plans - Three Fundrise Investment Strategies

Fundrise Investment Strategy #1: Supplemental Income Plan

This plan is designed to earn more income than appreciation. With that return profile, return potential is expected to be captured mostly through income paid through dividends. This plan is allocated more heavily in debt than equity. But the equity investments that the eREITs in this plan hold still offer the potential to capture some potential appreciation.

The Supplemental Income Plan will generally be expected to have larger regular dividend payments than other plans. However, its potential lump sum payment at the end of each project (capturing any appreciation) will likely be smaller than other plans.

In a high interest rate environment, investing in the Fundrise Income Fund is more attractive due to higher lending rates. Fundrise is lending money at higher rates to developers.

Fundrise Investment Strategy #2: Long-Term Growth Plan

The Long-term grown strategy is built to capture returns more from property appreciation over the long-term than regular income payments via dividends. This plan is weighted towards eREITs that allow investors to capture gains through potential increases in property values over the long term, but which also hold some debt investments, so the plan can provide regular dividends as well.

In general, the Long-Term Growth Plan will be expected to have smaller dividend payment potential than the other plans. But it holds the most potential to capture the greatest returns from appreciation at the end of each investment’s lifetime.

Fundrise Investment Strategy #3: Balanced Plan

This plan is a mix between the Supplemental Income Plan and the Long-Term Growth Plan. You can call it Growth & Income.

As an investor, you can consider the Long-Term Growth Plan to be relatively higher risk than the Supplemental Income Plan because it is counting more on capital appreciation for returns. The farther you have out to predict the future, the more uncertain the investment. This is why having a portfolio of properties with different target exit dates is important.

When it comes to risk and return, you can take a look at this simple “capital stack.” The more risky the investment, the higher the potential return and vice versa. In the capital stock, common equity has the potential for the highest return, but is also the most at risk.

Fundrise Capital Stack  - Three Fundrise Investment Strategies

Fundrise Thoughts On Debt Investing

One of the investment strategies to consider is debt investing. Debt investing is more senior on the capital stack, so it is safer. However, debt investing has lower potential returns.

Fundrise only considers debt investments that offer our investors strong positions both to potentially earn income and safeguard against losses e.g. senior secured debt and mezzanine debt.

In senior debt investments held by the eREITs, investor capital is senior to the sponsor or borrower, so Fundrise investors can receive payment priority.

Invest Based On Your Risk Tolerance And Goals

It's up to you to decide which investment strategy suits your needs the best. As a retiree with a family to raise, I'm on the lower end of the risk spectrum. Having a steady stream of income is much more attractive to me than risking my capital for potentially higher returns.

I'm a value investor at heart and if I can earn a 5% – 6% rate of return, I'm happy because I already retired in 2012 with enough money.

For younger investors looking for higher returns, you have the time and fortitude to take more risk. I took massive risk in my 20s and 30s by buying as much San Francisco property with 80% LTV debt levels as possible. With a non-working spouse and a toddler, I cannot afford to take as much risk any longer.

For the new decade, below are the latest investment plans investors can choose from. I personally like the Balanced Investing plan for a combination of dividend income and capital appreciation.

Fundrise Investment Plan

Fundrise Growth And Performance

Fundrise manages roughly over $3.3 billion in assets under management with over 400,000 active users as of December 2023. Their AUM grow and investor signups have been very promising.

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.

As you can see from this historical chart, the returns on Fundrise are much less volatile than that of the stock market. Investing in publicly traded REITs doesn't not give you investment diversification because REITs move just as wildly as the S&P 500.

In fact, during the March 2020 sell-off, REITs performed worse than the S&P 500. Investing in private real estate through Fundrise is a way to diversify away from the more volatile stock market. Fundrise funds also outperformed in 2022 when the S&P 500 declined by 19.6%.

Fundrise weighted average returns by objective: income, balanced, growth
Fundrise Returns

Explore Fundrise Private Estate Funds Today

If you're looking for a passive way to invest in real estate and a lower capital outlay, take a look at Fundrise. It's easy to sign up and free to explore. 

I see opportunity in non-coastal city real estate markets where valuations are much cheaper and cap rates are much higher. Post-pandemic, demographic trends are towards lower-cost areas of the country.

There is clearly a demographic migration away from expensive coastal cities towards the heartland. And I plan to take advantage of this multi-decade trend via real estate crowdfunding.

About the Author: 

Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spent 13 years working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has $810,000 invested in real estate crowdfunding.

In 2012, Sam was able to retire at the age of 34 largely due to his investments. They now generate roughly $300,000 a year in passive income. He spends time playing tennis, hanging out with family, and helping people achieve 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.

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