If you're looking for the top real estate investment idea, look no further. I think investing in a Fundrise eREIT is a smart way to gain real estate exposure. With only a $10 minimum, it is easy to dollar-cost average into Sunbelt residential and industrial real estate with Fundrise.
The housing market has slowed down due to aggressive rate hikes since 2022. However, 2024 is looking better for real estate given the market is expected the Fed to cut rates and the S&P 500 has rebounded to near all-time highs. Further, there's been a huge increase in the intrinsic value of real estate since we're spending more time at home.
I’ve been a big fan of real estate since college, but I’ve only invested in actual physical property. I’ve always just bought a place to live in for several years and then rented it out. This way, no matter what happens in the market, I’m hedged because I’ve enjoyed the property. Further, I only need to put 20% down initially.
Investing In Private Real Estate For More Passive Income
When my master tenant gave me her 30-days notice several years ago, I saw it as a sign to explore as many investment alternatives as possible.
The top real estate investment idea I decided was to invest in the heartland of America via Fundrise. Fundrise is a premier real estate crowdfunding platform with over 150,000 investors managing over $1 billion in assets. Given mobile work is on the rise and there's a big demographic shift away from the coast, this multi-decade thesis makes a lot of sense.
Further, there's a growing desire to invest in 100% PASSIVE income investments versus actively managing tenants and maintenance issues.
Related: What Are The Different Types Of Real Estate Crowdfunding Investments?
Real Estate Is A Strong Performer
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. In addition, equity investors looked at hard assets to park their money.
REITs is the #1 asset class by performance.
Here’s another chart highlighting Fundrise's returns versus the S&P 500, NAREIT Composite Index, and NASDAQ. With my personal investment return goal of 3X the risk-free rate of return (10-year bond yield), anything above 6% looks attractive, depending on risk.
The approximate 13% net average annual return is representative of the aggregate historical operating results from 2015 for 43 individual investments offered under Reg D. Their eREIT model gives all investors access to a diversified pool of quality commercial real estate. In their first full quarter of operations the Income eREIT earned an approximate 9.7%.
They’ve made investments in commercial real estate projects all across the US. To date they’ve been most active in the New York, Los Angeles, DC, Seattle, Atlanta, and Phoenix markets. I’m glad, because I’m looking at areas outside of San Francisco to invest. Here's an update on the state of the real estate crowdfunding industry.
Fundrise Performance And Growth
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. The 14%+ outperformance against the Vanguard Total Stock Market ETF in 2018 was particularly impressive.
With a healthy 5-year track record, 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 mentioned earlier, Fundrise now has over 400,000 investors with over $3.3 billion in assets. Fundrise is now a leading institutional real estate investor competing against all the big dogs. If you want to invest with an institutional investor that has more access, then Fundrise is likely a good bet.
Real Estate Investing Sweet Spot
Historically, he 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 is only $10. As a result, practically everybody can invest in real estate.
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 and am still working on my house slowly today.
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.
Income Is More Passive Investing With Fundrise
One of the biggest advantages of owning equities over real estate is there are no ongoing maintenance costs. Something is always breaking in one of my properties, like a kitchen faucet the other week.
Another advantage of owning REITs and equities is there isn’t ongoing property taxes. Even though property tax is only 1.2% of the assessed value in California, isn’t it disgusting to know that in 83 years, you will have paid 100% the value of your property in taxes alone?
But 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 7.2% return a year, let alone a 13% return, I’ll double my investment after 10 years. The main “drawback” to investing in REITs and real estate crowdsourcing platforms is that I can’t leverage up 5:1 like I can with a mortgage on a physical property. But sometimes, not leveraging up can save your hide.
Diversify Your 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. Technology has allowed investors to arbitrage higher net rental yields from all around the country.
Fundrise is the best real estate crowdfunding platform for non-accredited investors. It is my top real estate investment idea. Sign up for free and see what they have to offer.
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.