In an earlier post, I talked about creating multiple streams of passive income. Real estate has been on our radar for sometime now and becoming landlords is what we had in mind until we discovered Fundrise.
Crowdfunding refers to raising money from public investors through online platforms. Fundrise, established in 2012 in Washington, D.C. is the first online investment platform that allows you to invest in real estate projects regardless of income or net worth. They are considered to be the pioneers of eREIT (electronic Real Estate Investment Trust) and eFunds (electronic Funds) investing, raising over $500 million in capital from investors and investing over $2.5 billion into real estate.
What I love about Fundrise, is that you can invest as little as $500, not only in one particular location, but multiple residential or commercial projects across the country, for roughly 8% – 12% annual return at a cost of 1% in advisory and management fees annually. Stop and read this paragraph again.
When you crate an account, based on your initial investment amount, you have an option to choose Starter, Core, or Advanced account type. Below is a screen shot from my existing Fundrise, account.
Additionally, their core investment plans include Supplemental Income, Balanced Investing, and Long-Term Growth strategy.
Once you select your account type and investment plan, your investment is allocated across multiple real estate projects entirely managed by the Fundrise team. Which means, I do not have to spend anytime dealing with the properties after my investment is made. The magic of eREIT!
Debt Or Equity Investments
When funds are collected from multiple investors, they are allocated towards a particular project in form of a debt secured against the property or equity stake in the property.
Debt means, you become a lender to the property owner and in return you receive interest as the loan gets repaid.
Equity means, property ownership. As owner of the property you are entitled to rental income or long term gain if the property is sold for profit.
Debt investments offer lower risk and lower return, but you are guaranteed to be paid first in case the loan goes into default. There are usually shorter holding periods between 6 to 24 months and regular quarterly distribution. Equity investments on the other hand, offer higher risk and higher return because you are last to get paid and holding period averages between 2 to 5 years.
Liquidity
When compared to liquidity of publicly traded REITs from Vanguard for example, all Fundrise’s capital is invested in the actual property they pick. What this means is that, when an investor wants to pull their money out, Fundrise has to actually sell the property before paying back the investor.
In order to provide a peace of mind for the actual investor, Fundrise has designed a system where it allows you to quarterly pull your money out without a penalty. One thing to keep in mind, Fundrise’s game plan is to partner with long term investors; not investors who trade frequently.
If you are still curious about the difference between Vanguard REIT ETF or Fundrise eREIT, check out the link here.
Pros And Cons
Fundrise Performance
Below is a cumulative dollar return and annualized returns paid to investors since 2014.
Bottom Line
If you are looking to invest in private market real estate, Fundrise is a great option in my opinion. Low annual fees, plenty of projects to choose from, average return on investment hovering around 10%, and most importantly more personal time to do what matters the most to you.
As always, make sure you do your own research before creating an account. Real estate crowdfunding can be a great opportunity to diversify your portfolio and boost your passive income returns.
