What is Fundrise?
The Fundrise platform takes advantage of recent changes made by the Securities and Exchange Commission involving non-accredited investors. This modification now allows most US residents access to markets previously unavailable to them – namely private real estate crowdfunding. It is important to note that Fundrise investors must be US residents and their investment cannot exceed 10% of their gross income and/or net worth.
Fundrise creates private Real Estate Investment Trusts (they call them, eREITs) and makes them available to their investor base. By crowdfunding investments, Fundrise is able to invest in a broad basket of commercial real estate properties rather than the single building you would potentially invest in otherwise.
The investment minimum is $1,000 and the process is quite straightforward. All of the funds offer quarterly distributions (cash or DRIP), quarterly liquidity requests and fund fees are quite low for the industry sector. The direct funds pay a 0.85% annual asset management fee. For those who choose the Fundrise 2.0 platform, an additional 0.15% advisory fee is issued.
Fundrise 2.0 was released in early July 2017. This new product offering operates in line with the trendy space of robo-advising. To be clear, Fundrise only (as of this post) invests in real estate though. Fundrise manages the portfolio by coordinating automated distributions and performing asset rebalancing (subject to the advisory fee mentioned above). Investors are able to create a well diversified portfolio of the existing Fundrise eREITS and eFunds. As of this writing, there are 7 such offerings:
For those who prefer the hands-off approach, the robo-advisor offers an appealing overall diversification. Below you will see the suggested application of $10,000 in their Long-Term Growth Plan.
While I do think the advisory services create a nicely diversified portfolio, I am not keen about real estate on the West Coast or in the Northeast. Therefore I chose to opt out of the advisory services and hold specific funds of my choice.
My Fundrise Portfolio
50% – Heartland eREIT – The Heartland eREIT’s strategy focus is on multifamily rentals in Midwestern cities that have recently been experiencing strong economic growth. The target metropolitan areas include Austin, TX, Dallas, TX, Houston, TX, Chicago, IL, and Denver, CO.
50% – Growth eREIT – The Growth eREIT applies three core principles to their asset collection: Workforce Housing, A lack of supply in affordable housing and increased demand resulting in increased value; Low Cost Basis, Acquire properties below their replacement costs; Long-Term Fixed Financing, Securing interest rates while at historic lows.
My total portfolio holdings in Fundrise looks like this:
Index REITs Comparison
When considering Fundrise, you may be wondering what the benefit would be over choosing a low cost index ETF like Vanguard’s VNQ. While both of these options hold real estate exposures, they have very different methods of touching the market.
ETFs have a high level of liquidity compared to crowdfunded platforms and often are investing in other REIT businesses like Simon Property Group or Public Storage.
Fundrise instead negotiates on your behalf to build a portfolio of physical assets owned by the fund. This could include multi-unit apartments, land leases, or hotels. The platform has very specific withdrawal guidelines that make the investment quite illiquid for the first 5 years. You should not be investing in crowdfunded real estate if you will need access to the principal in that amount of time.
While there is less flexibility for withdrawals and more risk due to a smaller pool of diversification, the returns can be quite appealing. Both the Heartland and Growth funds are generating 8.00% annualized as of this post.
If you have done your research and believe that Fundrise fits your risk appetite, the platform can make for a reasonably diversified introduction to real estate crowdfunding. Remember this is a longer term (~5 year) investment and you should not invest with funds you intend to use in a shorter amount of time.