If you’ve always wanted to invest in real estate but you’re not an accredited investor with a huge stash of cash, Fundrise might be the answer to your problem. The private real estate market has traditionally been a steady performer, which makes it an attractive option for investors. But it hasn’t always been accessible to the typical investor.
Fundrise is attempting to change that, and this Fundrise review will bring you up to speed on how this platform works and who should consider investing in it.
What is Fundrise?
Fundrise is the first private market platform for real estate investing – simply put, it’s a crowd-based real estate investing option.
It offers different investment options such as eREITS and eFunds. An eREIT is like a traditional real estate investment trust, but the big difference is that it allows would-be investors to try their hand at real estate with smaller amounts of money. Fundrise’s eREITs and eFunds are portfolios of privately-held real estate assets which are found throughout the United States.
How your funds are allocated in Fundrise’s eREITs and eFunds depends on your investment plan. Fundrise offers goal-based plans, including a starter plan, supplemental income plan, balanced investing plan, and a long-term growth plan. There is something for every investor that will fit into their investment strategy.
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Why Invest In Fundrise vs. REITs
Let’s take a closer look at Fundrise vs. REITs.
REITs work like this – the REIT as a whole owns the real estate, but individual investors own REIT shares. The investors earn dividends from those shares.
Most REITS are publicly traded, which makes them highly liquid investments. When you need an infusion of cash, you can sell off your shares and get out. REITs offer great liquidity, which means investors don’t have to worry about tying up their money.
The downside of REITs is the scale they operate on. The biggest REITs need to close on large real estate deals to move the needle. This severely limits what they can invest on.
Fundrise, with the scale they operate on, can invest in much smaller commercial real estate deals. These smaller deals typically have rewards compared to REITs.
What you lose out on though is liquidity. You can’t just sell your Fundrise portfolio with the click of the button.
For the investment advisor services, which include managing your portfolio, Fundrise eDirect charges .15 percent annually, compared to traditional investments that would charge substantially more at times, from .25 to 1.45 percent. Higher managing fees will erode your nest egg so you want to do all you can to keep that percentage down.
For asset management, Fundrise eDirect charges .85 percent annually while traditionally you would be charged 1.0 to 3.8 percent annually. When it comes to index and mutual funds, Fundrise doesn’t charge a fee while you could expect to pay .12 to 1.2 percent annually elsewhere.
When everything is factored in, you will pay a total annual cost of 1.0 percent with Fundrise.
Benefits of Investing in Fundrise
There are quite a few reasons investors may want to check out Fundrise.
- It’s an easy way to learn about the intimidating field of real estate investing: Real estate investing has made huge fortunes for many investors – it’s a great, and time-tested, way to build wealth. Fundrise gives you a chance to cut your teeth in that market and learn it as you go along. Fundrise weeds through deals and only brings solid ones to their platform.
- Income is paid quarterly: Receiving that quarterly income is an attractive feature of Fundrise.
- It lets you participate without deep pockets: Historically, real estate investing was hard to access unless the investor had deep pockets. Now, anyone with a dream and a minimum of $500 can buy into the field, begin learning, and start building wealth.
- You don’t have to be an accredited investor: This is one of the biggest benefits to investing with Fundrise. It’s one of the few crowdfunded real estate investment options out there that doesn’t require you to be an accredited investor. To become an accredited investor, the investor must prove certain things, like an annual income of at least $200,000 a year if you’re single or $300,000 a year if you’re married. You don’t have to jump through those hoops with Fundrise.
- It’s free to sign up to look at deals: If you want to check out Fundrise’s website and browse the deals, it’s not going to cost you a penny to do so. So you can sign up now to check it out, but you won’t be committed to anything at that point.
- You can invest in an IRA: Your dividends will be taxable, but if you funnel them into a Fundrise IRA, it will give you a tax shelter.
Disadvantages of Fundrise
As with any investment vehicle, there are disadvantages to Fundrise too. The biggest being the liquidity.
Fundrise is illiquid compared to REITs.
With Fundrise, you won’t have access to your money immediately if something goes wrong in your life and you need to get fast cash out of your investments. But you can work around this problem by saving an emergency fund before you invest with Fundrise.
Who Should Invest in Fundrise
Fundrise isn’t the right type of investment for everybody. That’s not because it isn’t a great place to park your money and watch it grow – but there are other basics you should take care of before you add this to your portfolio.
Let’s look at who should consider investing in Fundrise.
- Those who have an emergency fund in place: Because you’ll need access to money with total liquidity in case of an emergency, you should make sure you have emergency savings before you invest in Fundrise. How much of an emergency fund you need depends upon your bills, the steadiness of your job, how many incomes your household has, and your comfort level. But at the very least, you should keep a minimum of $1,000 in your emergency fund before you invest with Fundrise.
- Your high-interest debt should be paid off: It doesn’t make any financial sense to begin investing in vehicles like Fundrise if you still owe on high-interest credit cards. The rate of return you earn on Fundrise would be less than what you’re paying in interest on your credit card balance. Before you begin investing with Fundrise, you should pay off your credit cards and any other consumer debt other than your mortgage.
- You should be maxing out your 401k: You should first be maxing out your 401k at work enough to get your full company match. If you’re not doing that, you’re leaving free money on the table. And that’s never a good wealth-building strategy.
- You want to use Fundrise as a learning tool: Fundrise really shines by giving motivated would-be investors a place in which they can learn their craft. And Fundrise provides this with minimum risk. That’s great news for people who know they want to do real estate investing in the future, but who don’t know much about it and don’t have much money to play with at the moment.
- You want to diversify your IRA or taxable investments: There’s something to be said for not putting all your eggs in one basket.
Fundrise Review: Final Thoughts
If you’re looking for a long-term investment that can grow with you, check out Fundrise. It’s not often investors can find a real estate investment group that lets them buy in with a $500 minimum and doesn’t require them to be an accredited investor.
The internet has opened up the world of investing to make it more accessible for everyone. The rules have changed, and it’s now an exciting time to be an investor.
And while Fundrise has opened up the world of real estate investing to anyone with the cash and a desire to succeed, they don’t leave you flying blind either. They weed out the iffy real estate investments for you, which makes it a great choice for beginners who don’t know what they’re doing yet.