When it comes to investment options, the private real estate market has been a steady performer over time. Unfortunately, average investors often lack the capital necessary to invest in property, leaving them locked out of one of the best ways to diversify an investment portfolio.
This Fundrise review will explain how the company is trying to change that dynamic by lowering the barrier to entry. We’ll bring you up to speed on how the platform works and outline when it makes sense to consider leveraging it as part of your investment strategy.
Fundrise is a digital real estate investment platform designed to accommodate a range of investor profiles, from novices to high net-worth individuals. Geared toward investors with a longer-term outlook, Fundrise offerings are better suited for those prioritizing long-term growth over immediate liquidity.
- $10 minimum investment.
- Open to non-accredited investors.
- Some options to liquidate investments early.
- Potential redemption fees for early withdrawal.
- Pro plan costs $10 per month or $99 annually.
Fundrise Review: The Basics
When it comes to real estate, Fundrise primarily invests in commercial properties and real estate assets like office buildings, shopping centers and apartment buildings. It also occasionally invests in select residential real estate projects, such as single-family homes and stand-alone rental properties.
Fundrise has both a free option and a paid membership option (which is called Fundrise Pro).
For those on the free plan, Fundrise offers you the ability to choose from three different funds:
- Supplemental Income. Allocated towards assets that produce consistent cash flow, providing returns mainly through quarterly dividends.
- Long-Term Growth. Allocated toward assets with high growth potential, offering returns primarily through appreciation.
- Balanced Investing. A blend of both dividends and appreciation.
For those wanting more control over their investments, Fundrise offers the Fundrise Pro membership, which costs $10 per month or $99 annually.
The main benefits of Fundrise Pro are:
- Custom Investment Plans. You get full control over your portfolio’s allocation across any available funds.
- Direct Investment. You can invest directly into specific funds. This feature provides an added layer of control over your portfolio, allowing you to focus on areas that align with your investment strategy.
- Broader Investment Options. More types of funds become available to invest in.
Here’s a sampling of the fund types available as of May 2023.
|Flagship Real Estate Fund
|Net assets: $1.4 billion. Inception date: Jan 2021.
|Income Real Estate Fund
|Net assets: $567 million. Inception date: Apr 2022.
|Net assets: $277 million. Inception date: Feb 2016.
|East Coast eREIT
|Net assets: $175 million. Inception date: Oct 2016.
|Growth eREIT II
|Net assets: $164 million. Inception date: Sep 2018.
|Net assets: $129 million. Inception date: Jul 2019.
|Growth eREIT VII
|Net assets: $88 million. Inception date: Jan 2021.
|Opportunistic Credit Fund (Accredited Only)
|Inception date: Jan 2023
Minimum Investment Requirements
Fundrise allows you to invest in real estate as a non-accredited investor. U.S. residents 18 and older can use the Fundrise platform with an initial investment of $10.
Fundrise investors on the free tier have limited funds available to invest in. More fund options are available to both Pro members and accredited investors.
There is a $1,000 minimum to open an IRA with Fundrise.
How You Make Money
As a Fundrise investor, you don’t invest in specific real estate projects. Instead, you invest in one of the company’s eREITs or eFunds.
eFunds contain only equity, while eREITs contain a mix of debt and equity.
You can make money on your investment in two ways: through dividends and appreciation.
Your dividends consist of rental income generated on properties and interest income earned from mortgages. These dividends are calculated based on the total rental and interest income received by Fundrise, not the value of your shares.
Fundrise pays out dividends — which are a great source of passive income — quarterly. You can either have Fundrise transfer your earnings to your bank account or reinvest them into your portfolio using its Auto Invest dividend reinvestment plan (DRIP).
Advanced tip: Fundrise uses a “first in, first out” (FIFO) share redemption process. So if you choose to reinvest your dividends, that does not reset the holding period of your entire investment each quarter.
Properties don’t just earn rental income — they also appreciate in value. As individual properties within an eFund or eREIT increase in value, so too does the Net Asset Value per share of the eFund or eREIT.
For example, let’s say you invested $1,000 into an eREIT at the beginning of the year. If your holdings were $1,100 at the end of the year, your account grew 10% thanks to appreciation.
You don’t necessarily have to sell your shares to realize gains. If Fundrise sells a property that was part of a fund you own, it pays you a certain amount of the proceeds based on how many fund shares you have.
However, the primary way to profit from appreciation is to sell your shares once their Net Asset Value has increased.
Debt can also contribute to appreciation, albeit in a reduced manner. For example, Fundrise may put a portion of their interest earnings back into the respective eREIT, increasing the eREIT’s total value.
How You Take Profits (or Liquidate Your Fundrise Investment)
Fundrise’s eREITs and eFunds are not publicly traded, which means they are less liquid than some other forms of investments.
As such, the process of cashing out your holdings to realize profits is not as straightforward as selling stock. And it might involve penalties, depending on the type of fund and the duration of holding.
How liquidity works on Fundrise is that you can submit a liquidation request at any time. Fundrise reviews liquidation requests for most of its funds on a quarterly basis. After a 60-day waiting period, Fundrise processes the payouts within three to five business days.
When you sell shares, you receive their value at the time the order is executed, not when the order is placed.
For most funds, there is also a 1% fee for redeeming shares you’ve held for less than five years. The two exceptions are the Flagship Fund and the Income Fund, which allow investors to sell prior to five years for no penalties.
Your ability to liquidate shares isn’t always guaranteed. If a high number of investors try to sell at once, Fundrise reserves the right to limit liquidity among investors.
Fundrise Auto Invest (DRIP)
Fundrise offers a dividend reinvestment plan (also known as a DRIP) that allows you to automatically reinvest your dividend earnings into whichever offerings you’d like.
Reinvesting your dividends enables you to earn compounded returns. As you reinvest your dividends, your principal grows, which in turn entitles you to a larger dividend payout next time.
Shares bought via auto investment must be held for a minimum of five years to avoid the 1% early withdrawal penalty, but opting into DRIP does not reset the five-year holding period for shares you already own.
Fundrise updates actual investor performance daily on their website. Here’s their track record as of May 2023:
This chart represents cumulative time-weighted returns, which take into account both appreciation and dividends.
Fundrise vs. REITs
Let’s take a closer look at Fundrise vs. a traditional real estate investment trust (REIT).
A traditional REIT works like this: the REIT as a whole owns the real estate asset, but individual investors own REIT shares. The investors then earn dividends from those shares, in addition to any potential increases in share price.
Most REITs are publicly traded, which makes them highly liquid investments. This also allows you to place limit orders and stop orders, which can help protect you against downside. You can also invest in a fund of REITs, such as Vanguard Real Estate ETF (VNQ).
Publicly traded REITs work similarly to publicly traded stocks.
Much of the valuation is based on investors’ expectations of future performance. Just like stocks, their prices go up in good times and they go down when investor sentiment is low.
With Fundrise, there is no publicly traded share price, so there’s less short-term price volatility (which means more stable returns). In fact, there was no fluctuation at all through the beginning of the COVID-19 pandemic.
On the other hand, most publicly traded REITs, such as Vanguard’s, dropped significantly in price during the early period of Covid.
One thing Fundrise did do during this time period, however, was suspend redemptions and pause new investments. So if liquidity is one of your primary concerns, you may be better suited for a REIT.
Keep in mind that if you’re selling when the real estate market has crashed, you could be taking a big loss as the price per share of the REIT has likely fallen.
Another difference between REITs and Fundrise is their expense ratios.
Vanguard’s VNQ has an expense ratio of just 0.12%. And at first, that seems much lower than Fundrise’s all-in fee of 1%.
But each of the REITs in which Vanguard invests also has its own expenses. While not listed within the ETFs’ expense ratios, these costs take away from your returns.
These costs include the operational expenses of each of the individual REITs that Vanguard invests in, which may include marketing costs, financing fees, construction management, executive compensation and more. In one of the more outrageous examples, Simon Property Group REIT expenses equaled 50% of gross revenue.
The benefit of Fundrise is that it takes out a lot of the middlemen, allowing you to invest directly in properties. You can read more about Fundrise’s fee structure compared to Vanguard’s here.
Yet another advantage of Fundrise is its size.
The biggest REITs in the world need to close on very large real estate deals to move the needle. This severely limits what they can invest in. Fundrise, on the other hand, operates on a much smaller scale and can thus invest in much smaller commercial real estate deals.
These smaller deals typically have greater rewards compared to the kind of deals REITs invest in.
How Fundrise Chooses Investments
Each real estate asset that Fundrise adds to one of its eREITs or eFunds must pass a strict screening and underwriting process.
Fundrise starts by digging deep into the credentials and experience of the sponsor, which is the individual or company that acquires and manages the real estate asset that Fundrise is looking to add to its portfolio.
Fundrise analyzes the sponsor’s financials and credit history, but they also want sponsors with a strong track record.
Overall, Fundrise looks for companies with plenty of capital and an ability to do well in top U.S. markets.
Initial Project Due Diligence
If the sponsor makes it past the first step, Fundrise evaluates the sponsor’s particular real estate project to ensure it meets several criteria. It reviews each project from a very conservative point of view, making pessimistic projections to account for the worst-case scenario.
Fundrise then moves on to underwriting if it believes these estimates are good enough.
Once Fundrise determines that the sponsor and real estate project both meet its requirements, it begins the underwriting process. An underwriter analyzes the project in detail to see if its potential risks and returns match what Fundrise is looking for by seeing if the project passes the 350 data points on its underwriting checklist.
The underwriter then presents their findings to Fundrise’s Investment Committee.
The Investment Committee’s job is to hunt for potential risks and downsides to taking on the project, as well as determine whether these risks are worth taking. Additionally, the committee brainstorms ways to reduce or eliminate risks where possible.
Finally, Fundrise moves forward to the closing process. While closing, it attempts to negotiate other rights that can protect its investments, such as foreclosure rights.
Occasionally, Fundrise gains new information about a particular project during the closing process. If it receives further information that renders its original analysis moot, it will still back out of the deal.
Fundrise and IRAs
IRAs enable you to invest money in a tax-efficient way. Traditional IRAs typically allow only stocks, bonds, mutual funds and similar investments. To invest in real estate, you must have a “self-directed” IRA that lets you invest in assets prohibited by regular IRAs.
Fundrise investors can access self-directed IRAs through the company’s partner, Millenium Trust Company.
Fundrise offers three types of IRAs:
- Traditional IRAs. Contributions are pre-tax, while withdrawals are taxed as ordinary income.
- Roth IRAs. Contributions are made with after-tax income, but withdrawals are tax-free.
- SEP IRAs. SEP IRAs are designed for small business owners and self-employed people. Contributions are pre-tax, while withdrawals are taxed as ordinary income.
IRAs are not compatible with eFunds (only eREITs). You can either invest your IRA directly into an eREIT or into one of Fundrise’s plans.
Further reading: Roth vs. traditional IRAs — which one is right for you?
Fundrise Fees and Penalties
Fundrise charges a total of 1% in fees on your investment portfolio. This 1% figure comes from two separate fees: an advisory fee and an asset management fee.
Fundrise charges a 0.15% advisory fee for managing your investment portfolio and providing you with the Fundrise eDirect investment platform. Compared to traditional services — which tend to charge between 0.25% and 1.45% annually — Fundrise keeps the advisory fee low.
Additionally, Fundrise charges a 0.85% annual asset management fee.
Fundrise does not charge commissions or transaction fees, nor does it charge you for features such as the DRIP plan.
However, there are a few other fees to be aware of.
- Development and liquidation fees. Fundrise reserves the right to charge development fees, but claims to rarely do so. Fundrise charges these fees to cover the costs of managing the development of for-sale housing.
- IRA fee. Millennium Trust Company charges $125 annually for IRA management.
- Origination/acquisition fee. Origination/acquisition fees allow Fundrise to acquire new real estate property for its eREITs and eFunds. Fundrise charges a 0-2% fee on the purchase price of new investments to the borrower. At the origination level, Fundrise charges investors 0%.
Four Benefits of Investing With 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, a time-tested strategy that has helped many people build huge fortunes.
- Dividend income is paid quarterly.
- It lets you participate without deep pockets. Fundrise is one of the few real estate investment options available if you’re a non-accredited investor.
- You can invest in an IRA. Your dividends will be taxable, but funneling them into a Fundrise IRA will give you a tax shelter.
The Three Biggest Disadvantages of Fundrise
- Lack of liquidity. As with any investment vehicle, there are disadvantages to Fundrise. The biggest is the lack of liquidity. Fundrise is illiquid compared to a public REIT. 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. Given that, it should be viewed as a long term investment.
- The possibility of losing money when you sell your shares. Because there’s a 60-day lag between when you request to sell your shares and when that order is processed, you can suffer a loss if the value of your investment declines within that window.
- It hasn’t survived a 2008-like crash. Since crowdsourced platforms didn’t exist during the housing crash in 2008, we have no history to rely on to show how a company such as Fundrise would perform during another “black swan” event.
Who Should Invest in Fundrise
Fundrise isn’t the right investment option for everybody. That’s not because it isn’t a good place to park your money and watch it grow, but because 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 sufficient emergency savings before you invest in Fundrise.
- Those who are maxing out their 401(k). You should first be maxing out your 401(k) up to your full company match. If you’re not doing that, you’re leaving free money on the table (which is never a good wealth-building strategy).
- Those who want to use Fundrise as a learning tool. Fundrise really shines by giving motivated individuals a relatively safe way to learn and hone their craft as a real estate investor.
- Those who want to diversify their IRA or taxable investments.
There are a number of real estate platforms that have followed in Fundrise’s footsteps.
A few worth highlighting include:
- Arrived. Arrived is focused on investing in single-family homes as opposed to commercial real estate property and debt. Read our Arrived review to learn more.
- Cadre. Cadre is an alternative for accredited investors looking to diversify their portfolio in real estate. Minimums start at $50,000. Read our Cadre Review to learn more.
- CrowdStreet. For accredited investors, CrowdStreet offers the chance to invest directly in specific commercial real estate projects by partnering with developers across the U.S. The minimum amount to invest in any single project is $25,000. Read our CrowdStreet review to learn more.
- DiversyFund. Allows non-accredited investors to buy into residential multi-family properties with investments starting at just $500, but the platform comes with a big downside: there’s no liquidity, as early withdrawals are not permitted and there’s no market for selling your shares. That means your funds are locked up for at least the five-year target timeline. Plus, the investment does not pay a cash dividend. Read our DiversyFund review to learn more.
Yes, Fundrise is safe in the sense that they’re a legit company with over $1 billion in assets. Fundrise assets do carry risk, however. Keep in mind that your investment is backed by physical real estate, so if there was a default your investment might not be totally lost.
Fundrise pays quarterly dividends, which range depending on what you’re invested in. On an annual basis for 2021, dividend payments ranged from about 1.5% to about 6.5%.
While Fundrise allows customers to purchase shares in the company, they’re not a true mutual company. The company is owned by Rise Companies Corp. Read their offering circular to learn more about their corporate structure.
Fundrise Review: Final Thoughts
The first question to ask yourself regarding Fundrise is whether you’re planning to invest for a minimum of five years.
While the 1% early redemption fee may seem small, a publicly-traded REIT doesn’t have that fee, nor do non real estate investments such as a stock market index fund.
For non-accredited investors, I like Fundrise as a way to diversify one’s portfolio while learning about real estate investing.
Its low initial investment (just $10) gives a non-accredited investor the ability to invest in the real estate market with little money, without risking too much of their savings.
Plenty of good options exist for those who decide to increase their real estate asset exposure as they gain more experience. If you’re interested in real estate and think you might want to pursue it further at some point in the future, this can be a great way to learn the language and methodology reasonably safely.
Since Fundrise chooses the properties, you’re less likely to make a bad decision or get swindled.
Plus, their annual reports and in-depth circulars are also a great way to learn how to understand potential deals.
For higher-net-worth investors, Fundrise is a worthwhile choice for those looking to earn regular dividends or diversify their portfolios. Specifically, in a traditional 60/40 portfolio, one might look to diversify their bond allocation with some real estate, which is where Fundrise could fit in.
One thing that stands out about Fundrise compared to many other alternatives is that you’re not investing in individual properties and projects. This diversification reduces your risk compared to alternative real estate platforms, where you invest directly into a specific project.
At the same time, it’s not suitable for everyone. While real estate is one of the best alternative investment classes and has a solid track record of returns, I would still recommend that most people put the bulk of their investment into index funds (which have consistently proven to be among the safest and most effective investment opportunities).
In other words, Fundrise isn’t the right place to start investing as a beginner, but can be a good way to diversify your existing investments.