Are Fundrise eREITs a Good Investment? A review of Fundrise's platform, investment options and returns.
Fundrise - Private Real Estate Investing through eREITs
Fundrise is a decade old company focused on opening the commercial real estate market to everyday investors through electronic Real Estate Investment Trusts, or eREITs. REITs are not a new concept. They’re one of the oldest investment vehicles out there. Fundrise, and other startups like DiversyFund, has opened private REITs to the general public by lowering investment limits and offering a wide variety of investment options to meet investor’s needs.
In this post, I cover the website, features for investors, investing process, my experience so far, and provide links to get started investing through Fundrise.
Want to skip the blog and get started in Fundrise’s eREITs? Start Here!
Getting Started with Fundrise eREITs
First, real estate investing should be seen as a long-term investment. REITs and eREITs are legal companies established to use investor capital to buy and hold real estate properties. This means that you should be prepared to hold your position for years, if not decades. If that matches your investment time horizon and your looking for simplified real estate investing, then Fundrise eREITs might be a good option for you. If you’re looking for a more defined investment horizon, DiversyFund’s REIT’s offer similar returns with a pre-determined 5-year life of the REIT.
Opening and funding an account with Fundrise is pretty straight forward. Simply create your account, select your investment level and transfer funds via Plaid. Unlike many of the platforms I cover, you are not required to be an accredited investor to invest through Fundrise, which allows more investors to take advantage of their offerings.
They were offering a starter level at $500, but it appears they have removed that option. Now, the lowest investment level available is $1,000 – the Core Level. This is the level I am currently invested in. I’m in the long-term growth plan, but they also offer income generating and a balance between growth and income. Your selection depends on your overall goals – growth or income.
For those making larger investments, Fundrise offers more benefits. The 2nd level, is the Advanced investment plan. Like the Core plan, this plan offers 3 options between growth, income, or a balance between the two. The main benefit is the ability to select from a larger variety of funds. While the core funds focus on multi-family and industrial properties, Advanced investors have access to single-family homes and more.
Finally, for those looking to invest $100,000 or more, there is the Premium plan. Fundrise doesn’t offer a lot of details, but it appears to be private funds focused on large investment opportunities. Investors have to inquire about this level and talk to their sales team to determine if it a right fit or not. I don’t think I’ll be at this level any time soon.
What am I buying and how has it performed?
Like a lot of alternative investment vehicles, you are not investing in the underlying asset. You are, in fact, investing in a fund – typically an LLC – that acts as the purchaser and manager of the assets. For real estate, this is the common REIT. With Fundrise, your investment is spread across multiple eREITs, focused on growth and income, depending on the plan you select.
Lets look at some of the performance info.
The graph above shows the total returns from Fundrise investment funds. At first glance, this chart looks like the funds are providing exponential returns. In actuality, as the investment pool has increased, you would expect the total returns to increase. The important part is the Average Annualized Returns. As expected, their returns range between 9% and 12.5% over the past 6 years.
So, how has my portfolio performed? My initial investment came in June of 2019 in the amount of $500. Then, that was the minimum investment for the Starter plan. After a year, my investment had grown to $546.02 or 9.2%. In June of 2020, I invested an additional $475 to switch to the Core Plan. To date, my $975 total investment has returned $61.48.
Fundrise Investor Account
Investing in real estate can be complicated. Investing across numerous REITs is even more complicated. The investor account section provides an overview of your account and breaks down the returns into somewhat simpler and easier to understand sections.
Returns are arguably the most important aspect of your investment. I have goals, and I am interested in how my investment is performing with respect to my goals. The account section allow me to dive into performance per year and understand where my returns are coming from – dividends or appreciation.
Dividends are representative of cashflow from properties. This can be income generated from rents or from selling properties. Fundrise calculates dividends on a quarterly basis and distributes them the month following the quarter’s close – January, April, July, and October.
The most difficult aspect of investing through Fundrise is understanding the tax implications. I have invested the minimum amount, $1000, and my investments are spread across 12 different eREITs. Therefore, I will receive 12 different K-1s from Fundrise at the end of the year. That means including the information for all 12 K-1s in my 2020 income tax filing – a little extra paperwork.
Fundrise Company Financials
As with any investment, it is important to understand the underlying financial situation of the company you are investing with or through. Luckily, companies as mature as Fundrise are easy to find and research.
The screenshot here is the semi-annual report filed with the SEC by Fundrise’s parent company – Rise Companies Corp. It provides an overview of the companies revenue, expenses and net income for period ending June 30, 2020. The entire filing is available on the sec.gov website.
Overall, Fundrise is performing like many early stage startup companies. They brought in over $6.2M in operating revenue and spent over $15.3M on maintaining their website, sale & marketing, conducting business, facilities and so on. It’s not unusual for startups to burn through cash like this. Since 2017, Rise Companies Corp has conducted 10 capital raises totaling just under $60M – they’re doing fine.
If you read through their semi-annual report, you’ll find a dizzying array of LLCs, funds, REITs, general partnerships and so on. This creates a high level of legal complexity that carries some risk. Ideally, this structure provides insulation from risk and limits potential legal problems to one entity. It’s not important to understand the inner workings of the company. But, you should be aware that the company runs a complex business model, which adds some risk.
Withdrawing Funds from Fundrise
Like most real estate investments, you should view Fundrise as a long-term investment. Your money is invested in real property and that is, understandably, very illiquid. Any capital that Fundrise holds for redemptions, adversely affects the eREITs returns because that capital is idle rather than invested in property and earning returns. However, if you need some or all of your capital returned, you must submit a request to Fundrise. If they approve your request, expect it to take up to 60 days to receive your capital and you’ll likely be charged fees for the withdrawal.
Do Your Homework
My blog is a great place to start, but I encourage you to conduct thorough due diligence prior to investing through Fundrise. Research REITs, real estate and Fundrise itself. To help you get started, I provided the links below to connect you to the Delaware Division of Corporations website, the SEC and CFPB. Make sure you search by Rise Companies Corp – that’s the parent for Fundrise.
Join me on Fundrise
Interested in joining me in investing through Fundrise eREITs? That’s great! The link here will get you started.
Real Estate can be an engaging and lucrative investment option. As discussed above, Fundrise is a unique platform providing easy access to this industry and helping you navigate the complexities. I’m looking forward to investing along side you.
No account fees for you and me! If you use the link above to create your account, we both get a few months of investing without having to pay advisory fees. Not a bad deal!
The statements in this post are my opinion and reflect my personal experience investing thru Fundrise. I cannot, and do not, guarantee that your results will be similar. Please, invest carefully and understand that your investment may lose value.