As the appetite for passive income has grown, investment opportunities outside traditional assets like stocks, mutual funds, and physical real estate have gained appeal.
Enter Fundrise.
Fundrise is an online investment platform whose unique value is technology enabling private real estate investment online, for everyone. Through a combination of REITs and sponsored investments, Fundrise investors have the opportunity to participate in professionally developed and managed real estate opportunities nationwide. With promises for healthy returns, low barriers to entry, and little active management, investing with Fundrise will be an attractive option for many investors.
Fundrise serves investors seeking growth and investors seeking income
Some investors, early in their investing journey, are seeking high growth potential as they continue to work and build their nest egg. They do not need passive income YET.
For these individuals, Fundrise has created the high-growth pathway.
The retirees and near-retirees will appreciate the income pathway that invests in low-appreciation but steady cashflow pathway.
There’s a balanced pathway as well which promises the best of both worlds.
Although you can change your pathway from growth to income generating on a go-forward basis, it is not possible to re-allocate invested funds.
What do I need to do to get started with Fundrise? Do I have to be an accredited investor?
Fundrise has a straightforward process to sign up online.
After providing basic demographic information, funding can begin with as little as $10.
Fundrise designates Levels based on minimum assets invested.
- Basic: $10
- Starter: $1,000
- Core: $5,000
- Advanced: $10,000
- Premium: $100,000
You don’t have to be an accredited investor to join. The basic and starter levels are limited in choice of investment and are all invested into the Flagship fund. Funds are liquid and are open to liquidation every quarter without penalty.
At the core level, when at least $5,000 are invested, Fundrise opens the ability to choose the investment pathway appropriate to the investor’s goals. In addition, investors can choose which of the eREITs into which they would like to invest (so long as the eREIT is open to new investment).
It might be frustrating that only investors with $5,000 saved can choose a goal or purpose and plan their allocation. Yet from a high level, if you haven’t got $5,000 invested, the allocation doesn’t make much difference to your overall wealth.
At higher investment amounts of $10,000, Fundrise offers the Advanced account level with access to the Fundrise eFund. This is a partnership opportunity rather than eREIT which was initially focused on purchasing single family homes in the Los Angeles area, but has now moved toward industrial development in partnership with Saltbox.
Fundrise Investors who have over $100,000 invested are Premium account level holders and are given access to more investment offerings and personalized attention from the Fundrise team.
What are the dividend payments I will receive from Fundrise?
Investors with Fundrise can choose to have dividends directly deposited to their bank accounts quarterly. They may also choose to re-invest with Fundrise, which re-allocates the funds as Fundrise sees fit.
The dividend yield will vary depending on the account pathway that was chosen for investment.
The declared dividend yields for 2022 are shown below. The best yield is for the income pathway at 5.99%, followed by growth at 1.39%, and balanced at 1.23%. These numbers represent income and do not at all account for asset appreciation.
Can I liquidate funds invested into Fundrise easily?
If you plan to invest with Fundrise, you should consider your investments illiquid in the short term. Fundrise is in no way equivalent ETFs or dividend stocks purchased on ETrade. Instead, when investing with Fundrise, truly imagine that funds are going to real investment properties.
In early 2021, we had relatively small dollar amount invested into Fundrise ($5,000). And yet when we asked to liquidate these funds (for another opportunity), we were unable to receive our funding even after waiting for three months.
After that, I canceled the liquidation attempt.
Fundrise reserves the right to pause liquidation in times of volatility. Just like real physical real estate, it’s challenging to sell out of Fundrise in times of volatility.
I continue to invest funds into Fundrise without considering these funds as part of my liquid investment portfolio.
How much can I really make from investing in Fundrise?
If the purpose of investing is to receive excellent returns, then at the highest level, Fundrise can help accomplish this.
Historically, in the recent bull market, public stocks have trounced REITs, even if real estate had a good year (look at 2021). But where Fundrise seems to shine is in the bad years. Compared to the S&P index fund, Fundrise has had an excellent year THIS year with 5% returns despite looming worries of real estate crashing and doubling interest rates.
What about income? What kind of take-home income results from investing into Fundrise?
Consider the dividend yield of 5.99% for an investor who has accumulated $100,000 invested into Fundrise. At this rate, every year $5,990 of dividends is earned, which works out to about $500 monthly.
What’s better: Fundrise or physical real estate?
Fundrise and physical real estate use the same asset class but have very different profiles for investors as far as funding, tax advantages, risk concentration, knowledge requirement, and activity.
Investors use leverage in physical real estate but not with Fundrise
Fundrise investors use cash, rather than leverage or other people’s money (loans!) to purchase REITs and other offerings from Fundrise.
The benefit of leverage is multiplication of reward.
For example, if you’ve borrowed $80,000 to purchase a $100,000 home, and the house DOUBLES in value, you’ve made have made $100,000/$20,000 = 500%
The downside of leverage is multiplication of risk.
If you’ve borrowed $80,000 to purchase a $100,000 home and the house drops 20% in value, you’ve lost $20,000/$20,000 = 100%.
Unless you’re borrowing from a HELOC or 401k, very few scenarios exist in which investors borrow money to invest in Fundrise. The benefits of leverage are therefore lost to investors who use Fundrise.
Fundrise investors diversify their real estate holdings more than most real estate investors
While many Fundrise investors also have physical property holdings, we can’t purchase on the scale of an institution like Fundrise. Investments with Fundrise are allocated across numerous projects.
We can participate in the growth of entire markets with Fundrise. Purchasing well in so many markets would be challenging if not impossible for the average investor.
While a few physical properties carefully chosen an be remarkably lucrative in asset appreciation and/or cashflow, the reverse is also possible. One catastrophe can neutralize cashflow for the whole year.
Tax advantages of real estate – do these disappear with Fundrise?
Real estate investors enjoy tax advantages for their income. For example, real estate investors can deduct a fraction of the cost of their rental property every year from their taxes. This is called depreciation. In 2017, the Tax Cuts and Jobs Act allowed investors to take bonus depreciation, or deduct 100% of the value of the building in year one of operations.
For investors with Fundrise, these tax benefits are baked into the investments. The sponsors of the deal will likely enjoy these tax benefits. The investors who receive quarterly dividends do not have special tax deductions, particularly those who will receive 1099-DIV statements for their earnings.
Fundrise investors don’t have to be professional real estate investors
Finally, Fundrise investors benefit from the work of professional real estate investors. Institutional investors have funding and opportunities not available to individuals like you and me. They know more about markets because that’s their job. And they have experience in making running successful real estate businesses.
What’s more, the fees for their work are reasonable.
On the other hand, many of us are learning, property by property, book by book, course by course, how to buy and rent real estate. Some will enjoy outsize success, and that’s well-deserved. But it’s not the only way.
The Bottom Line: Should You Invest With Fundrise?
Probably the best argument to invest with Fundrise is to ensure exposure to Real Estate without the headache of owning real estate.
Rental properties have real problems. Sometimes squirrels are in the attic. Sometimes the ceiling falls down. Sometimes the shower is leaking. All of these are real problems I faced in my real, physical properties in 2022. The returns on these properties are greater than I will be getting from Fundrise.
But Fundrise properties just grow and deposit checks in the bank. No squirrels.
As with any investment, there’s risk.
But overall, the rewards of investing in Fundrise over the longterm can be substantial, so long as a few concepts are understood.
- Investing in physical real estate with leverage is likely to achieve better cash-on-cash return; this return is in exchange for the effort and risk taken on by the individual investor.
- Fundrise does not always outperform the S&P 500, but it does outperform it in bad years.
- Funds invested with Fundrise should be considered illiquid.
- With substantial funds invested, investors will have exposure to a broad portfolio of real estate properties without incurring risk of ownership.
I’m continuing to invest in Fundrise going forward monthly as part of my family’s plan to achieve financial independence.
Thanks for reading.
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