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Have you ever wished you could invest in real estate? But, as traditional mortgage typically requires 20% to 25% down payment, it may be far from affordable.
Contrary to the belief that you need hundreds of thousands of dollars to invest in real estate, crowdfunded platforms have made it possible for everyone to invest in real estate with as little as $500.
In fact, millionaire investors are saying investing in real estate is still the best option.
If you’re interested in real estate investing and getting 8-12% return on your investments annually, you’re on the right page.
In this article I cover everything you need to know to start investing in real estate with minimal initial investment.
Fundrise is a crowdfunded real estate investment platform, founded in 2010. The aim of the company is to give an average, non-accredited investors the opportunity to invest in the lucrative real estate market. As a result, it allows you to diversify your investments across a wide range of real estate projects within your portfolio.
- $500 minimum initial investment
- Historical annual return varies from 8.8% to 12.4%
- Low annual fees: advisory – 0.15%; management – 0.85%
- High investment diversity
- Lack of investment liquidity
- Taxed as typical income
What is Fundrise?
Fundrise is a crowdfunded real estate investment platform, founded in 2010. The aim of the company is to give average, non-accredited investors the opportunity to invest in the lucrative real estate market. As a result, it allows you to diversify your investments across a wide range of real estate projects within your portfolio.
Fundrise’s main product is real estate investment or eREITs. The real estate projects within the Fundrise portfolio are projected to increase in value and create profits. The return on your investment is made either through buying and managing the buildings or holding mortgages.
As the company strives to make real estate investing affordable for everyone, they offer investors different account plans. This allows you to start investing in a diversified real estate portfolio with as little as $500 initial investment.
Fundrise also offers a Premium account plan where experienced investors get access to a larger portfolio of real estate projects and premium features. The initial investment for joining the Premium level account is $100,000.
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How Does Fundrise Work?
Fundrise provides you with property acquisition, maintenance and portfolio management after you sign up and become an investor.
Once you place your initial investment, you’ll be in touch with the Fundrise team to create the investing strategy tailored to your goals.
Let’s illustrate how investing with Fundrise really works:
- For instance, you’re interested in a property that costs $100,000. Obviously, you’re not buying it for the full price, rather investing $1,000. This way you become 1 out of 100 investors who invested $1,000 each. When the property gets renovated and resold for the profit, you as an investor will get dividends from it.
- Now, if you diversify your investments, you could invest $100 in 10 different properties. Diversifying funds is typically a better, more profitable option, because it allows you to earn dividends from multiple different properties, rather than from just one. When you diversify your earnings you’re also ultimately eliminating the risk that may incur to the single property.
- You can either apply the default investing strategy and let Fundrise diversify your funds among their rich real estate portfolio. Or you can analyze the projects yourself and create your own portfolio of real estate projects to invest in.
Investment Liquidity – How Long Does it Take to Get Money out of Fundrise?
As real estate investments need time to increase in value, Fundrise investments are intended to be held for at least 5 years. By investing with Fundrise, you’re acquiring shares of the company funds meaning you own real, non-liquid properties.
Nevertheless, in order to increase liquidity, Fundrise gives you an opportunity to cash out your funds without penalties during their open quarterly windows. However, some limitations may still apply when it comes to withdrawing your returns.
Is Fundrise Safe?
Fundrise is regulated by the SEC (Securities & Exchange Commission). As investing in a real estate portfolio is a type of securities, the company couldn’t operate without SEC approval.
The way SEC works to insure your funds is that it requires the securities company to have a separate balance where they hold your investments. The company cannot spend the money you deposited as an investment. As a result, in case the company you invested with goes bankrupt, SEC makes sure you will get your money back.
The SEC regulates the securities industry by enforcing the federal securities laws and proposing securities rules. As a result, the SEC ensures your funds are safe with the company you’re investing with.
What are Fundrise Fees?
Annual advisory fee – 0.15%, includes:
- Reporting performance of your projects
- Providing automated dividend distribution system
- Composite tax management
- Investor relations and customer support
- Asset rebalancing and fund administration
Annual management fee – 0.85%, includes:
- Operating expenses of over 100 real estate projects, including accounting, zoning and construction.
For example, for each $1,000 you invest per year, you will have to pay $1.5 advisory fee and $8.5 annual management fee. In total, if you invest $1,000 per year, you would pay $10 in fees.
How to Start Investing with Fundrise?
First, select the account level that suits your goals and needs the best. Fundrise offers 4 different account plans:
After you select your account level, you’ll get to the sign up form. Fill out the application with basic information of yours and fund your account.
Once you have funded your account, you will receive a dynamic portfolio built based on your investment profile. You have a freedom to choose real estate projects and diversify your investments within your portfolio by yourself. Alternatively, you can let Fundrise do it for you.
Key Fundrise Takeaways
Investment Minimum Requirements
- Starter account: $500
- Core account: $1,000
- Advanced account: $10,000
- Premium account: $100,000
Fundrise eREITs are not publicly traded. Therefore, they don’t provide a secondary market that allows you to sell your investments to other investors. As a result, when you invest in a portfolio, you have to be committed to the investment for the term.
As all of Fundrise’s capital is invested in properties they pick, they can’t pull out money without selling actual properties. This means, you can’t withdraw your funds whenever you want. However, in order to increase liquidity, Fundrise offers quarterly windows when you can withdraw your funds without any penalties.
While Fundrise allows you to cash out during this quarterly windows, some terms and limitations are applied. In order to avoid any penalties, make sure you read the fine print and legal documentation before considering to withdraw your funds.
According to Fundrise historical performance, you can expect an annual return of 8.8% – 12.4%.
For example, Fundrise currently projects annual 11.6% – 21% return when you invest in this commercial property renovation in Los Angeles.
What are the Fundrise Pros & Cons?
- $500 minimum initial investment.
- Historical annual return varies from 8.8% to 12.4%.
- Low annual fees: advisory – 0.15%; management – 0.85%.
- High investment diversity among various real estate projects.
- Lack of investment liquidity – as Fundrise eREITs are not publicly traded, you can’t sell your investments to other investors.
- Taxed as typical income.
Is Fundrise Worth it?
Overall, I would say the pros outweigh cons. As fundrise allows you to start investing with as low as $500, you could try how it works for you.
Fundrise is the best investment opportunity for:
- People who are seeking a long-term investment opportunity
- Investing newbies who are looking for diversification outside stocks and bonds
- Investors, who want to do their own due diligence.
However, I would suggest you do your own due diligence and analyze your return potentials before committing larger amounts.
Fundrise vs Peerstreet
Just like Fundrise, Peerstreet allows investors to diversify their investments across the range of real estate projects within the portfolio. However, unlike Fundrise, Peerstreet doesn’t offer average investors entrer the market. This means Peerstreet is only accepting accredited investors to use their crowdfunded investing platform.
To sum up, if you are a beginner or average investor without an accreditation, Fundrise is the platform to choose.
- $175M+ interest returned
- Low minimum investment requirement – $1000
- Low default rate on loans
- Option to hoose investments in different states, different types of properties and loans
Fundrise vs Roofstock
Roofstock provides you with a platform that lets you buy real estate properties 100% online. With Roofstock, you are technically purchasing single-family homes and own them. On the other hand, Fundrise allows you to invest in private REITs or funds and own the shares. If your goal is to diversify your investments through a broad range of properties, then Fundrise is a better choice.
- Lower-cost way to purchase rental properties
- Option to Invest in real estate properties already with tenants
- Over 500 new transactions a month
- Open to non-accredited investors
Fundrise vs Equity Multiple
Equity Multiple is a crowdfunded real estate investment platform like Fundrise. Nevertheless, the two companies differ as Equity Multiple only accepts accredited investors to use their investing platform. The initial investment with Equity Multiple is $5,000 whereas Fundrise lets you start investing with just $500. If you are an average or new investor, who doesn’t hold an accreditation, Fundrise is a better fit for you.
Equity Multiple Summary
- Founded by team of experts with over $75 billion of combined transaction experience
- Coinvests in every deal – puts them in the same boat
- Investments from 12 months all the way to 120 months
- Customer support available 24/7 and includes law, finance, and technology pros
If we look at the historical performance of Fundrise’s investments, the potential return on your investment is pretty solid. However, along with being rewarding, non-traded REITs carry their own risks. As Fundrise gives you an opportunity to invest in a real estate portfolio with relatively small initial investment, it’s worth considering. Nevertheless, I would suggest you pay attention to source documents, not the marketing materials to analyze whether it’s right for you or not.
Any investment holds a certain level of risk and Fundrise is not an exception. Even though Fundrise’s historical performance predicts potential for high returns, there’s still a risk of losing money.
Yes, Fundrise pays investors like you dividends in cash.