Categories
Investment Apps and Websites

Fundrise Review: Passive Investing Commercial Real Estate – Is It For You?

This Fundrise review passive investing commercial real estate will give clarity to some of the most commonly asked questions among potential investors like you. This, in particular, will tackle some of the most common concerns among people intending to invest specifically in real estate.

fundrise review passive investing commercial real estate

Commercial real estate investing is one of the best ways to grow your money. Although, just like any form of investing, it also has its own risks — one they is that investing in commercial real estate requires a huge amount of upfront capital to be able to buy a property.

Furthermore, if you wish to diversify your portfolio, you have to own multiple properties with various types of features like office space, apartments, etc., and also has properties in different locations.

RELATED ARTICLES:

It seems like a tough one, right?

But, here’s the thing, thanks to innovations in real estate investing, today, small investors who wish to invest in commercial real estate can do so through REIT or real estate investment trust. Good thing is that there is an online platform that simplifies investing in REITs, and that is Fundrise.

While our focus is to provide you an honest to goodness Fundrise review passive investing commercial real estate, here’s a quick and essential fact we want to share with you first –

For those who are still undecided whether or not commercial real estate investing is a good deal, here’s a fun fact we’d like to share with you.

In data published by REIT.com, it says that “the 2018 total dollar value of the commercial real estate was between $14 and $17 trillion, with a mid-point of $16 trillion.”

What does this mean? It only means that there’s a lot of opportunities in this industry, which makes more people and businesses invest in this sector.

Furthermore, with the rise of REITs, more and more people are encouraged to invest in real estate, which makes it even more promising.

So, are you convinced now that commercial real estate investing is the way to go?

Well, to help you decide further, here’s what we are going to specifically tackle on our Fundrise review passive investing commercial real estate:

  • What is Fundrise?
  • What are the features of Fundrise?
  • What are the minimum requirements to invest in Fundrise?
  • How does Fundrise work?
  • What are Fundrise’s fees?
  • What are Fundrise returns?
  • How to redeem your Fundrise shares?
  • Is Fundrise safe?
  • What are the pros and cons of Fundrise?

WHAT IS FUNDRISE?

While there are a lot of crowdfunded real estate investment companies out there, Fundrise has been found to be one of the most successful and trusted in this industry. Needless to say, it’s one of those very few ones who are open to non-accredited investors.

As mentioned, Fundrise is a crowdfunded real estate investing platform. It was founded back in 2012 in Washington D.C. by two brothers namely, Ben and Dan Miller. The father of Ben and Dan, Herb Miller of Western Development Corporation developed 20 million square feet of real estate in Washington D.C. Now you probably have an idea already where the brothers’ idea about Fundrise came from.

Anyway, the first project of the company was a $325,000 raise from 175 investors. The minimum investment was just $100. The project was based in the H Street NE Corridor also in D.C.

Fast-forward to today, investing directly in real estate is no longer necessary because you can invest through eREIT and eFunds, which we are going to discuss further later on. Just to give you an idea though, these portfolios of private real estate located all over the U.S. and focused on investment goals.

While some investments are made for income, others were designed for equity growth, in which the fund will be tailored to the goal you have in mind.

To know more about Fundrise, here’s a very informative and very insightful review by Marko – WhiteBoard Finance:

WHAT ARE THE FEATURES OF FUNDRISE?

As part of our Fundrise review passive investing commercial real estate, we are sharing with you some of the features of this platform. This gives you an idea about what Fundrise has to offer.

Minimum Investment 500
Account Fees 1%/year
Investment Length 0- 0
Offering Types Debt, Equity,Preferred Equity,Direct Ownership
Property Types Commerical, Residential,Single Family,Foreign Investors
Regions Served 50 States
Accredited Investor None
Private REIT Yes
Secondary Market None
Self-Directed IRA Yes
1031 Exchange None
Pre-vetted Yes
Pre-funded Yes

To be more specific, here’s a quick definition of some of the note-worthy features of Fundrise:

SELF-DIRECTED IRA – This allows you to invest in Fundrise using pre-tax dollars, as well as use for retirement planning.

GOAL-BASED INVESTING – Through the Fundrise 2.0 platform, you can take advantage of this feature, which allows you to invest in real estate based on your goals instead of the types of investment or location.

eREIT – This refers to a non-traded REIT that allows you to invest in multiple commercial real estates. Unlike the traditional REIT, this does not include a middleman, which means saving you a couple of bucks on commissions.

eFUND – This feature refers to a private fund that invests in various commercial real estate properties. Unlike eREIT, this one focuses on growth instead of income.

FUNDRISE iPO – Fundrise continues to innovate and find ways to make commercial real investing more interesting among people. The “internet Public Offering” or iPO is Fundrise new feature wherein it sell shares in the company itself. To qualify for this particular investment, you have to have at least $1,000 in your Fundrise account. Also, you must have selected one of the advanced plans. Through this offering, you are allowed to invest up to 25% of your total account balance.

WHAT ARE THE MINIMUM REQUIREMENTS TO INVEST IN FUNDRISE?

As part of our Fundrise review passive investing commercial real estate, let’s look into who are qualified to invest.

Any US resident ages 18 years old and above can be an investor in Fundrise. Perhaps one of the things that makes Fundrise unique among its competitors in the industry is that it allows non-accredited investors to invest — giving way for small investors or newbies.

At the moment, Fundrise supports both personal and joint investment accounts. It also supports Trusts, LLCs, LPs, as well as C and S corporations. Meanwhile, if you are interested in investing with your IRA, you may do so by setting up an agreement with the Millennium Trust Company.

Now, how much does it take to be able to start investing with Fundrise?

The answer is simple. To get started with Fundrise, all you need to do is make an initial investment amounting to $500 only. This amount lets you invest in their Starter Portfolio, which is a diversified mix of eREITs as well as eFunds with underlying real estate projects in different parts of the country.

When it comes to returns, you will receive your dividends on a quarterly basis. This also includes the appreciation in the value of your shares.

Meanwhile, with an initial investment amounting to $1,000, you can upgrade your investment account to a Core Portfolio. From here, you can choose from three different plans, which include:

  • Supplemental Income – This refers to a steady income stream that focuses on dividends.
  • Balanced Investing – This refers to a diversified portfolio created for bigger wealth-building.
  • Long-Term Growth – This was designed for potentially superior returns over the long term.

Now, if you are not sure yet about the type of investment you want, the platform does have a three-step questionnaire that will help you determine the right investment plan for you.

HOW DOES FUNDRISE WORK?

The moment you sign up for Fundrise, you will start investing either through Starter Portfolio (low-minimum) or through Core Portfolio plans. Whatever you choose among these plans, rest assured that your money will be invested in an allocated variety of eREITs as well as eFunds. These consist of private real estate assets that are located all over the country.

The good thing about Fundrise is that it will tailor fit your specific allocation according to your personal investment needs.

The results vary depending on the plan you choose. However, there are two ways you can receive pay-outs. These include:

  • Distribution of quarterly dividends, and
  • Appreciation in asset value every end of the asset’s investment term.

It is important that you keep in mind that Fundrise’s portfolios are designed for long-term investments, which means if you want money overnight, this is not the right platform for you. In addition, also keep in mind that returns of investments cannot be guaranteed.

WHAT ARE FUNDRISE’S FEES?

Another important thing that every investor has to know is the fees that come with such platforms like Fundrise. This is, in fact, one of the major considerations among most investors.

So, for your idea, Fundrise charges an annual asset management fee of 0.85%. This is in addition to a 0.15% advisory fee, which means charges are totaled to 1.0% per year.

However, apart from those, Fundrise can also charge other miscellaneous fees that can add up to 2%, which means you will need to pay as much as 3% on fees alone.

WHAT ARE FUNDRISE RETURNS?

This Fundrise review passive investing commercial real estate will not be complete if we will not tackle the returns. After all, this is the very reason why we invest money, right?

When it comes to returns, Fundrise claims that real estate investment returns is between 8 to 11% per year.

There are two things we thought that you should take note of from those returns.

First, according to the company’s disclosure, “Performance information is presented net of all management fees and expenses unless marked otherwise.” This means you are getting an 8 to 11% return and not 8 to 11% fewer management fees. Thus, we have to say that it is a fair representation of what you will get at the end.

For your information, the low end is based on the following:

  • The weighted average of the annual interest rate of each debt asset,
  • The annual preferred return for each preferred equity asset, and
  • The base case projected an annual return for each equity asset.

It is then discounted by around 15% for downside scenarios. After which, the company takes off 1% for both advisory fee and annual asset management fee.

Meanwhile, the high end is based on the same format as the low end. The only difference is that it is discounted by around 2.5% to account for downside scenarios. Also, the company takes 1% representing an annual advisory fee and annual asset management fee.

As you can see, both low end and high end are just the same. What makes the difference is discounting. But if you come to think of it, it’s pretty robust as it takes into account different factors.

HOW TO REDEEM YOUR FUNDRISE SHARES?

There are instances when investors would want to redeem their shares from their Fundrise portfolio. How to do that then? It’s pretty simple, you just have to first, submit a redemption request.

The request can be done simply from your account settings on the Fundrise’s site. There is a 60-day waiting period. After that, you can obtain liquidity on a monthly basis. Take note, however, that your redemption value may be subject to a penalty amounting up to 3%.

IS FUNDRISE SAFE?

We understand, especially if you are new to investing, that one of the major concerns is safety.

Let’s be honest here, very few investments can be considered as “safe” — unless it has a guaranteed return. But the thing is, less-liquid real estate investments have the tendency to provide better protection from downturns as compared to mutual funds and stocks.

With Fundrise’s portfolios consisting of both eREITs and eFunds, you are assured that they are about as safe as you can find in the real estate arena.

Furthermore, it is important to understand that non-traded REITs, as well as eREITs, are both registered investments. Although they’re both subject to the same SEC requirements, both are not correlated when it comes to stock market fluctuations.

The downsides include not the same liquidity because they are not traded on the markets, and the other is that front-end fees are higher as compared to exchange-traded REITs.

WHAT ARE THE PROS AND CONS OF FUNDRISE?

This Fundrise review will not be complete if we are not going to share with you the pros and cons of the said platform.

For your reference, here are some of the pros and cons that we found:

PROS

  • Fundrise has a low minimum initial investment requirement. With as low as $500, you can already start investing in commercial real estate.
  • They do also have low fees. – For just 0.85% asset management fee payable annually, this is definitely one of the lowest if not the lowest fee for an investment platform.
  • It is open for both accredited and non-accredited investors. – Unlike its competitors, Fundrise is open for all types of investors as long as they are U.S. residents and are 18 years old and above.
  • Fundrise offers a 90-day guarantee. – If in case you are not satisfied with Fundrise, the company will buy your investment back at the original investment amount provided that you raise your concern within 90 days. Also, please keep in mind that this feature is subject to certain limitations.
  • The company offers quarterly redemptions and distributions. – It is important to note that Fundrise eREIT has adopted a redemption plan that is made available on a quarterly basis. This is done to provide periodic liquidity. Take note though those distributions are not guaranteed.
  • Investors get to access commercial real estate. – Commercial real estate has been found as a high-dollar investment. But with Fundrise, you can invest with as low as $500.

CONS

  • There’s a tax consequence. – Unfortunately, distributions are taxed like an ordinary income, as compared to the 15% tax rate on qualified dividends.
  • We find investment liquidity an issue. – The thing about Fundrise eREITs is that they are not publicly traded. This means, once you make an investment, you are committed to it for the term. At the moment, Fundrise does not have a secondary market to sell investments to others. But, the company does have a quarterly redemption program wherein investors can redeem their shares depending on some limitations.
  • There is a 60-day waiting period once you submit a redemption request. – We find it too long before you get liquidity on a monthly basis. It’s totally different from selling stocks and then getting the proceeds immediately.

FINAL THOUGHTS ON FUNRISE REVIEW PASSIVE INVESTING COMMERCIAL REAL ESTATE

Perhaps by now you already know that real estate is a long-term investment. Yes, including REITs both publicly traded, and non-traded or eREITs.

While portfolio diversification, as well as opportunities for capital appreciation, and regular distributions are engaging, distributions are not always guaranteed.

Although REIT is totally different from investing directly into real estate, this platform is more passive. In fact, it allows you to invest in properties outside your location. Having said that, we thought that Fundrise is a way to diversify into real estate investing, particularly commercial real estate investing without the need to allocate or prepare a huge amount of money.

For some people, particularly real estate investors, REITs may not be that appealing. However, with Fundrise low management fee, some are already getting into it as well. It’s actually one of the things that make Fundrise appealing to other people.

So, have you decided yet?

To end this Fundrise review passive investing commercial real estate, just keep in mind that this company or platform is perfect for those who want to invest in commercial real estate without the need of purchasing an entire property.

Leave a Reply

Your email address will not be published. Required fields are marked *