Fundrise Review: Smart Investment or Risky Move?

I’ve always been interested in real estate investing.

But something about it always made me a bit wary.

Maybe because I didn’t fully understand the process, but it was also because I didn’t know who I could trust with my money.

Furthermore, the high barrier to entry of the start-up cost made real estate investing inaccessible to most people, including me.

Then I heard about Fundrise.

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Table of Contents

Fundrise: General Features

Fundrise is an innovative way to invest your money.

It gives you the freedom to start small and work up at your own pace.

Fundrise an online real estate investment platform with a history of excellent financial returns with low barriers to entry.

So I decided to give it a try.

In my Fundrise Review, I’ll take you on a tour of the Fundrise platform. I’ll tell you everything you need to know before investing your money.

Having the right information will help you decide whether Fundrise is the right choice for you.

How Fundrise Came to Be

In 2010, Ben Miller, with his brother Dan, started Fundrise. They came up with the idea of making real estate investing easy and accessible to everyone.

Both men know that investing in commercial real estate is an easy and lucrative way to expand your portfolio.

Yet what was holding many people back was that they didn’t have enough money for such investments.

So they integrated the process of equity crowdfunding. But that meant they had to wait two years before they could launch the platform.

Company Profile

Fundrise is based on the concept of crowdfunding.

The platform allows ordinary people to access real estate investment deals they couldn’t invest in on their own before.

Fundrise started with only accredited investors.

Accredited investors are those with an income of $200,000 and above, or a net worth of $1 million. This restriction left many prospective investors behind.

You have to bear in mind that, for years, the real estate market was only accessible to only those with deep pockets.

In other words, you had to have a net worth of over one million dollars to be eligible for these types of investments.

This quickly changed.

In 2015, the SEC (Securities and Exchange Commission) passed the final rules of the JOBS Act. This change included an expansion of the Act’s Title IV, known as Regulation A+.

Reg A+, as it’s known in the world of investment, now offered two tiers, or subsections.

Tier 1: offers up to $20 million within a 12-month period
Tier 2: offers up to $50 million in a 12-month period

Each tier has its own requirements, eligibility, and tax audits.

But they both allow companies to crowdfund the money they need for their real estate development projects.

One of the best things that the JOBS Act did was to open the door to the general public. It gave non-accredited investors the chance to take part in these investment opportunities.

Since 2015, companies can get up to $50 million in loans for each of their real estate projects.

Fundrise used this opportunity to raise money for the first online eREIT.

It became the world’s first crowdsourced real estate investment platform.

One reason that has garnered its success is that it spreads its investments across several properties.

This diversification increases opportunities for liquidation.

It also reduces any risks you may face as an investor, as well as protect the platform itself.

How Does Fundrise Work?

It’s a well-known fact that Fundrise has a strict underwriting process. They dig into a sponsor’s credentials, financial and credit history, and track record before taking them as clients.

How to Start Investing

Opening an account on Fundrise is simple and takes only a few minutes.

Getting Started

First, open their website, then click ‘Get Started’. Choose the level you’d like to begin with.

Then, fill in your contact information.

After that, you’ll be asked to confirm you’re a US citizen and resident, and that you are, in fact, over 18 years old.

Choosing an Account Type

Second, choose the type of account you wish to open.

It could be either an individual or an entity account.

You’ll be asked to provide your address and social security number for tax purposes.

Then, select the amount of your initial contribution.

This step is also where you can set up your auto-invest option.

Sourcing Your Funds

The third step is selecting how you’ll source your funding. You can link your account, or you can manually enter your bank account information.

Fundrise allows you to distribute your dividends to your bank, or to reinvest them via the auto-invest option.

Once you’ve submitted all the necessary information, Fundrise will send you a verification email.

Open your email, click on the verification link, and your account is ready!

Now your account enters a 60-day waiting period.

After that, you get 30 days to get your money back if you change your mind.

Know Your Way Around

Fundrise offers three different ways to invest with them. They’re categorized into portfolios and accounts.

Fundrise Portfolios

Each portfolio provides a variety of features and options.

Starter Portfolio

Starter portfolios diversify your investment across 5 – 10 properties in several major cities across the US.

You can start your investments with only $500, and pay an annual management fee of 0.85%.

You won’t have to pay the additional 0.15% portfolio management fee until after one year.

Core Account Level Portfolio

This portfolio is an upgrade from the Starter portfolio.

If you invest between $1000 and $10,000, you get up to 7 eREITs, as well as more than 20 properties.

The Core account level provides greater diversification potential than the Starter account.

Similar to the Starter portfolio, there are annual management fees of 0.85%.

There’s a portfolio management fee of 0.15% paid after one year.

Direct Investments

Also known as the ‘Advanced account level’, this option is available to investors with at least $10,000 on the platform.

If you prefer to invest in an eFUND, this means you’re investing in an ongoing real estate project.

While this is a good option for some, it’s important to remember that you won’t be able to liquidate your shares until the project is completed.

Additionally, investors with $100,000 to invest are eligible for the Premium account level. A full year of advisory fees is waived for each person a Premium account member refers to Fundrise.

eFUNDs require a minimum investment of $1000.

Account Types

Here’s a quick rundown of the accounts Fundrise offers. There are several to choose from.

Individual, or personal, investment accounts
Joint accounts
Trusts
Entity accounts, which act like Trusts, Limited partnerships, etc.
Self-directed IRAs (allows users to invest IRA funds in diverse commercial real estate)

What I Like about Fundrise

$500 minimum investment
User-friendly and transparent
High investment diversity
Low yearly management fees at 1%
Have a rigorous vetting process
They work only with trustworthy, well-capitalized sponsors
Has an Android and an iOS app
Gives you access to real estate deals with higher returns
Provides you with returns on your investments without having to manage each project
Offers quarterly dividends, as an extra income
Offer a 30-day money-back guarantee (after the initial 60-day waiting period)

What I Don’t Like

You can only withdraw your money on a quarterly basis
Investors don’t choose which projects they invest in

Fundrise Special Features

You’ve probably read about certain features of online investment companies.

They come loaded with a whole slew of vocabulary that can be difficult to understand.

I’ve put together a list of some of the essential features of Fundrise, and what they mean.

Understanding eREITs and eFUNDs

Fundrise sells its own offerings through two real estate investment trusts, eREITs, and eFUNDs.

They offer low minimums and are open to both accredited and non-accredited investors.

eREITs

When you sign up with Fundrise, you’re given access to commercial real estate investments.

It’s all done online through something known in the investment world as an eREIT (Real Estate Investment Trust).

While there are four basic types of real estate:

Land
Residential
Industrial
Commercial

Commercial is the largest category. The eREIT investment portfolio focuses on commercial real estate.

These may include office buildings, apartments, or hotels that are managed professionally.

It’s this crowdfunding model that sets Fundrise apart from other investment platforms.

Through Fundrise, anyone with $500 can take part in investments they weren’t able to before.

Another significant advantage of using eREITs for your investments is that Fundrise does away with middlemen.

It sells eREITs directly to you. This process lowers your fees considerably.

eFUNDs

There’s also something known as an eFUND.

This investment portfolio works like an eREIT. The only difference is that it invests in residential real estate, such as condos, townhomes, and single-family homes.

It offers significant advantages to you, the investor, because it’s structured as a partnership. Plus, it stays away from the double taxation of corporations.

Compared to other investment platforms, Fundrise has only two types of fees.

One is an annual management fee of 0.85%. The second one is an annual advisory fee of 0.15%.

Withdrawals

To begin, Fundrise gives you a full 90-day money-back guarantee.

But there’s a 60-day waiting period once you submit your request. So that only gives you 30 days to withdraw your investment without any penalty fees.

When you invest with Fundrise, your investment shares need to be liquidated to withdraw money.

This means you can’t withdraw your money whenever you like. The question isn’t whether or not you can get your money back, the question becomes, “When can I get my money?”

It’s important to understand that your shares can’t be liquidated at any time.

To liquidate your shares, you need to submit a redemption request. You can request to redeem your shares at any time.

Redemption requests are reviewed at different times depending on the type of fund.

For eREITs, redemption requests are reviewed at the end of the calendar quarter they are submitted.

For eFunds, redemption requests are reviewed at the end of the month following a 60-day waiting period.

After an approved redemption request, funds will be disbursed to your bank account.

So don’t invest with money you may need in the near future since it can take some time to withdraw it.

There are two types of shares:

Introductory Shares

Introductory shares give you a 90-day free period.

This period starts with your share’s date of purchase.

During these 90 days, you can liquidate your shares at any time without any penalties or additional costs.

Non-Introductory Shares

These shares have passed the initial 90 days, but are less than five years.

If you have shares that fall into this category and wish to liquidate your shares, you may be forced to pay additional penalty costs.

The following shows an approximation of the amount of additional costs you have to pay if you liquidate your non-introductory shares. Each percentage is a percentage of your total share value.

3% of your shares if they’re within 90 days to 3 years
2% of your shares if they’re within 3 – 4 years
1% of your shares if they’re within 4 – 5 years

Any shares that are over five years old don’t carry a penalty fee. If you liquidate these shares, you get 100% of their value, with no additional costs.

What is Crowdfunding?

Crowdfunding is precisely what it sounds like.

It’s enlisting the help of a group of people to help fund a project.

Each person in this group contributes a small amount of money to this venture or project.

Some projects will pay back those who helped crowdfund it.

Sometimes they don’t get paid back in money. Other times they get the product or service they helped launch.

Crowdfunding is typically done over the Internet.

Here are the three main types of crowdfunding.

Donation-based

With this type of crowdfunding, there’s no financial return. Donation-based crowdfunding could mean raising money for any of the following:

Charities
Non-profit organizations
Disaster relief
First responders
Medical bills

Rewards-based

Rewards-based crowdfunding is when individuals contribute to the financial set-up of a company or a start-up business. In return, the company promises these individuals a reward for their financial help.

This reward usually comes in the form of the product of the service offered by the start-up.

Some people consider it as another form of donation-based crowdfunding.

It’s mainly because there’s no financial payback or equity return. But, there’s a good deal of logistics that go into this type of crowdfunding, making it more complicated than donation-based.

Equity-based

The third type of crowdfunding is equity-based.

It provides individuals the opportunity to have shares in a company by trading capital for shares in their company.

As shareholders, these individuals receive a financial return on their investment. They also receive a share of the profits.

Fundrise Review: The Final Verdict

Are you looking for a new, trustworthy way to invest in real estate? Then Fundrise is the perfect choice for you.

It makes investing in real estate developments accessible to the general public.

You can be sure that your money is in safe hands. Fundrise has strict vetting procedures to protect both you, the investor, as well as the sponsors.

After giving Fundrise a try via their Starter Portfolio, I found I was becoming more confident. My knowledge of what account to choose and how to distribute my dividends was growing.

As with any type of investment, there’s always a risk. Fundrise can’t offer any guarantees, and it does come with a few drawbacks.

But overall, I feel that Fundrise offers better options overall than 90% of its competitors.