Content of the material
- Pricing: How Much Does Fundrise Cost?
- How Much Do I Need to Invest in Fundrise to Generate Passive Income?
- The Fine Print
- Fundrise Features
- Who Is Fundrise Good For?
- What Are Fundrise’s Fees?
- Was Fundrise Involved in a Scandal?
- Fundrise Fees & Pricing
- My Thoughts on Fundrise Portfolio Returns
- How Does Fundrise eREIT Generate Income
- Loan Interest Payments = Debt Investment
- Equity Income Potential = Equity Investment
- Fundrise Dividend Distribution
- How does Fundrise work?
- What is an eREIT?
- What is an eFund?
- Fundrise Real Estate Interval Fund
- Account levels
- How Much Passive Income will Fundrise Dividends Create?
- What’s the Catch?
- Fundrise Pros and Cons
- Fundrise Growth And Performance
Pricing: How Much Does Fundrise Cost?
Option Name Management Fee Minimum Balance Features Fundrise 0.85% $500 Management and advisory fees total 1%. Management Fee 0.85% Minimum Balance $500 Features Management and advisory fees total 1%.
The Fundrise’s fees are the same for all four portfolios: 0.85% in annual management fees and 0.15% in annual advisory fees. These, of course, neatly add up to 1%.
So how does this compare to competitors’ fees? It’s a bit like comparing apples to oranges, since Fundrise is different from the others. For its real estate ETFs, Vanguard buys assets from real estate companies which in turn have bought or developed assets (apartment buildings, etc.) and taken them public. Other companies often repackage the real estate ETFs that Vanguard has already packaged, adding their own fees on top.
Miller says his company is special because it “drills through all those layers” of fees to deliver the same asset at a much lower cost: “You end up with an asset in the private market that an individual cannot purchase at the same price as an institution – except through us.”
In fact, Miller compares what Fundrise has done to what Vanguard did when it revolutionized investing by introducing index funds. Like Vanguard index funds, Miller says, Fundrise’s portfolios offer “structurally lower costs” compared to the options that came before them. “Our model is to have a super-low-fee approach for investors to deploy into real estate.”
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How Much Do I Need to Invest in Fundrise to Generate Passive Income?
With most real estate investments, you need to pony up a hefty chunk of change. To buy my first real estate investment, I had to scrimp, save, AND borrow money from my father-in-law for the down payment.
If you opt for a Fundrise real estate investment instead of the typical landlording type, you can spare yourself an uncomfortable conversation with a relative or friend and get started for the price of a take-and-bake pizza.
Here’s a breakdown of Fundrise’s different levels of accounts, as well as the minimum and features for each one.
The Fine Print
*It’s worth noting that you can’t choose which REITs you invest in until you get to the Core level. You get a pre-set mix of real estate assets until you can choose what specific REITs you want to invest in.
Also, it’s worth diving in to understand the differences between the plan levels, and how important additional features really are to you. For instance, the Fundrise website notes that there is no substantial difference between the allocation of investments in the Standard and Plus plans at the time of this writing.
Fundrise has changed significantly as a platform since its inception. These days, investors have far more control over the types of investing accounts they use and their overall portfolio strategy.
Some of Fundrise’s main features include:
- Self-Directed IRA (New) – Now, you can invest in Fundrise with pre-tax dollars and use for retirement planning. (Note that, currently, self-directed IRAs can be used only for eREIT offerings.)
- Goal-Based Investing (New) – Via the Fundrise 2.0 platform, invest in real estate based upon your goals rather than types of investment or location. Goals include supplemental income, balanced investing, and long-term growth.
- eREIT – A non-traded REIT that invests in multiple commercial real estates. Compared to traditional REITs, cuts out the middleman saving you on commissions.
- eFund – A private fund that invests in multiple commercial real estate properties that, unlike Fundrise’s eREITs, focuses on growth rather than income.
- Standard & Plus Plans (New) – Once you invest $10,000 or more, you can choose between Standard or Plus plans. Both plans let you choose different investing goals. Standard plans mostly invest in eREITS and commercial real estate funds. In contrast, Plus plans can invest in more specialized real estate strategies that Fundrise’s team identifies in the market.
- Direct Investments – By investing in Fundrise eFunds, you get to actually invest in specific real estate projects. For example, the Fundrise eFund targets debt and equity investments in homes and condos in the Los Angeles area.
- Fundrise iPO (New) – Fundrise is getting ready to sell shares in the company itself via an “internet Public Offering” (IPO). To be eligible for this investment, you must have at least $1,000 in your Fundrise account and have selected one of the advanced plans. You can invest up to 25% of your total account balance in this offering
Who Is Fundrise Good For?
- If you’re looking for portfolio diversification, safe exposure to a real estate portfolio, and steady, attractive, long-term returns, then Fundrise could be a great fit.
- If you want to learn about real estate investing, Fundrise offers fantastic tools, resources, and education.
- Fundrise is open to any U.S. citizen (or permanent resident) currently residing in the U.S. who is over 18 years old (non-accredited investors are welcome).
- If you’re a sophisticated investor who wants to actively manage your real estate portfolio and maximize long-term returns, then Fundrise may feel a little too passive for your taste.
- Fundrise is designed to be a long-term (5+ years) investment strategy. If you’re a short-term investor who values liquidity, then Fundrise (and a real estate investment in general) probably isn’t a fit for you.
- If you want fast-paced, high-risk investments with huge upside, then Fundrise (and a real estate investment in general) probably isn’t a fit for you.
What Are Fundrise’s Fees?
A big part of Fundrise’s value proposition to investors is that the company cuts out middlemen and charges lower fees.
Let’s take a closer look at their low-fees claim. Fundrise charges investors two primary fees:
- Advisory fee of 0.15% per year: A $1,000 investment would pay $1.50 per year in advisory fee.
- Asset management fee of 0.85% per year: A $1,000 investment would pay $8.50 per year in management fees.
- Together, these two fees mean investors pay a total annual fee of 1.00% on Fundrise.
- Fundrise doesn’t charge any sales commissions, transaction fees, or carried interest fees for its plan-based offerings.
- On some specialized funds, Fundrise may charge fees like development or liquidation fees for work on specific assets. According to Fundrise, these are one-time fees that are industry standard and are rarely charged.
- If you choose to invest using an IRA, there is a $125 annual fee, which you can get waived by maintaining a balance of at least $25,000 or by investing at least $3,000 per year.
One compelling feature is that Fundrise will waive their advisory fee (doesn’t include their annual asset management fee) for every new investor you refer to their platform. Depending on your account level, you can get up to a full year of advisory fee waived for a single referral. Each person you refer will receive 90 days without advisory fee.
Was Fundrise Involved in a Scandal?
Every fast growing company will deal with some sort of headaches with personnel and/or business roadblocks. For the most part, Fundrise has avoided most scrutiny from media and investors.
The biggest negative headline that Fundrise has received was the ousting of their former CFO, Michael McCord, back in 2016. McCord claimed that Fundrise’s practices were fraudulent. Fundrise claimed their former CFO was attempting to exhort them for over $1 million plus company stock.
Both the SEC and the local police department conducted an extensive investigation into the allegations and were not able to find anything remotely close to what McCord was claiming. That was several years ago and Fundrise continues to grow and expand making their investors a good amount of money.
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Fundrise Fees & Pricing
Fundrise charges an annual asset management fee of 0.85%, in addition to a 0.15% advisory fee. These add up to 1.0% annually. You don’t pay transaction fees or sales commissions either.
However, the company can charge other miscellaneous fees like development or liquidation fees that that can add up to 2%. But for many long-term investors, Fundrise only charges 1% annually in fees.
My Thoughts on Fundrise Portfolio Returns
We’ve crunched a lot of numbers in this analysis, but I need to point out that investing isn’t all about returns alone. More important is, what is your goal with your money? Or more specifically, what are you hoping to use the money for?
For example, if you’re looking to save money to make a down payment on a house, or to retire early, an investment in Bitcoin that drops more than 72% in the first year isn’t going to get the job done.
Something else I want to point out is that the returns in the market over the past few years have been phenomenal, but they’re not typical. A correction is going to happen at some point, and when it does investments in stocks and even crypto will take a big hit.
I’m not trying to spread doom and gloom and advise putting all your money into safe investments. But we all need to be ready for a correction. They are going to be losses, which we saw in both the Vanguard and iShares ETFs in 2018 and 2020.
How Does Fundrise eREIT Generate Income
Loan Interest Payments = Debt Investment
Under a real estate loan investment (a debt investment), money is lent to a real estate developer who pays interest on the principal lent. Loans generally carry a fixed interest rate that is paid on a monthly basis, which make them useful sources of income.
In the capital stack, debt is the most senior component. This means debt investors are given priority to be paid first.
Within the debt tranche of the capital stack, there’s a division of seniority among loans, which determines which loans receive repayment first. Senior lenders generally have priority over junior debt holders and mezzanine debt holders.
On top of seniority, debt can be further divided by secured and unsecured positions, which determine rights and priority of repayment in the event of loan default.
Fundrise only considers debt investments that offer investors strong positions. This is so investors can potentially earn income and be safeguarded against losses, e.g. senior secured debt and mezzanine debt.
In senior debt investments held by the Fundrise eREITs, investor capital is senior to the sponsor or borrower. Thus, Fundrise investors can receive payment priority.
Equity Income Potential = Equity Investment
In addition to debt investing, equity investing also has the potential to provide income potential by staking a claim on the percentage of rental income of that property.
When you become a Fundrise eREITs investor, you become the partial owner of dozens of properties. Sometimes properties are sold after improvements for profits as well, which bring in cash flow.
In addition to traditional equity, preferred equity investments can also offer investors regular income. Similar to loan interest payments, preferred equity investments offer a fixed rate of return commonly referred to as “preferred return.”
Fundrise Dividend Distribution
A Fundrise eREIT is legally required to derive at least 75% of their gross income from real estate-related sources, invest at least 75% of their total assets in real estate, and distribute at least 90% of their taxable income to shareholders every year in the form of dividends in order to avoid double taxation.
Fundrise makes dividend payments to investors in cash. Many investors choose to automatically reinvest their dividends back into their Fundrise account via our dividend reinvestment program.
The payout of your dividends is not dependent on the value of your funds’ shares themselves. To receive dividends, you do not need to sell any shares. In fact, you don’t have to do anything after the initial purchase of shares. This is the joy of passive investing.
When a dividend is issued, you will receive it automatically without any added effort. That’s why we often refer to the stream of money that investors receive as dividends as “passive” or “residual” income.
How does Fundrise work?
When you invest with Fundrise, your funds are allocated across a diversified mix of Fundrise’s offerings, known as eREITs and eFunds, both of which are professionally managed portfolios of private real estate assets located throughout the United States.
What is an eREIT?
An eREIT, short for electronic real estate investment trust, is a type of online investment available exclusively on Fundrise. An eREIT focuses solely on commercial real estate assets, so you’re investments will be in properties such as apartments, hotels, shopping centers, and office buildings. Similar to an ETF (exchange-traded fund) or mutual fund, eREIT investments give you the chance to easily diversify across many properties at a relatively low cost.
Fundrise offers a range of eREITs for its real estate investors. Each eREIT has a corresponding objective of either income, growth, or both income and growth. eREITs with an income objective focus on potential cash flow, and eREITs with a growth objective focus on properties with the potential for appreciation, or increasing in value. eREITs with an income and growth objective take a balanced investing approach, focusing on both cash flow and appreciation potential.
Fundrise eREIT options as of January 2022 include:
- Income eREIT: This eREIT focuses on debt investments in commercial real estate assets. Its objective, not surprisingly, is income. It’s available to investors with a Core account or above.
- Growth eREIT: This eREIT focuses on commercial real estate with the potential to appreciate. Its objective is growth, as the name indicates, and it’s available to investors with a Core account or above.
- Heartland eREIT: This eREIT is one of Fundrise’s options that focus on a specific region of the U.S. (in this case, the Midwest). It has a broad definition of the Midwest, however, with properties in Dallas, Texas; Dever, Colorado; and Las Vegas, Nevada. Its objective is both income and growth, and it’s focusing on both residential multifamily and commercial real estate investments. It’s available to Core account members and above.
- Development eREIT: This option has an income objective and is focused on multifamily and commercial properties that are in various stages of renovation and development. To find out availability, you’ll need to inquire with Fundrise.
Fundrise eREITs have no brokers or selling commissions. Since eREITs cut out the middlemen and are sold directly to the investor, they also have lower fees compared to other REITs. What does that mean for you, the investor? You pay significantly less to invest your money in real estate.
One thing to keep in mind, though, is that since eREITs are non-traded — meaning they aren’t publicly traded on the stock exchange — they generally have less liquidity than REITs, which are publicly traded. Said simply, this means cashing out your eREITs is a little more difficult. As with any investment, make sure to do your due diligence before you invest.
You can compare Fundrise vs. REITs side-by-side to better understand how Fundrise differs from traditional REITs.
What is an eFund?
An eFund is similar to an eREIT but focuses exclusively on residential real estate assets, such as single-family homes, townhomes, and condominiums.
Traditionally, when you wanted to invest in the housing market, the primary opportunity was via publicly traded homebuilders — think Toll Brothers or D.R. Horton, both companies you can buy stock in. These companies are subject to “double taxation,” however, which makes them a less efficient investment than Fundrise’s eFunds. Double taxation is when a corporation is taxed on its earnings (profits), and shareholders are also taxed on the dividends received from those earnings.
Unlike those residential homebuilders, which are publicly traded and structured as corporations, Fundrise’s eFunds are structured as partnerships, so they’re not subject to the same double taxation. In other words, you and every other investor in Fundrise are considered partners with Fundrise. So any cash distributions you receive are not considered income and won’t be subject to double taxation.
Fundrise Real Estate Interval Fund
This fund was rolled out by Fundrise in December 2020. It had a target initial offering of $1 billion with no cap on its offering capacity. It offers quarterly liquidity, which gives you more ready access to your funds, and it’s priced daily (eREITs and other funds are typically updated quarterly or semi-annually). Funds are allocated to the Interval Fund whenever you invest new funds, and the allocation is based on your account level and plan type.
Fundrise offers five investment plans: the Starter, Basic, Core, Advanced, and Premium. With a Core or Basic portfolio, investors can access eFunds, and with a higher-tier portfolio, investors can choose to diversify with eREITs. Investments are subject to an annual asset management fee of up to 0.85% and an annual advisory fee of 0.15% (as of Jan. 13, 2022)*. While Fundrise offers relatively low minimum investments and low fees, it’s important to review Fundrise’s offering circulars to learn about other fees associated with certain investment options.
|Account level||Minimum initial investment||Fees||Features|
|Starter plan||$10|| || |
|Basic plan||$1,000|| || |
|Core plan||$5,000|| || |
|Advanced plan||$10,000|| || |
|Premium plan||$100,000|| || |
How Much Passive Income will Fundrise Dividends Create?
If you are looking for passive income specifically, you’ll want to focus on REITs with high dividend payments rather than those focused on appreciation growth. To illustrate why, imagine a rental property that you own and manage directly.
For passive income, you’d want to make sure your rental payment covered expenses and then some to create cash flow. An increase in property value won’t make any difference to your bank account until you sell the property. My first rental property had this very issue — massive appreciation in the property value (thanks, COVID) but it didn’t produce any passive income as rent payment didn’t surpass the expenses.
Fundrise’s Income REITs are focused on creating passive income for investors through high dividends (which come from rental payments). They presently have three of these income-focused REITS in varying stages of development. The oldest, most established Income REIT has a 5.96% dividend, while the newest one (which is still in the “ramping up” phase) only offers 2.92%.
Other REITs have varying levels of dividend payments (some of which are not too far behind the Income REITs). But if you are looking to generate passive income, pay attention to the dividend payment noted in the fund’s prospectus, not just the overall rate of return.
What’s the Catch?
The dividends you receive from Fundrise will be non-qualified dividends. That means they’re taxed at regular income tax rates rather than at the 15% rate used for qualified dividends.
Fundrise’s plans are like a real estate ETF that you could get from Vanguard, Wealthfront or Betterment. But as Miller points out, Betterment and Wealthfront are repackaging Vanguard real estate ETFs, and Vanguard is what Miller calls a “wrap” on investments by real estate companies.
Real estate companies gather assets in the private market, buying apartment buildings, for example. The real estate companies then take the investments public, marking up those assets so they make more money and paying a cut to an investment banker in the process. So when Vanguard or another firm buys those assets the price has been marked up.
Fundrise, by contrast, offers consumers access to real estate investments they wouldn’t otherwise be able to access without paying a mark-up. Miller estimates the savings from cutting out the middleman to be around 30%. But on the face of things, the fees you’ll pay each year with Fundrise are higher than the fees you would pay for a low-cost REIT investment you made with Vanguard or Schwab.
For some, the lack of liquidity could be a catch. For others, the fact that you can’t choose individual projects to invest in could be a downside.
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Fundrise Pros and Cons
Access to more diverse investments: Investing in real estate used to be difficult and expensive. And it was only for elite investors with healthy amounts of cash to invest. This is no longer the case. Added to a more traditional stock and bond portfolio, a Fundrise account is a great way to get more diversity in your investments. That’s always a good option. High ROI: From 2014 to 2017, Fundrise has boasted between 8.76% and 12.42% average annualized returns. This is a great performance, so it’s tempting to take advantage. Investing is relatively simple and cheap: Investing through Fundrise isn’t the absolute cheapest way to invest based on fees. But it’s not a bad option. It’s one way to make investing in advanced options like real estate simple and straightforward. You just need to know enough to make a good decision about which portfolio to choose. And even then, Fundrise can offer you some help and advice when selecting the investments correct for you. Great reviews: When you check them out online, Fundrise has excellent reviews with places like the Better Business Bureau. Customers seem happy with not only their returns but also with the fees and the company’s level of customer service. That’s definitely a point in their favor. Low barrier to entry: The fact that Fundrise has a $500 minimum to begin is terrific. That’s a very low barrier to entry to be investing in commercial real estate. It’s not the most economical way to get involved in real estate (you could open a traditional brokerage for less and buy a share of a REIT), but it’s a fantastic way to be getting involved in personal, commercial property. And not being correlated with the stock market as substantially as you would be with a publicly traded REIT is a nice bonus too. Limited liquidity: Liquidity is a significant issue with Fundrise’s investments. The majority of Fundrise’s finances are used to invest in eREITs and eFunds. These investments are always long-term and cannot be sold in the publicly traded market. Fundrise cannot pull money out of a deal they have signed, unlike other investment firms. That is why they have a lengthy process for redemption of funds. Transparency: Another issue is fee transparency. Fundrise claims they save money on third-party costs for investors by creating a direct funding link with real estate property. However, there are hidden costs to these transactions that investors are not told about such as fund development and liquidation charges. These costs are not advertised clearly at the time of signup, and Fundrise only advertises the 1% fund management fee which isn’t accurate. Crowdfunding challenges: Also, consider the implications of investing in a crowdfunded platform. These fintech investment models are still new and have yet to be tested. They were popularized after the financial crash of 2007 – 2008. Traditional investment companies, despite all their faults, have gone through decades of investment experiences and seen multiple market crashes to get where they are today. Distributions may be taxed as ordinary income: This from the public offering document provided by Fundrise: “Unless your investment is held in a qualified tax-exempt account or we designate certain distributions as capital gain dividends, distributions that you receive generally will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. The portion of your distribution in excess of current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the tax basis of your investment, rather than result in current tax, until your basis is reduced to zero.” Distributions are never guaranteed: This is the same thing with stocks, but something to consider since the stakes may be higher. When you’re investing in a dividend-paying stock, dividends are never guaranteed. They could be cut, or they could be discontinued at any point in time. The same thing is true with Fundrise dividends or distributions paid out.
Fundrise Growth And Performance
According to thier Form 1 Semi Annual Report with the SEC, Fundrise manages over $1 billion in assets under management. They now have over 150,000 active investors. Their AUM grow and investor signups have been very promising.
Fundrise’s five-year average platform portfolio has also done quite well, yielding a 10.79% return versus 7.92% for the Vanguard Total Stock Market ETF and 7.4% for the Vanguard Real Estate ETF. Their massive 14%+ outperformance in 2018 versus the Vanguard Total Stock Market ETF is particularly impressive.
By generating a strong 6-year return, Fundrise has taken a huge step forward. They’ve proven what they have believed for so long. A model of individuals diversifying into real estate through a direct, low-cost technology platform is a superior investment alternative to owning only publicly traded stocks and bonds.
Related: Fundrise Fees