In this Fundrise review, we’ll discuss the pros and cons of Fundrise, explore how it works, and explain why we’ve decided to invest in Fundrise ourselves. Enjoy!
For over a decade, my husband and I have enjoyed being landlords. We purchased our first rental property in 2007, and turned our primary residence into a second rental a few years later.
It’s been over ten years, and things are still going well. During that time, we paid off one of our properties entirely and made some serious progress on paying off the second.
One thing we haven’t done, however, is buy another rental property.
It’s not that we don’t want to buy more property; it’s that we haven’t had the time. Now that we’re traveling three or four months of the year, it’s hard to imagine when we would hunt for real estate, negotiate an offer, or close on a property – let alone look for new tenants.
I’m not saying we’ll never buy another rental property. Most likely, we will. We consider real estate one of the best investments we’ve made, so it would make sense for us to do it again. For now, though, we are still investing in real estate through other means.
As of 2018, we started investing in Fundrise — an online real estate crowdfunding platform. While we love being landlords and might buy another rental in the future, we truly feel that this platform offers the best of all worlds — at least for now.
With this in mind, we wanted to explain more about why we’re investing with Fundrise and how it works.
What is Fundrise?
Fundrise is an investing platform that pegs itself as a “true alternative to investing in stocks and bonds.” The platform lets you invest in private real estate investments directly, keeping the costs of owning real estate low, and earning stellar returns over time.
The thing is, you don’t have to take out a mortgage or put down 20% on a rental property to invest in real estate with Fundrise. Similar to a brokerage account, you can open a Fundrise account with a fairly modest amount of money and add to your account regularly as you can afford it.
You’ll earn returns over time as the real estate you invest in turns a profit through its tenants or a sale. However, you may also benefit if the real estate you invest in experiences appreciation.
Fundrise has a team of real estate professionals whose entire focus is buying profitable real estate properties for less than their perceived replacement costs. Then, they turn to hands-on management and partnership with local operators to boost profits and keep costs down.
The platform allows you to spread your money across dozens of individual real estate assets within a single investment, helping to limit your risk in case a single deal within the portfolio goes bad. The investments they sell work similarly to REITs, or Real Estate Investment Trusts. However, Fundrise suggests you think of them as online-only, low-cost ETFs for real estate.
The Benefits of Investing in Fundrise
If real estate interests you but are unsure how to start investing in it, Fundrise may be a great solution.
The benefits of investing in Fundrise are fairly obvious: The platform lets you glean some of the benefits of being a landlord without the physical aspects of the work.
You’ll never get a call in the middle of the night from a tenant, nor will you have to deal with screening tenants and filling a vacant property. You won’t have to deal with stained carpet or neighbors complaining about loud noises. Basically, you get to ignore all the annoying parts of being a landlord and skip to the good stuff.
Of course, Fundrise returns are a good source of residual income, but that’s only part of it. Fundrise has performed very well since its inception. In fact, during its worst year (2016), investors still earned an average return of 8.76% net of fees. Obviously, these kinds of returns are what all of us are after. And, if we can do it without any grunt work, that’s even better.
Another benefit of Fundrise is the low barrier to entry.
As someone who has purchased real estate many times, I can tell you that buying rental property can be expensive and arduous. You typically need at least 20% down to buy a rental property, and that amount can work out to tens of thousands of dollars.
With Fundrise, however, you can buy into their starter portfolio for just $500. Their advanced portfolios require a minimum investment of $1,000, which is still very low. Where it might take you years to save up the down payment for a rental property, you could probably save up $500 to $1,000 in a couple of months.
Finally, there are a few other companies that work similarly to Fundrise. In order to get started with these competitors, however, you need to be an “accredited investor.” In other words, you need to earn $200K per year ($300K for couples) over the last two years, or you need to have a net worth of over $1M. That can be a pretty steep hill to climb.
With Fundrise, there is no accredited investor requirement. Anybody who meets the minimum opening deposit requirement of $500 can get started.
Summary of Fundrise Benefits
- Invest in real estate with as little as $500
- You can avoid hands-on landlord work
- Historically high returns
- Great diversification
- Low fees
- You don’t have to be an accredited investor
While I love passive income and think Fundrise is a good option for us right now, that doesn’t mean the platform is perfect. There are some notable downsides that come with investing in crowdfunded real estate, and those downsides include the fact that past returns are no guarantee of future results.
Sure, I would love to get a 10% return on my money from Fundrise consistently. But, just like the stock market, real estate will have some bad years.
Another downside of investing in Fundrise is the fact that your assets aren’t very liquid. You can’t just pull your money out whenever you want like you could with a brokerage account. For this reason, Fundrise says you should only consider their accounts if you have an investing timeline of at least three to seven years.
Of course, there are also fees to pay whenever you use a platform to invest. Fundrise fees work out to 1% per year, which includes account management and the management of your investments.
Finally, Fundrise returns are taxed as ordinary income instead of being taxed at the 15% rate for dividend income.
Summary of Fundrise Drawbacks
- No guarantees
- Annual fees
- Tax consequences
- Your investments aren’t liquid
Why We Chose to Invest in Fundrise
Any investment you choose has its pros and cons. However, we feel investing in Fundrise is a smart option for us considering where we’re at in life at the moment.
For that reason, I plopped $1,000 into a Fundrise account and will continue contributing to it over time. Here’s why we ultimately decided to invest in Fundrise despite its pitfalls:
- We want to stay diversified. Since we’re self-employed and able to save a lot of money for retirement, we want to make sure we stay diversified as much as possible. We mostly invest in index funds, but we still want to invest in real estate to diversify even further.
- We don’t need more rental properties at the moment. I love buying physical property that you can see and touch, but shopping for another rental property is not very realistic for us right now. With running a business and traveling the world with two kids, we already have plenty on our plates. The two rental properties we have now are manageable, but I don’t want to add more to the mix.
- I don’t want to hire a property management company. At least some people reading this are probably wondering why we don’t buy physical rental property and just hire a property management company to take care of things. I know myself well enough to realize I could never be happy with that kind of arrangement, so I’m not going to force it. I am super Type A and I don’t relinquish control of things easily. I have no plans to change either, so why fight it?
- We love the fact that professional real estate investors are making all the decisions. I love the fact that Fundrise has real estate investors working on our behalf around the country. Their expertise allows Fundrise to invest in properties I would never have access to otherwise, and this includes commercial properties. I don’t have the time or the skill to do all the research on different markets around the country, so I am glad to let someone else do it for me.
- We are already maxing out tax-advantaged retirement accounts. Last but not least, we are already maxing out our regular retirement accounts but still have cash to invest every month. Since we have Solo 401(k) accounts, we can each contribute $19,000 plus up to 25% of our earnings each year. We max those out, then look for other ways to invest our money. This strategy works well for us since it helps reduce our taxable income by thousands every year. (We pay a ton of taxes, so this is important!)
Who Should Consider Investing in Fundrise?
New real estate investors wanting to avoid a down payment – If you want to invest in real estate but don’t have the cash to pony up a down payment for a physical property, Fundrise may be a perfect fit. With as little as $500, you can open an account and start investing in real estate right away.
Investors who don’t want to deal with tenants – Have you always wanted to try real estate investing but were scared off by having to deal with tenants? Fundrise takes that part of the process out of the equation. Simply invest your money and let the real estate pros do all the dirty work.
Investors who want exposure to commercial property – Fundrise is a great fit for those who want to invest in commercial property but may not have the capital to do it on their own. With a minimum investment of just $500, Fundrise can help your portfolio gain exposure to commercial properties at a fraction of the cost.
Real estate investors who want diversification – Because purchasing physical property can cost a ton of money, particularly when it comes to down payments, many real estate investors are limited to investing in just a handful of properties. Through Fundrise, you can take the same amount you would’ve used for a single down payment and spread it across multiple properties, improving your diversification dramatically.
Who Should Avoid Investing in Fundrise?
Those not contributing to a retirement plan – If you’re not contributing to a tax-advantaged retirement account (like a 401(k)), it’s usually a good idea to start investing there. At the very least, you should be investing enough in any work-sponsored plans to meet your company match. That’s free money, and you don’t want to give that up.
Individuals and families without emergency savings – Before you start sinking a ton of money into alternative investments, it’s important to build a solid emergency fund. Not only will this help you take care of surprise and emergency expenditures, but it can also help you navigate any difficult financial times you may have. Shoot to save 3-6 month’s worth of household expenses. Use the link above to learn how to start.
Short-term investors – If you need quick access to your money, Fundrise is not the place to put it. As with most types of real estate investments, the money you invest in Fundrise is not particularly liquid. The company advises that investors should have an investment timeline of at least three to seven years.
At the end of the day, Fundrise is a newer concept we feel is worth exploring. We love real estate already, so we’re excited to approach real estate investing from an entirely new angle.
We may buy another rental property in the future, but we’ve decided that time isn’t now. At the moment, we’re staying busy and focusing on other aspects of our lives, including the growth of our business. For that reason and others, Fundrise is the perfect way for us to invest even more in real estate without the hassle of taking on another physical property.