Despite being a real estate investor and landlord myself, I love real estate crowdfunding platforms. You can take $10 and invest it in dozens of different properties, rather than investing $100,000 in one property.
It comes with a cost, of course. You don’t get the same control over your investments and you have to pay someone else fees to buy and manage the deals.
But Fundrise remains one of my favorite real estate crowdfunding investments. Here’s why I invest my personal money with them, along with a clear-eyed breakdown of Fundrise’s pros and cons.
Fundrise Review at a Glance
Minimum Investment: $10
Prospective Returns: 2-5% annual dividends, 3-22% annual appreciation
- Annual Advisory Fee: 0.15% of assets
- Annual Asset Management Fee: 0.85% of assets
My Take: Fundrise offers an easy way to diversify your real estate portfolio. With as little as $10, you can buy shares in commercial real estate, apartment buildings, single-family rental properties, and property-secured debts all over the US. Just don’t invest money you might need back within the next five years.
How Fundrise Works
At the simplest level, Fundrise offers a series of private REITs. A real estate investment trust (REIT) is a pooled fund that owns many different real estate assets and loans secured against real estate.
The more you invest with Fundrise, the more flexibility and control you have over your investments. At the $10 and $1,000 levels, Fundrise allocates your money among its various real estate projects as it sees fit. If you invest $5,000 or more (the “Core” level), you can choose between Income, Balanced, and Growth investment plans.
The Income plan provides more consistent dividends, usually in the 4-5% range. The Growth plan aims to maximize your long-term returns, with less dividend income now but investment for greater appreciation. As you can guess, the Balanced plan mixes both investment strategies.
If you invest at least $10,000, you reach the “Advanced” level, which allows you to pick and choose individual REITs within Fundrise’s portfolio. You also get access to “Plus plans,” optional add-ons for more advanced and potentially higher-return investments.
Finally, accredited investors who invest at least $100,000 get access to private investment options such as shared ownership in specific properties.
Selling Fundrise Shares
There’s no organized secondary market to buy and sell Fundrise shares to other investors. You can transfer your shares to another Fundrise investor if you find one willing to buy them. More commonly, you can redeem your shares by selling them back to Fundrise, but if you do so within five years, they hit you with a penalty.
Well, sort of. Every quarter, Fundrise offers to buy back shares of their Interval Fund with no penalty. But they do charge a 1% penalty for early buyback of other fund shares, such as Fundrise eREITs.
What’s the difference between their Interval Fund and their eREITs? Good question. The Interval Fund is a large, baseline fund that they have discretion to move around as needed. Other eREIT funds own specific sets of properties.
In all likelihood, your account will own some shares of the Interval Fund, and some shares in other eREITs.
The bottom line: you can sell shares back to Fundrise in any quarter, but you might pay a small redemption penalty if you do so within five years of buying.
Fundrise Demo Video
Want to peek under the hood of my Fundrise account?
No review of Fundrise would be complete without seeing what it looks and feels like. Here’s how it works to invest through the Fundrise.com dashboard:
In 2021, Fundrise averaged a 22.99% return across all its funds and investments. Across the three main investing plans, that breaks down to a 17.98% return for the Income plan, a 23.18% return for the Balanced plan, and a 25.12% return for the Growth plan.
That splits as follows between dividend and appreciation (share price growth) returns:
And before that? Going back five years, here’s how Fundrise’s average returns have compared to publicly-traded US REITs, and to the S&P 500:
|Year||Fundrise||Public REITs||S&P 500|
Seeing that Fundrise has underperformed public REITs, you might wonder why you should invest in Fundrise, given its lack of liquidity. The answer is simple: Fundrise doesn’t have the same volatility as traditional REITs. In the last five years, Fundrise’s worst quarter still yielded a positive return of 1.15%. But the worst quarter for public REITs saw a gnarly -25.42% return.
Also, public market REITs share an uncomfortably close correlation with stocks. For true diversification away from stocks, you need to get off the public stock exchanges.
Fundrise Fees & Expenses
As outlined above, Fundrise charges a 0.15% annual advisory fee and a 0.85% annual asset management fee (1% total annual fee).
That does not include their expenses in buying or managing their properties, such as property management fees.
Fundrise offers to waive your 0.15% advisory fee when you refer new clients to them. At each investment level, the fee waiver period gets longer. For example, at the $1,000 Basic level, they waive your fee for 90 days for each referral, while at the $5,000 Core level, they double that to 180 days.
If you sell shares in under five years, you also pay a 1% penalty on shares of eREITs, but not shares of the Interval Fund.
If you want to invest through an IRA, you can do so with their partner self-directed IRA custodian. That costs an additional $125 per year, however you can waive that fee in one of two ways:
- Invest $3,000 to waive the fee this year, or
- Maintain a balance of $25,000 or more to permanently waive the fee.
Lastly, it’s worth noting that you can never fully know what hidden charges take place behind the curtain. If you own an apartment building for example, and you handle repairs in-house, you could record a $15,000 roof repair bill that actually only cost you $5,000.
Which means you should focus more on net-of-fees returns, rather than getting too bogged down in the stated fees. Look at the annual returns Fundrise has generated over the last five years, and decide for yourself if they’re attractive enough for your money.
Review of Fundrise Advantages
Fundrise comes with plenty of pros, and a few cons as well. Below is a quick review of Fundrise’s upsides.
Low Minimum Investment
Who doesn’t have $10? Fundrise makes it easy to get started and dip your toe in the waters of real estate crowdfunding.
Take $10 and open an account with Fundrise, if only to see how it works.
You can spread your $10 across dozens or even hundreds of properties, located all across the US.
That includes apartment complexes, single-family homes, office buildings, shopping centers, and other commercial properties, making it extremely easy to diversify into real estate.
Available to Non-Accredited Investors
You don’t need to be an accredited investor (a millionaire or high earner over $200,000) to invest with Fundrise.
That’s not the case with many other real estate crowdfunding investments, which only serve accredited investors as the regulation is easier.
Stock markets go through double-digit corrections all the time, and usually take publicly-traded REITs with them, even if the underlying real estate market is healthy.
As outlined above, Fundrise’s worst quarter still generated a positive return. That makes a strong case for safety and security, exemplifying how real estate can replace bonds in your investment portfolio.
Passive Investment in Real Estate
Just how passive is rental income from properties you own?
Passive enough while you have a paying tenant. Not passive at all when you have to advertise vacant units, screen tenants, negotiate lease agreements, make repairs, collect rents, and go through the eviction process. (Although our landlord software can help make all of them easier, cough cough.)
But investing in real estate crowdfunding platforms like Fundrise makes for truly passive income. You invest once, then let the returns flow in. You can set up automated recurring investments each month if you like, and automatic dividend reinvestment.
High Dividends Available
The Income investing plan comes with a high dividend yield, often 4-5% per year. You earn relatively stable quarterly dividends, all while your shares appreciate in value.
Most stocks and mutual funds can’t compete on both yield and appreciation potential.
Invest in Real Estate in an IRA
Fundrise partnered with a self-directed IRA custodian to make it simple to buy Fundrise shares in your IRA. They even offer several options to waive the annual custodian fee, as outlined above.
You can use the same self-directed IRA to invest in real estate of other types, such as rental properties.
Depending on your financial goals, the option to invest in real estate through an SDIRA, especially with the fee waived, can be a huge perk.
Expert Dealfinding & Management
On a related note, you don’t have to worry about learning the skills required to find good deals on real estate, how to finance them with investment property loans, or how to manage properties effectively.
Nor do you have to do the labor, after learning the necessary skills. Fundrise handles all of it for you.
Everyone loves to hate and sue landlords. That adds a huge risk to your personal assets, not just your rental properties.
It gets uglier out there for landlords every year. That’s precisely why I’ve increasingly started investing in land and through real estate crowdfunding platforms, rather than putting so much money in residential real estate investments.
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Review of Fundrise Disadvantages
A Fundrise review wouldn’t ring true without a clear-eyed look at its risks and downsides.
Make sure you understand the following disadvantages before investing through Fundrise.
When you buy a stock, or a share of a publicly-traded REIT, you can sleep easy knowing that you can sell it at a moment’s notice with no transaction cost.
With shares in a crowdfunding platform like Fundrise, you can’t sell instantly. You have to submit a redemption request to sell your shares, which Fundrise can opt to honor when it chooses.
They do let you redeem your shares of their Interval Fund penalty-free once a quarter. But you still pay a penalty for selling shares of their eREITs within five years of buying.
When you buy a rental property, you can predict the annual cash flow with a rental property calculator.
Fundrise used to publish average expected returns for their various investment plans, but no longer do so. To be fair, all markets are unpredictable, and no one can predict the future. But it still felt reassuring nonetheless.
Still, you can confidently expect 2-5% per year in dividends, depending on your plan, and anywhere from no appreciation up to double-digit growth.
Historical Returns Trail Stocks
The S&P 500 has generated a higher ROI than Fundrise over the last five years. For that matter, so have US real estate investment trusts.
That said, stocks have had an unusually strong five years, returning more than double their long-term average of around 10%. Fundrise has exceeded that long-term average return.
People ask me all the time about real estate versus stocks, and which they should invest in. The simple fact is that you should invest in both. Stocks offer strong long-term growth, liquidity, and diversification across industries and countries. Real estate offers higher income yields, more stable returns, and diversification away from volatile stock markets.
I personally aim for around 60-65% of my asset allocation in stocks, and 35-40% in real estate. You choose what makes the most sense for your personal finances and long-term goals.
Is Fundrise a Good Investment?
I invest in Fundrise myself, so I clearly believe that it is.
But it’s not necessarily for everyone, either. You should only invest money with Fundrise that you’re comfortable leaving invested for at least five years. Which, by the way, is true for almost every real estate investing strategy.
I recommend starting with a small initial investment to get comfortable with it as a real estate investment platform. That’s how I started, and have gradually invested more and more money with them over the last few years. So far, I’ve been pleased with the returns, the diversification, and the ease of use.
Consider diversifying further with Streitwise, Groundfloor, and Arrived Homes as well (see our full Arrived Homes review for details). Each brings its own unique pros and cons. If you’re looking for a real estate crowdfunding platform for short-term investments, try Groundfloor.♦
What do you like and dislike about Fundrise? Let us know about your thoughts or experiences with them below!
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About the Author
G. Brian Davis is a landlord, real estate investor, and co-founder of SparkRental. His mission: to help 5,000 people reach financial independence by replacing their 9-5 jobs with rental income. If you want to be one of them, join Brian, Deni, and guest Scott Hoefler for a free masterclass on how Scott ditched his day job in under five years.