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Updated on Thursday, April 4, 2019
While many people get excited about the idea of investing in real estate, they may not know where to begin. Real estate often seems like it’s reserved for the super rich, not the everyday investor. That’s where Fundrise — a company that crowdfunds investments in real estate projects — makes a difference.
When 32-year-old Josh Patoka, a freelance writer located near Knoxville, Tenn., read about Fundrise, he was excited. He’d been interested in real estate as an investment but lacked the capital to do it on his own. “What interested me was the ability to invest in private real estate with small amounts of money,” Patoka said. “I don’t have the time or money to own rental properties.”
With Fundrise, an investor can pool their money with other investors to buy shares in real estate investment trusts (REITs), which own and manage income-earning real estate. But while the returns can be impressive, Fundrise may not be for everyone.
Who should consider Fundrise
Investing in real estate can be appealing, but it typically requires large upfront investments, sometimes hundreds of thousands of dollars. Traditional real estate investments tend to be for wealthier individuals rather than everyday investors.
Fundrise is a smart option for those who want to invest in real estate but lack the initial investment capital traditional real estate requires. It allows investors with smaller amounts of available money to pool their resources and buy shares of REITs.
It’s also a good option for investors who want to diversify their portfolio beyond the stock market. Investing in real estate can help you earn returns regardless of the stock market’s performance. Rather than having all your money tied up in one place, diversifying your investments gives you more protection and peace of mind in the case of a market downturn.
Fundrise fees and features
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Strengths of Fundrise
Fundrise offers many benefits to investors, including:
- Low initial investments: While most real estate investment opportunities require you to invest thousands of dollars, you can get started with just $500 by taking advantage of the Fundrise Starter Portfolio.
- High potential returns: The returns on your investments can be quite high. As of 2018, the average annualized return on Fundrise investments was 9.11%. That’s close to the stock market’s annual return, which has averaged 10.5% historically. However, keep in mind that Fundrise has been in operation for only 10 years, so current returns are not necessarily indicative of future returns.
- 90-day, money-back promise: Fundrise offers a 90-day, money-back promise that it will buy back your investment at the original amount if you’re dissatisfied within three months of opening an account.
Drawbacks of Fundrise
While Fundrise can be beneficial to many investors, it isn’t for everyone for the following reasons:
- Investments are not liquid: Because Fundrise‘s REITs are not traded on a public exchange, they’re illiquid. That means you may not be able to find a buyer for your shares when you want to sell, so it may be difficult to recoup your investment.
- There are plenty of fees: You’ll pay 0.85% annual asset management fee + 0.15% annual investment advisory fee on eREITs and eFunds.
- Crowdfunded real estate is new: The concept of crowdfunded real estate is new, and it hasn’t been tested in a recessionary environment. While Fundrise has posted high annual returns for the past couple of years, there’s no guarantee those returns will continue.
Is Fundrise safe?
All investments carry some level of risk, and Fundrise is no different. Although there is the potential for high returns, you risk losing money as well.
However, Fundrise is a legitimate company. Fundrise investors have invested $2.5 billion in property since 2013, and that number continues to grow. Plus, it has an A-plus rating from the Better Business Bureau and an average of five stars from customer reviews.
That said, you should keep in mind that Fundrise’s eREITs work differently than traditional REITs do. Fundrise’s eREITs are non-traded companies whose shares fall under Regulation A — an investment category with limited disclosure requirements — and do not have the same level of safeguards publicly traded REITs have.
Investing in real estate can be intimidating for a beginning investor, but Fundrise makes it easy to get started. With just a small initial investment, you can diversify your investments and learn the ins and outs of real estate investing. While you could invest in REITs on your own, Fundrise’s offerings provide investing options with much lower fees.
If you’re interested in broadening your portfolio, Fundrise isn’t your only option. Here are six ways you can invest in real estate.