Fundrise Real Estate Investment (Pros and Cons)
Considering a Fundrise real estate investment? Today, I'll provide some details and dig into the pros and cons.
If you have been looking into different and creative ways of entering the real estate investment market, then chances are you would have considered investment trusts and funds. And if you were to do more research on different types of trusts and funds, then chances are you would have come across a real estate investing platform called Fundrise. But what exactly is Fundrise, and could it be a good investment strategy for you?
Business Insider describes Fundrise as being an online real estate investing platform that lets you invest in real estate through REITs (real estate investment trusts) and different eFunds. They have been around since 2012, and they are like a middleman between you (the investor) and real estate developers.
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How does Fundrise work?
When you invest your money with Fundrise, they will invest in a diversified portfolio of real estate projects on your behalf. They have a team that do the searching and paperwork for you, so you can sit back and collect your portion of any returns. You will not have much say in exactly what your money is invested in. Rather you are placing your trust with the team at Fundrise to take care of your investment.
Fundrise consider themselves to be a long-term investment, expecting investors to devote at least 5 years. The reason that Fundrise needs to be long term is that the best real estate investing strategies require a combination of both expertise and time. Fundrise will not rush their investors, rather take time to select strategies based on long-term return potential. They look at the long-term benefits rather than look for short term gains.
How does Fundrise compare to leverage through appreciation?
When it comes to real estate investments, there are two main forms of returns. Dividends and appreciation. The returns for Fundrise investors come in the form of dividends which are paid quarterly, and the amount depends on how well your investments are doing. Appreciation on the other hand is where you own a property and invest money to have the total value rise.
Fundrise admit that appreciation can have the potential to represent a very substantial portion of an investor’s return – however you must wait much longer to realize this. The main value gained from appreciation will not be realized until the property is sold. So, you could invest $20,000 in renovations and make a profit of $100,000. Which could be more than you would gain by investing the same amount in trusts. Dividends are still preferred by the team at Fundrise as it presents a more consistent income stream that is measurable during the life of the investment. There is still a level of appreciation at Fundrise however – that is when the value of the shares that the investors hold rise in value.
What are the pros and cons of using Fundrise?
While Fundrise might seem like a novice investors dream, you need to be aware of not only the benefits, but the downsides associated with using such an investment platform. Each investor will have a slightly different experience of course. The main pros and cons are noted by Nerd Wallet as being the following,
- Low minimum investment. You can start with as little as $500. You also have the flexibility to add to your investment at any time.
- User friendly website. You do not need to be a master in investing to understand and navigate their website. This can be very helpful as a lot of people find investing to be complex and confusing and can make costly mistakes by a lack of understanding.
- IRA Accounts available.
- Investments are open to nonaccredited investors. You do not have to have a portfolio, or even know much at all about investing to start with Fundrise.
- Highly illiquid. An investment with Fundrise is long term, and if you decide you need your investment back after a year or two, this can prove difficult and costly.
- High fees. Fundrise are a business and need to make a profit, so it is understandable that there will be fees. After all, they do the hard work for you. But it can be disappointing to see such a large percentage of your investment return be paid in fees. Exact fees will depend on how much you invest and what you invest in, so it can be hard to forecast. Asset management fees start at 0.85% and advisory fees are 0.15%, which can really add up.
There are definite benefits to Fundrise, especially if you are new to the investment game and would rather let an expert take control. The cons of course are all related to money, and the fact that someone else is in control of them. It is up to you to decide whether the cost and long timeline of using Fundrise makes it worthwhile in the long run.
How do you start investing with Fundrise?
Unlike other real estate investment platforms, Fundrise serves all investors. Many similar organizations will only work with you if you are already an accredited investor or have a certain amount of net worth (often over $1 million). As long as you are a US citizen or permanent resident and reside in any of the 50 States, you are able to invest with them. You can invest with as little $500, although a lot more options and flexibility open up with an increased minimum investment spending of $1000.
There is no denying that investing in the real estate market is a good idea. Especially if you have long-term investment goals and can be patient to see a solid return. Fundrise is perfect for those who are looking for an alternative to stocks and bonds, and for those not willing to take on the role of a landlord. If you can look past the cost and loss of control, then it could just be a good investment strategy for you.
Charles is the founder of infoSpike.com. He enjoys real estate investing, marketing, and personal finance. Read more about Charles here.