Diversification is a common buzzword in the investment universe. But in most discussions, diversification is limited to investments in stocks and bonds. While that may be a solid general diversification, true diversification also includes tangible assets.
Perhaps the best tangible asset of all is real estate, especially commercial real estate. While investors can buy shares of publicly traded real estate investment trusts (REITs), direct—and potentially lucrative—investment in specific commercial properties such as office buildings, retail space, and apartment complexes are typically beyond the abilities of most investors.
Or at least it was until recently.
In the past few years, investment platforms known as real estate crowdfunding platforms have gained popularity. They enable investors at all levels to participate in commercial real estate investments, often with no more than a few hundred dollars. That gives small investors an opportunity to participate in one of the most lucrative investments there is — commercial real estate.
Two real estate crowdfunding platforms designed for small investors are DiversyFund and Fundrise, which, not coincidentally, are two of the most popular platforms available.
If you’re looking to add real estate to your investment portfolio — without needing to buy property or get your hands dirty — either of these platforms could be a good fit for you.
DiversyFund vs. Fundrise: How Do the Real Estate Crowdfunding Platforms Work?
The table below shows a basic overview of the primary features offered by DiversyFund and Fundrise. It’s a side-by-side feature comparison of the most relevant benefits each of these real estate crowdfunding platforms provide.
If you would like a deeper discussion of Fundrise, you can read our full Fundrise Review for a more comprehensive discussion. You can also check out other real estate crowdfunding platforms at The 10 Best Real Estate Crowdfunding Sites, which includes coverage of DiversyFund and Fundrise, as well as eight other popular platforms.
|Platform / Feature||DiversyFund||Fundrise|
|Best For||Investors looking for long-term capital appreciation||New investors and those who favor an income/growth balance|
|Minimum Investment||$500||Starter: $10+|
|Accredited Investor Requirement||No||No|
|Fees||No annual fee, but a developer fee on each project of 2% – 8% (total fees are capped at 10%)||1% annual fee on funds and real estate investment trusts (REITs) + 1% redemption fee within the first 5 years|
|Investment Types||Proprietary REIT invested in multi-family properties||Proprietary funds and REITs|
|IRA Availability*||No||Yes, traditional and Roth ($1,000 minimum)|
|Liquidity||None||Quarterly redemption option (not guaranteed)|
|Average Annual Return||Fund targets 10% – 20% (net of fees); actual:|
2017 – 18%
2018 – 17.3%
|8.81% – 16.11% (actual – net of fees, not guaranteed)|
|Investment Holding Period||5+ years||5+ years|
|Potential to Lose Money||Yes||Yes|
|Availability||All 50 states||All 50 states|
|Mobile App||Yes||iOS and Android|
|Customer Service||Chat or email; no days or times indicated||Email only (1–2 day response, Monday thru Friday, 9:00 AM to 5:00 PM, Eastern Time|
* Though both DiversyFund and Fundrise are available for IRA accounts, they must be held through a special type of account, known as a self-directed IRA (SDIRA). These are specialized custodians that specifically handle nontraditional investments, like real estate crowdfunding. The custodians are not household names in the investments industry and are generally considered to be riskier than common brokerage firms. Because they are nontraditional investments, real estate crowdfunding investments are not held in accounts with popular investment firms, like Charles Schwab, Fidelity, or E*TRADE.
DiversyFund: Pros and Cons
- DiversyFund has provided returns of 18% in 2017, and 17.3% in 2018. Those are higher than the returns provided by Fundrise and many other real estate crowdfunding platforms.
- The entire fund is invested in large, multifamily apartment complexes, which tend to perform well in all types of economic environments, especially during economic downturns when consumers are looking for less expensive housing arrangements.
- Properties within the fund are purchased, renovated, and sold within five years, to maximize appreciation and return upon resale.
- The fund contains properties located in various markets across the country, providing a strong element of geographic diversification.
- The fund targets long-term capital appreciation, which typically provides the highest return available in real estate investments.
- Minimum investment is just $500, making DiversyFund able to accommodate investors at all levels.
- Requires a financial commitment of five years.
- There is no provision for early withdrawals from the fund. Your investment, once made, is completely illiquid.
- Customer service available by email and chat only.
Fundrise: Pros and Cons
- Offers five different plan levels, giving you greater choice over how you can invest.
- Fundrise lets you choose to invest for income, growth, or a combination of both.
- Provides an opportunity to invest in single-family properties within their funds, in addition to more traditional types of commercial real estate.
- Invest as little as $10.
- Higher risk/high reward investments are available in the Advanced and Premium investment plans.
- Low, transparent fee structure.
- Unlike DiversyFund, Fundrise does provide a quarterly redemption option for early withdrawal purposes.
- Fundrise offers (but doesn’t require) a dividend reinvestment plan.
- There is a 90-day satisfaction guarantee if you’re not pleased with the investment.
- Like DiversyFund, Fundrise does recommend a five-year investment horizon to maximize your return.
- Also like DiversyFund, you won’t have control over specific investments within your fund or REIT.
- Dividends are subject to ordinary income tax rates since they’re not considered to be capital gains but a distribution of net profits.
- Quarterly redemption option may not be available at all times and should not be relied upon. Availability will be more restricted during market downturns when there are more redemptions than purchases.
- Customer contact available only by email, with one- to two-day response time.
How to Withdraw Money From DiversyFund and Fundrise
Like real estate itself, real estate crowdfunding is a long-term investment, and is considered highly illiquid. When you make your investment, you should plan to commit to it for at least five years. That will be true whether you invest with DiversyFund or Fundrise. Each encourages a long-term perspective on your investment.
These real estate crowdfunding platforms are non-publicly traded funds and REITs and cannot be bought and sold on major financial exchanges. The real estate crowdfunding platforms themselves are the sole market for the funds. So your investment in these funds is illiquid, that is, you cannot simply cash out and claim your funds whenever you wish.
This is unlike financial assets, like stocks and bonds, which can be bought and sold quickly and easily on large public exchanges. When you invest in real estate crowdfunding investments, you are making a commitment to that investment.
That said, while withdrawals from DiversyFund are not permitted before the investment runs its full term, Fundrise does provide at least limited early
Below are descriptions of the funds withdrawal policies for each crowdfunding platform.
DiversyFund makes it clear to all investors from the beginning that the investment is completely illiquid. There is no capability to make withdrawals against your investment until the projects within the fund are fully liquidated. That’s projected to be about five years from the time the REIT is fully funded.
Once it is fully funded, properties are purchased, then renovated, and held for several years to take advantage of price appreciation. The REIT specifically targets selling the properties within the fund within that five-year timeframe. Once all the properties have been sold, principal from the sale of the investments will be distributed to the investors.
What happens if the market turns and the properties can’t be sold at the end of five years, and are they sold regardless, even at a loss?
We reached out to DiversyFund to get clarification on this question and here was the response:
“As with any investment, there are no guarantees. We do, however, have a few measures in place to mitigate risk. The Growth REIT holds multiple properties, so your investment is also diversified across multiple properties and areas. While the real estate market can fluctuate, it has been less volatile than the stock market and other asset classes over time. We focus on multifamily because it tends to perform very well, especially during a downturn or recession when people are downsizing and moving from their large single-family homes and luxury apartments into the multifamily assets we are acquiring. The average multifamily building we acquire has over 150 tenants. This provides a lot of cushion in case a few can’t cover their rent in any given month.”
Based on this response, it appears the properties will be sold and the trust liquidated at the end of the five year term, with the real possibility investors can experience a loss of principal.
DiversyFund does pay dividends at a rate of about 5% per year. However, those dividends are automatically reinvested back into the fund to improve the properties and their values to generate higher proceeds upon the sale of the investments.
DiversyFund should not be viewed as a source of steady income, nor as a source of funds for short-term needs.
Want to learn more? Check out DiversyFund's helpful site.
Fundrise does attempt to accommodate early withdrawals from your investment. However, those withdrawals must take place on a quarterly basis, and you are not eligible for withdrawals until after you’ve been invested for a minimum of 90 days.
If you do make a withdrawal within the first five years of your initial investment, you’ll be assessed a fee of 1% of the amount distributed. Withdrawals taken after five years are not subject to the fee.
Fundrise does warn that while investors are eligible for quarterly withdrawals, they’re not guaranteed. Withdrawals will only be permitted if there is sufficient free cash available to cover the amount withdrawn. They also warn that during business downturns, withdrawals may be limited or completely unavailable due to a reduction in new investments and a greater demand for early withdrawals by existing investors.
Want to learn more? Check out Fundrise's informative site.
Are DiversyFund and Fundrise Passive Income?
Investment funds are typically defined as either actively managed or passively managed. Active management refers to the fact that the managers of the fund actively manage the real estate investments within it. That includes buying, renovating, managing, and selling properties held within the fund.
This is similar to the difference between actively and passively managed mutual funds or exchange traded funds. Actively managed funds are those in which the fund manager buys and sells securities in an attempt to outperform the general market. Passively managed funds are those that are tied to an underlying market or industry index. They’re considered passive because the composition of the portfolio is designed to match that of the underlying index.
By definition, both DiversyFund and Fundrise are considered actively managed funds. The managers of each fund offered by either platform actively participate in the purchase, renovation, management, and sale of the properties held in the fund.
That said, the situation is different from an investor standpoint. As an investor, you will have no control over investment activities in the funds of either crowdfunding platform. You’ll purchase an interest in a fund offered by either platform, then receive a return in the form of either dividends or distributions of property sale proceeds. The investments will be passive because you won’t be personally involved in the investing activities of the fund you choose to invest in.
Looking for passive income ideas? Check out our 44 Ways to Earn Passive Income.
Summary: Is DiversyFund or Fundrise Better?
As real estate crowdfunding platforms go, DiversyFund and Fundrise are a pretty close match. Both focus on investing through proprietary funds, rather than individual properties. Each also has a low minimum investment level to accommodate more investors.
DiversyFund is designed more for the long-term investor, who is primarily interested in capital appreciation. Fundrise also focuses on the long-term, but they do provide investors with the ability to liquidate their investments early. With DiversyFund, you’re virtually locked into the investment for its entire term. But in exchange, it has a history of higher returns on investment compared to Fundrise, or with most other real estate crowdfunding platforms.
Fundrise is the better choice for investors looking for greater flexibility with their real estate investment. Not only does it give you the limited ability to withdraw funds from your investment early , but it also offers five different plan levels. With an investment ranging from $10 to as much as $100,000, you can choose the plan that works best for you.
You’ll also have an opportunity to decide if you want to invest for income, growth, or a blend of both. By contrast, DiversyFund doesn’t offer an income option since dividends are automatically reinvested back into the fund.
Since both real estate crowdfunding platforms provide somewhat different services for a specific type of investor, it’s not possible to say if one is better than the other. DiversyFund is the better choice if you are a patient investor primarily concerned with long-term capital appreciation. Fundrise is the better choice if you prefer to keep your investment options open, but also want better access to your funds early should the need arise.
Which real estate crowdfunding platforms are the best? Check out our complete list of the best real estate crowdfunding sites.