What is Fundrise?
Fundrise is our favorite real estate crowdfunding platform for beginners. Founded in 2012 in Washington, D.C., the company allows investors to access the opportunity to invest in low-cost, diversified portfolios of institutional-quality real estate. Through Fundrise, you can invest in both commercial and residential properties, and you can get started for as little as $10.
Unlike some other real estate crowdfunding platforms out there, you can work with Fundrise whether or not you are an accredited investor. Beyond simply granting access to the opportunities within the world of private real estate, Fundrise stands apart with technology that is designed to keep costs low while maintaining transparency.
Fundrise Pros and Cons
Every financial service has advantages and disadvantages. Here's what you need to know about Fundrise.
Pros
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Transparency. Fundrise provides extensive material to ensure you can understand exactly what you are investing in.
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Passive income stream. An investment with Fundrise could lead to dividend payments that supplement your income over the long term.
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No accreditation requirements. You won't have to meet any accreditation standards to work with Fundrise.
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90-day introductory period. You can choose to pull your investments out within the 90-day intro period without a penalty.
Cons
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Illiquidity. You should be comfortable with locking up your funds for an extended period of time. It may take months to navigate the sale request process.
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Tax issues. There will be a variety of tax forms that you'll need to consider when working with Fundrise.
How does Fundrise Work?
Once you've set up your account, Fundrise will ask you a series of questions to determine your goals. With that information, Fundrise will be able to design a portfolio of projects that may be a good fit for you.
As your investments grow, you can manage your account easily through your dashboard. The dashboard will allow you to stay up to date on project information, review your returns, set up future investments, and more.
How to Invest in Fundrise
Your account level with Fundrise will be determined by the amount you have invested. There are five different levels of investment to choose from. As you invest more money with Fundrise, you'll advance through the tiered level system. But you won't have to pay more in fees as you move up this ladder.
Starter
You can access the starter account level with as little as a $10 investment. Although you'll have the ability to invest, the other account features are somewhat limited.
Essentially, you'll be able to set up an auto-invest feature. But you won't have access to potential IPOs, the investment goal framework, or the option to invest through an IRA.
Basic
The basic account requires a minimum investment of $1,000. You'll unlock a significant upgrade from the starter level. A few of the features that make the basic account more worthwhile include the ability to create and manage investment goals. Plus, the ability to invest through an IRA.
Core
The core account level offers a step up in quality along with the increased minimum investment requirement of $5,000. At this level and above, you'll be able to choose an investment plan that best suits your needs. There are three different investment plans available. (These are outlined below)
Advanced
Advanced users will need to have a minimum investment of $10,000. At this level, investors receive access to almost all of the features that Fundrise has to offer. You'll be able to invest through an IRA, select your investment goals, use standard investment plans, and have the option for direct investments in eREITs.
Finally, you would receive access to Plus plans. These special plans are designed to include more sophisticated real estate strategies in your portfolio.
Premium
The top-level available through Fundrise is for premium users. You'll need a minimum investment of at least $100,000 to join these upper ranks.
If you choose to invest at this level with Fundrise, you'll receive everything that is available in the Advanced level. Additionally, Fundrise will provide you with priority support. With that, you'll be able to schedule calls with team members and specialized investment options with longer time horizons.
Options Within the Core, Advanced, and Premium Plans
The core, advanced, and premium account levels each include access to the three investment plans outlined below. If you stick with the starter or basic levels, you won't be able to choose a standard investment plan.
If you advance to the core, advanced, or premium levels, it is a good idea to carefully consider these choices before diving in.
Supplemental income. If you are looking for a way to boost your income over time, this is the appropriate option offered by Fundrise. The portfolio is designed to produce consistent returns over time, even at the expense of a lower total potential return.
Long-term growth. If you are less concerned with an income stream and more interested in long-term returns, then this is the option for you. Although you may not see high returns at first, the properties are chosen to produce the highest returns in the long term.
Balanced investing. Want to strike a balance between these two different goals? The balanced investing plan is set up to help you enjoy an income stream without giving up the possibilities that come with long-term growth.
Although you are able to make changes to your investment plan preferences in the future, Fundrise will not rebalance your existing portfolio. Instead, a change in your investment plan will change the course of your future investments.
Fundrise Returns
As you choose your investments, there are two ways in which you may see a return.
First, you may receive dividends on a regular basis with a portfolio of properties that produce a reliable cash flow. The second opportunity for a return is appreciation or the increase in a property's value over time.
As a platform, Fundrise provided an overall return of 7.42% in 2020. Since its inception in 2014, the platform's portfolio has provided an average annualized return of 10.11%.
Does Fundrise Pay Dividends?
Fundrise does provide dividends to its investors. The frequency of your dividend payments will depend on the eREIT you choose to invest in.
It is worth noting that you may receive smaller dividends if you choose the Long-Term Growth Plan. Although you will likely receive some dividend payment, it will not be as substantial as the dividend associated with the Supplemental Income Plan which is designed to maximize investor dividends.
Fundrise's Fees
As you invest with Fundrise, it is important to be aware of the fees involved.
The first fee you will encounter is the 0.15% annual advisory fee which is a result of Fundrise managing your account online. Additionally, you'll find a 0.85% annual management fee for managing the real estate funds available through Fundrise.
You won't have to worry about any transaction fees or sales commissions. However, you may run into development or liquidation fees for a particular investment.
How to Sell Investments on Fundrise
The downside to working with Fundrise is that you'll encounter a range of limitations when you want to sell your investments. You can not withdraw funds on demand.
Typically, Fundrise allows investors to withdraw four times per year. To withdraw your funds, you are required to submit a request and then you can usually get your money out during the next quarterly withdrawal period -- the company reserves the right to restrict withdrawals during unusual circumstances.
Also, plan to hold onto any Fundrise investments for at least five years. If you sell before the five-year mark, then you may run into a penalty. The penalties range from 1% to 3%. But if you hold your investment for at least five years, you'll be able to redeem the full value of your investment without any penalty fees.
The only exception to this general rule is if the investment you've made is still within the 90-day introductory period. If so, you will receive a redemption of the full purchase price without any penalties.
You can track the expected review date within your Fundrise dashboard. Once approved, the funds will be delivered to you within 3 to 5 days.
Who can Invest in Fundrise?
In order to invest with Fundrise, you'll need to be a U.S. citizen or permanent resident that is over the age of 18. You do not have to be an accredited investor to work with Fundrise.
How is Fundrise Taxed
You'll encounter different tax consequences based on your unique investment choices.
If you are receiving ordinary dividends, this money will be taxed as ordinary income. If you are receiving qualified dividends, these are taxed at the long-term capital gains rate. Currently, Fundrise provides ordinary dividends.
Additionally, any appreciation of the property may not be immediately taxable. Instead, you will be liable for taxes for appreciation when you choose to sell your shares.
Is Fundrise Legit?
Yes, Fundrise is absolutely a legitimate company. The entity regularly files reports with the Securities and Exchange Commission. With that, you can dig into the financial details of the company easily. Additionally, the company has earned an A- score from the Better Business Bureau.
Who is Fundrise Best for?
Fundrise is best for an investor that is interested in tapping into the potential rewards of real estate without diving into an investment property on your own. Instead of taking on the risk of investing in individual properties, you'll share the risk with other investors.
Additionally, you won't need access to a large amount of capital. You'll be able to start enjoying the benefits of real estate investing with just $500.
Summary
Fundrise is a real estate crowdfunding platform that allows investors to access the opportunity to invest in low-cost, diversified portfolios of institutional-quality real estate.
With the help of Fundrise, you can tap into the potential rewards of commercial and residential properties with relatively small upfront investment. As your portfolio grows, Fundrise provides the resources you need to continue building a successful real estate portfolio with their assistance.
