I Invested in Fundrise and Here's What Happened
I Invested in Fundrise 3 years ago just to test it out. I've loved my experience so much I decided to write about it. Here, I'll discuss everything I know about Fundrise, Crowdfunding, and any updates about the company and their projects.
This website may include affiliate links. All content is the opinion of the author and based on his personal experience and should not be construed as advice of any sort. This website is not owned or operated by Fundrise and in no way represents Fundrise in an official capacity.
Hi, I'm Eric Bowlin
I've been investing in real estate for over 10 years and currently own roughly 500 rental units. I've invested in everything from single family to 250-unit apartment buildings, mobile home parks, and mixed use properties.
I'm an investor, speaker, author, and founder of IdealREI.com, a popular real estate investing blog.
The Bottom Line
Fundrise is one of the only platforms to offer investments in real estate to NON-Accredited investors along with wealthier accredited investors. The only draw back is that it is a LONG-TERM and ILLIQUID investment.
I have averaged a 9.6% Cash return per year over the last 3 years. This return does not include any appreciation, just cash in my bank account.
If you're looking for a solid cash-flowing and long-term investment, you might want to check them out and set up an account. The funds they offer change over time, so go set up a totally free account and see what they currently offer.
Why Read This Fundrise Review?
I originally created an account and invested my first $1,000 with Fundrise back in April 2016. Originally, I was just testing it out but I honestly really loved it. Then, I wrote about it on my primary website IdealREI. But, It's been going so great I decided to set up my own website dedicated to my Fundrise investments.
I'm not sure if you're aware of it, but there were over 80 real estate crowdfunding websites back in 2017. Since then I'm sure the number has grown. Here's the problem - most review sites simply pick the ones with the highest affiliate payout and rank them.
Not only have I invested my own money in Fundrise, but I also created one of the most stringent sets of grading criteria on the web for crowdfunding platforms. This strict and well-documented methodology helps me avoid any potential conflicts of interest, and you can see the methodology with the link above. I have 11 overall categories and rank every company based on the information we have and weight the responses based on what we believe is most important.
It was totally a coincidence that Fundrise hit every criteria that I find important as a real estate professional which encouraged me to write about it. Now, I review a lot of the top crowdfunding platforms, but Fundrise wins, hands-down.
So, check out the criteria and read the review below about the company and how it stacks up against its competition. You can click on any link below to be taken to that part of the review.
Video Review of Fundrise
Fundrise - Intro to the Company
I can remember when Fundrise was actually created. It was a pretty big deal as they were one of the first real estate crowdfunding companies created after the JOBs act in 2012.
It became an even bigger deal after a year or so. You see, originally, it was for accredited investors only but then one day they began to allow unaccredited investors the opportunity to invest in commercial real estate. That's when I raised an eyebrow and took interest.
Since then, they have grown explosively and I think they are undoubtedly one of the, if not THE, biggest commercial real estate crowdfunding site.
Back when I started, the minimum investment was $1,000 but that has since dropped to $500. So, there is basically no reason at all why everyone can't invest.
Plus, they make it so intuitive that it's easier than investing in most mutual funds.
Investors can expect a quarterly dividend payment from the Fundrise eREITs and whatever appreciation has accrued when the assets investment term has expired.
There are currently 11 different eREITs. Each has a different investment objective along with different returns. Some are no longer accepting new investors because they are fully stabilized and operating.
They make the process easy. All you have to do is pick a strategy and Fundrise will distribute your investment across the eREITs to diversify the money and match your strategy. I'll get into that a bit more here shortly.
But, I want to take a moment to explain crowdfunding because you should understand it before you get into it.
What is Crowdfunding?
I can remember thinking about "crowdfunding" way before the JOBs act of 2012. It started when I really wanted to find more money for some of the deals I was working on. Since then I've used crowdfunding several times to fund my investments, and I love it even more.
The funny thing about real estate is that it's always so far behind other fields. While technology has dominated every other industry, most real estate is done the same way that its been done for real estate.
I never understood why a tech startup could find millions of dollars in funding overnight, but real estate was always a close-knit community for people who had to have an "in" or "connection" with the right people.
Anyhow, crowdfunding is a simple term used to describe how a property developer can raise capital for their project. A lot of investors can put in their money and split the profits based on the agreed upon split.
Fundrise and other companies like it are changing all that and opening things up for the average person. NOW, you can invest $500 into the same kinds of deals that huge developers have been investing in for the last 100 years.
It is a great place to start for new investors or for anyone looking to diversify out of the stock market.
Fundrise's Accreditation Requirements for Investors
When Fundrise was first started, it was only for accredited investors. Then everything changed when the SEC released Regulation A. As mentioned above, this made things available to unaccredited investors. Unfortunately, it was too complicated, expensive, and risky so most sites used Regulation D instead, which excludes unaccredited investors.
Then the SEC surprised everyone in March 2016 and released Regulation A+ which further simplifies the process for the unaccredited investors to invest.
That's when Fundrise jumped in head first and abandoned their project by project approach and created a fund based investing platform that they currently use.
Fundrise really has been the pioneer in this area and is the first company that I'm aware of to use Regulation A+ to bring online offerings to the masses.
How Does Crowdfunding Work?
Think about it this way - imagine that you find some great investment but can't afford to buy it on your own. You ask a friend and they are enthusiastic and will invest with you. You get to keep a small piece off the top, but the rest is split.
But, they don't have enough money either. So, you ask all your friends and family and eventually find enough money to buy it.
That's what crowdfunding is. It's just a way of pooling investment capital from a loot of people and then investing it. In this case, we're crowdfunding real estate.
The investors get paid monthly or quarterly as long as the investment is held. When it's sold, they get their principal back along with appreciation. At least, if they sell for a profit. If it's sold for a loss you won't get the whole principal back.
This is actually not new at all. It has been legal for a very long time but it was always done privately and not allowed to be done openly or with advertising.
Technically, pooling your money together with Fundrise is like purchasing a security (like a stock) so they are regulated by the SEC. In order to be compliant with the SEC regulations, companies such as Fundrise can use one of two primary ways to raise money.
But, before we get into that, you need to understand the meaning of an accredited investor:
WHAT IS AN ACCREDITED INVESTOR?
Real quick, just to define an accredited investor. It means you earned $200,000 ($300k if married filing jointly) in each of the last 2 years and reasonably expect to earn the same moving forward. The other way to be considered an accredited investor is to have over $1,000,000 in net worth, excluding your primary residence.
Crowdfunding With 506(c) For Accredited Only
Traditionally, investors could use a regulation known as 506(b) which allowed them to raise money from an unlimited number of accredited investors but also allowed up to 35 non-accredited investors.
The catch? You need to have a personal and substantive relationship with the deal sponsor. That's why you've probably never been asked to invest in one of these - you don't know any big name developers!
Once the SEC put out regulation D, it changed the rules and added a new exclusion called 506(c) which allows advertisements and general solicitation!
What a huge change!...the catch?
It's for accredited investors only which excludes maybe around 90% of the US population.
But, since it's cheap and easy, this is what MOST crowdfunding platforms use to raise capital including how Fundrise got started.
Regulation A+ For Non-Accredited Investors
The SEC also released Regulation A+ which is a big game changer as well. It allows the company to raise up to $50m to invest and can raise capital from non-accredited investors. The catch is there is a ton of regulatory costs involved
But, both accredited and non-accredited investors can participate. The only caveat is that a non-accredited investor is generally capped at investing up to 10% of their net-worth or their income, whichever is greater.
Now that we have explained crowdfunding and a bit about Fundrise and how it all works together, we're going to dive more into Fundrise and see how they fit in and are shaking up the crowdfunding space.
What is Fundrise?
Fundrise an investment service that allows you to invest directly in commercial real estate through the selection of one of their eREITs. You can choose a portfolio of investments, or allow Fundrise to do it for you, so you can meet your risk and investing objectives.
Their goal is to create a transparent marketplace to allow people to diversify into direct real estate ownership. Fundrise does it by bridging the gap between the investor and the developer.
How Does Fundrise Work?
Traditionally, you had to have a connection with a developer and that was the only way to get into real estate passively. If you wanted to be a developer, you had to have relationships with a lot of people with money.
Companies like Fundrise are changing that.
Fundrise currently has hundreds of thousands of members and they have invested in billions worth of real estate. They let you invest as little as $500 at a time into commercial real estate and you get to pick the allocation of the funds into different REITs.
But, I already mentioned that in this review of Fundrise, so, let's dive a bit into how they work for YOU.
I took the photo above because it illustrates how Fundrise is different. You can see how the portfolio is divided up and how it owns a variety of assets with different risks and return expectations. It also owns a balance of equity and debt.
By setting it up this way, it takes all the guess work out of investing. Just set some goals and let the system do the rest.
Are you ready to see how they do it? Continue reading this Fundrise review to find out.
What is Commercial Real Estate?
In case you weren't aware, there are 4 primary types of real estate - residential, commercial, land, and industrial. There are a lot of sub-types and it can be broken down any number of ways, but these are the generally accepted 4 main types.
Commercial is the most broad classification of real estate and there are possibly dozens of different types of commercial real estate within this category.
There are common ones such as multifamily, office buildings, retail plazas and malls. But, it also includes things such as mobile home parks and self storage as well.
Even though things such as multifamily or mobile home parts are used for residential purposes, they are considered commercial because the purpose for ownership is as an investment and not to live in.
In the United States, residential real estate is 1-4 unit properties and the primary purpose is for the owner to live there.
Why Invest in Commercial Real Estate?
One of the big things we need to cover in this Fundrise Review is why commercial real estate is a great long-term investment.
The biggest purpose to invest in real estate is the income. First of all, In CRE, the price of the investment is determined entirely on the income it provides and not based on nearby sales, not on what other properties are selling for.
The next reason is for appreciation. More specifically, what we called forced appreciation.
Since price income determines price, you can simply raise rents (or do improvements that allow you to raise rents) and then the property is worth more.
It's a great way to increase the value of your investment!
How Does Fundrise Find and Screen Deals?
Fundrise says that they accept less than 1 percent of all deals pitched to them, which is quite substantial being at over 250 submissions per week.
According to the Fundrise website, they have a very strict underwriting process that includes the following steps:
1) Sponsor Screening
The first thing they look at is the company and the sponsors. They look only for companies that are well capitalized and have a history of success in top US markets. They claim that only 25% of sponsors move beyond this step.
2) Initial Project Due Diligence
Fundrise is focused on short-term projects that last 1-3 years. Their preferred structure is Senior Secured Debt, Mezzanine Debt, or Preferred Equity. Fundrise investors are senior to the sponsor and "Fundrise investors must get paid back their principal and any owed returns before the company is able to realize any profits."
3) Detailed Underwriting
If the sponsor and project meet the Fundrise requirements, it moves on to the detailed underwriting. The Fundrise underwriting team completes an extensive analysis and review of all these points. The total underwriting checklist contains more than 350 different data points.
I was originally going to include a list of some of the underwriting criteria, but instead I found a cool video and linked it above. Check it out!
4) Purchase by Fundrise
So Fundrise actually funds the deal before putting it on the platform. By pre-funding the deal, they take on a large amount of risk that this project will be good and investors will want it.
How to Invest With Fundrise - You Choose
The key to Investing with Fundrise is that you are actually investing in a bundle of real estate deals. You do it on their revolutionary real estate platform which is so similar to other more traditional platforms that it will be super easy for most people to just jump right in.
Simply put, you pick the broad investing objectives and the Fundrise algorithm helps choose how to allocate your money based on thos objectives..
Look at the picture below - you'll see that youre options are broken down into "high income, balanced, and growth".
Choosing an Investment to Crowdfund with Fundrise
Continuing on with the Fundrise Review...
There aren't a lot of options for YOU to choose, so how do you get diversification?
Fundrise does it for you on the back end because it's fully automated. Actually, Fundrise currently has 11 REITs and your money will be divided between them based on the option you choose.
For simplicity, let's say that Fundrise has two REITs - an income one and a appreciation one.
- If you're focused on income, maybe your money goes 90% income and 10% appreciation.
- If you want growth maybe it's 90% growth and 10% income
- If you choose balanced, maybe it's 50/50
Obviously, it's a lot more complicated when there is roughly a dozen investments, so the allocation will be much more diverse. But, you should be able to see the point I'm making.
We keep talking about the REITs you're going to be investing in, so let's take a moment to explain it a bit more
Fundrise eREIT Review
A Real Estate Investment Trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. - Wikipedia
a REIT has a lot of requirements in order to qualify and it needs to distribute 95% of its taxable income to the shareholders. There are also different types of REITs, such as a publicly listed REIT, non-listed REITs. These eREITs offered by fundrise are non-traded REITs as they are not listed or traded on the stock exchange.
According to FINRA, there are a number of risks associated with non-traded REITs, the biggest of which is that it can be very difficult to get your principal back. Other issues are potentially high fees, especially on the front-end and a limited secondary market to sell your shares. In fact, you can read a very scathing review of non-traded REITs if you'd like.
So I decided to do a bit of digging on this eREIT. I was able to pull up the offering circular on the SEC website. Wow, what a hard document to read!
The first thing I wanted to investigate was the fees. Here is a quick breakdown of the fees I was able to find:
Fundrise eREIT Fees
- Manager - Offering costs of $1,000,000 or roughly 2% f money raised
- Acquisition/Origination Fee - Manager - 3% of the amount funded. Paid by borrowers and not by the Fundrise investors
- Reimbursement of Acquisition - Manager - Only if not reimbursed by the Borrower - Amount Unknown
- Asset Management Fee - 1%
- Servicing Fee - 0-0.5% * This is the fee that may be waived if underperforming
- Special Servicing Fee - 1% of non-performing assets
- Other Fees - Unknown
- Commissions - There appears to be no commissions
(These are the fees I found on the INCOME eREIT. Fees may be different in each eREIT.)
Redeeming Fundrise eREIT Shares
Fundrise will only redeem a certain amount of shares per quarter. It makes sense if you really think about it because they don't want to suddenly have to start liquidating their real estate holdings to pay back investors.
If they redeem the maximum quantity in a given quarter, you'll get in line to get a redemption in the following quarter.
The real kicker is that you will get a penalty if you redeem before the eREITs closing date and it varies from 3 and 5% of the share price.
- Less than 6 months - No Redemption Allowed
- 6 Months to 2 Years - 95%
- 2 to 3 Years - 96%
- 3+ Years - 97%
One thing you need to be aware of is that Fundrise only estimates the value of your shares and that's not necessarily the real value. It's just their best guess.
Upon purchase, each share is worth $10, but that can easily go up or down based upon their valuation.
What Offerings Does Fundrise Have?
Like I mentioned earlier in this Fundrise Review, they are unique in the fact that you don't choose the specific projects, you choose your allocation in various funds.
Here is my actual allocation at the moment I'm writing this. This will change because I have reinvesting turned on, so every quarter my dividend is reinvested which changes the allocation every quarter.
Fundrise vs Other Crowdfunding Sites
It's fairly obvious that Fundrise is a legit company, especially since I've been getting paid every quarter for 3 years now. So, the question is HOW does Fundrise compare to their competition? Even if Fundrise is good, maybe some other company is better.
A couple years ago I created an 11 point grading criteria to compare all the real estate crowdfunding companies that I could find. Here they are along with How Fundrise Stacks Up:
- Is Fundrise Available in all 50 states? - Yes
- Do they prefund deals? - Yes
- Fees? - Approximately 3%
- Minimum Investment? - $500
- Co-Investing? - Unknown, but most likely not
- Bankruptcy Protection? - Yes
- VC Funding? - Yes
- Non-Accredited Investors Allowed? - Yes
- Diverse Property Types? - Yes
- Equity Investments? - Yes
- Debt Investments? - Yes
Fundrise used to be tied in first place, but now their competition has gone bankrupt, leaving just Fundrise to hold the coveted top spot. While they do hold the #1 spot, I have given a 5-star rating to the top 5% of companies.
Here are Fundrise's 5-star competition.
This platform was founded in 2013 and is for both accredited and unaccredited investors.
Realty Mogul tends to invest in apartment buildings, retail centers and class A office buildings. The minimum investment amount is $1,000. They offer both debt and equity investments and have what is called “private REITs” which are similar to REITs sold on the stock exchange.
To date, they have over 130,000 investors, borrowers and sponsors. Realty Mogul has provided financing to over 135 properties and loans amounting to $280 million.
Equity Multiple is focused in bringing institutional grade investments to average investors. So, very large apartment complexes, retail centers, office buildings, etc.
The minimum investment is between $1,000 and $5,000 generally, but it varies by deal.
Fundrise Review Summary - The Good
What I like about Fundrise.
- Seemingly lower fees than traditional real estate investing.
- I am impressed by the website, layout, and utter simplicity.
- I love how you can reinvest dividends.
- It's great that you can pick a strategy based on your risk tolerance and investing goals, then Fundrise does the rest.
Review of Fundrise - The Bad
- I wish there were more offerings to choose from, or that they came along more often. You're limited to the funds they have available.
- It would be great if they brought back individual deal crowdfunding.
- No reason to have a penalty for withdrawing after 5 years in my opinion.
Frequently Asked Questions About Fundrise
I get emails and comments all the time about my Review for Fundrise, here is a compilation of the most common ones.
What is the Minimum Investment With Fundrise?
The minimum investment used to be $1,000 but they recently moved it down to only $500. In fact, you can invest with your IRA or 401k as well.
My favorite feature is being able to turn on auto-investing so every month you deposit more into the fund and you can really watch your investment grow.
What Kind of Returns Can I Expect With Fundrise? What Are the Dividends?
I put it right up top. I've earned between 9% and 11% per year which has averaged to around 9.6% since I started investing with Fundrise in 2016. It's been over 3 years and it's been remarkably stable, but your results may be different than mine.
For example, if you invested $1,000 and left it in there for exactly 3 years, you'd have somewhere between $270 and $330 in profit, assuming you don't reinvest the dividends.
If you reinvested the dividends that number would be higher.
How Much Should I Invest in Fundrise?
Unfortunately, I cannot give specific investing advice. Plus, every person is very unique and has a different situation and financial goals.
In general, I invest no more than I'm willing to lose entirely. Remember, all investments are risky so you always need to be prepared to lose.
The SEC says that you should not invest more than 10% of your income or net-worth (whichever is more). In fact, they made that the law so companies cannot take advantage of lower-income individuals.
Honestly, it's a great rule and great advice. If you cap your risk at 10% of your total net worth, then you can't be wiped out if one thing goes bad.
Is Fundrise a Scam? Can I Trust Fundrise?
I guess anything is possible, but I don't believe it is. I invested back in 2016 and have received my dividends every quarter.
Additionally, regulation A+ is pretty strict and has a lot of government oversight. This should (hopefully) help us avoid any big ponzi schemes.
I've watched as Fundrise went from a small company to the cornerstone of the real estate crowdfunding space. It is now the most well known real estate crowdfunding site in the USA
A cool thing I've been able to do is speak and engage with some of their team over the years. It's always been the same people so there is not a lot of turnover of personnel.
So, I believe that NO, Fundrise is not a scam. I'm not part of the company in any way and couldn't truly know, so it's only my opinion based on what I've seen.
I haven't lost money, but all investments can lose money and you could lose money. But, even if you did lose money that doesn't make it a scam.
Can I Withdraw My Money Once I Invest in Fundrise?
Yes, of course! But there are some caveats.
Fundrise pools your money to invest in things from loans to actual real estate. So, you own a tiny fraction of a lot of different investments.
The point of explaining that is for you to understand that real estate is NOT a liquid investment. You can't sell your portion of the real estate. Instead, Fundrise needs to use cash on hand to reimburse you. If they don't have cash on hand, you can't get your money back until they do.
So, it's not guaranteed you'll get your money back whenever you feel like it.
Instead, Fundrise offers a redemption period every quarter, but they are not obligated to fulfill every request. Additionally, there are fees to do it.
From my understanding, they've been able to honor every request for withdrawal to this point, but that doesn't mean in the future every request will be met.
The best thing for you to do is to read the offering curricula for each fund you want to invest in, and see what the withdrawal and fee schedule look like.
How are Fundrise Dividends Taxed
I receive K-1's and 1099s from them every year. (Note, I am not a CPA and cannot give accounting or tax advice)
Your K-1s are for your ownership portion (equity) and you get allocated any depreciation or other expenses that are afforded to business owners. You are a Limited Partner, so they are considered passive losses if you have losses.
You are taxed on this the same way you are taxed on other business income. Any portion of your income due to the sale of real estate will be taxed based on length of ownership and taxed as capital gains
My 1099's are from loans that Fundrise does with my money. These are taxed as ordinary income.
How Often Does Fundrise Pay Dividends?
I receive dividend payments from Fundrise every quarter.
Which Fundrise Plan is Best?
Oh, I wish there was an answer to this. It really depends if you want growth, income, or a balanced approach.
What if Fundrise Goes Out of Business?
Yea, that would not be fun! Fortunately, Fundrise does have a bankruptcy plan in place and a company would step in to operate the funds and wind down any assets still owned.
The great part is your investment and their operations are totally separate. So their bankruptcy shouldn't seriously impact your investment.
You've Read the review
The only way to know for sure if you're going to like it or not, is to set up an account for free and see what they are offering. If you don't do that, then you'll simply never know.