One of the most recent additions to my long list of investment tools is Fundrise – a platform that offers a low-cost way to invest in real estate through an eREIT. If you’re curious about Fundrise (and eREITs), you’ve come to the right place! Here’s my Fundrise eREIT review after three months of investing through this platform.
Personally, I’m a big fan of investing in real estate. There’s a reason that many wealthy people hold their equity in property. Although maybe not as fast, real estate provides a more consistent return than the stock market does. Just look at this comparison of real estate to stocks over the last 15 years.
If you’re looking for a consistent return on your investments, real estate is certainly an option worth considering. And, if you don’t have millions to invest, a great way to get started is through an REIT – particularly the Fundrise eREIT.
- Further reading: How the Fundrise eREITs made 13% last year
What is an REIT?
Before talking about Fundrise, let me briefly explain what an REIT (Real Estate Investment Trust) is, and how they work.
An REIT is a corporate entity (just like a LLC, Corp, etc), that is focused exclusively on real estate – either through the purchase of real estate itself, or through the sale of mortgages/notes used to purchase real estate. Anyone can setup an REIT as long as they have a minimum of 100 investors, with the top 5 investors owning no more than a combined 49% of the company.
The biggest benefit for investors in an REIT is that REITs must pay out 90% of their income to investors every year. While other types of businesses can keep money as cash, REITs must pay that amount back to investors. This means that, unlike stocks, you start earning back as substantial amount of your investment right away.
While REITs have been around for a while, the Fundrise eREIT is the first one to fully organize online and target smaller investors (with a minimum of just $1000 to get started).
My Fundrise Review eREIT
If you take a look at the Fundrise investment stats, you can see that the Fundrise eREIT outperformed the stock market last year.
And this makes sense. While the stock market can shoot up, it can also drop quickly. Meanwhile, real estate generally holds its value (although it isn’t free from risk).
For non-accredited investors who are interested in getting into real estate, Fundrise offers two tools: the Income eREIT and the Growth eREIT.
The Fundrise Income eREIT Review
The Income eREIT essentially consists of mortgages to developers. These loans are paid back on a monthly basis, meaning that the return is ongoing, steady, and consistent.
The loans are backed by the property (so Fundrise could acquire and sell the real estate if needed), but Fundrise’s strict evaluation process should vet out high-risk borrowers – making the investment relatively secure from the beginning.
Because this investment focuses on debt, the returns are stable and guaranteed. Additionally, investors can start expecting high payouts from Q1. By putting up money for developers, the Income eREIT receives stable, collateral-backed returns with a relatively low risk.Â
So, if you want a stable dividend-based income (10% annualized so far in 2016), the Income eREIT is worth looking into. It’s a great way to receive stable returns that can very likely be higher and more secure than other forms of investing.
The Fundrise Growth eREIT Review
For investors interested in a long-term investment, Fundrise has also developed a Growth eREIT. While the Income eREIT invests in notes, the Growth eREIT invests directly in commercial real estate.
The portfolio in this fund focuses on the purchase of high-potential commercial properties – anticipating that they will increase in value over time. Therefore, this strategy has a slightly higher risk level which could lead to a far greater payout in the end.
The Growth eREIT still offers quarterly dividends, but they will be far lower than the Income eREIT. Instead, investors can expect a large payout at the end of the investment when the properties are sold.
In fact, Fundrise promises to fine themselves (and pay up to $500,000 back to investors) if the Growth eREIT doesn’t earn a 20% annualized return by the end of the investment’s life-cycle. While this doesn’t guarantee a 20% annual return, it definitely means that Fundrise is optimistic about it.
If you’re planning for the long-term, the Growth eREITÂ is a tool that could help you gain substantially higher than average returns – while still maintaining a decent level of safety.
Is the Fundrise.com eREIT worth adding to your portfolio?
You’re the only person who can decide where to invest your money. It’s great to consider the views of others, but the buck stops with you.
Personally, I’ve been very impressed with Fundrise, their past returns, and their plans for the future. Real estate (including REITs) have been an investment tool of the wealthy for years, and I think it’s a great investment for anyone who can afford it.
Thanks to the $1000 minimum to invest in a Fundrise eREIT, the barrier to entry is relatively low. And so far, their returns have been great!
I’ve invested in both the Income and Growth eREITs by Fundrise. Although I don’t suggest making these eREITs your exclusive investment tools, I do think they’re a valuable addition to any portfolio. In my opinion, the stability of real estate without the headaches of managing your own tenants make the eREIT a very appealing purchase.
What are your thoughts?
Don’t work for your money, make your money work for you.
For the comments: Where do you invest your money? What are your thoughts on adding eREITs to your portfolio?
Hi Rob,
Thanks for the informative post. It’s an attractive alternative to the classic “do by yourself” real estate approach.
Where is this EReit located?
Would be interesting understand for how long you have to commit to the fund.
Great questions Rudy. The investments are commercial properties all across the country. The income REIT has multiple properties, the Growth eREIT just launched and currently consists of a 41-unit apartment complex in Denver.
With the income eREIT, the returns should start coming immediately – and it’s possible to sell your interest quarterly if you are interested in it. Meanwhile, the growth eREIT also allows you to sell quarterly with plans to start receiving substantial returns after about 5 years through the sale of properties.
You can learn a bit more by checking out the FAQs on the Fundrise website.
Interesting review. I also have some investments with Fundrise. REIT’s do have some disadvantages of course, mainly how to withdraw your investment money.
Fundrise seems to have a decent system for it so people don’t get completely screwed…but we’ll see when I try to get my money out some day.
lol. So far it doesn’t seem like a Ponzi Scheme (and it appears to be pretty well regulated/observed by the SEC), but we’ll truly know when we pull those investments out! Thanks for stopping by Eric.
Thank you for sharing your knowledge with us on REIT’s! We mostly invest in low-cost index funds, but hope to branch out a little more someday. My parents invested in REIT’s and lost $400,000 when the real estate market collapsed. They discovered the hard way, that unlike most stocks, REIT’s don’t recover when they go belly up. We will still be looking into REIT’s as a possible investment tool where the market is more stabilized, but it’s something we will need to keep in the back of our minds. Thanks again for the detailed post on how REIT’s work! – Mrs. FE
Oh no! That’s terrible. Hopefully they were able to recover a decent amount of their investment as the markets recovered (either from the REIT, stocks, or other investments). The 2007 bubble was definitely a bad period for a lot of people. It’s definitely important to keep an eye on each market, and real estate is on the higher end in many communities. However, I’m still of the opinion that a property that makes money as a rental will survive during a recession. After all, when markets drop, people stop buying and start renting – so your rental properties will continue to bring in cash. But you’re absolutely right – it’s important to be smart! Thanks for stopping by and sharing a not-so-good experience
Thanks for the review.
I’ve been contempating a venture fund debt investment back by multiple commercial real estate properties that pays a fixed 10% annual cash dividend. That product has limited liquidity as you need to wait until the fund refinances the construction loans before they pay back principle (3 to 5 years).
This might be a good alternative. I’ll take a closer look.
Fundrise is definitely a potential alternative that I am a fan of. But any direct real estate investment can be worth looking into as well. Either way, real estate is definitely worth looking into!
I hate all the politics.
Very interesting idea for investing. I’ll share with the hubsters and we’ll both look into this more in depth.
Great Barrie! It’s a fantastic investment tool – I’ve thoroughly enjoyed it.
I’ve never heard of this company. Thanks for sharing!
Gladly! It’s always fun to introduce people to new services/investment tools that I enjoy using myself. Thanks for stopping by.
This is great stuff. Thanks!
Glad you enjoyed the read! Thanks for stopping by.
That’s an interesting investment concept.
And it’s personally one of my favorites! Definitely check it out sometime.
They seem to have changed their site. I would like to invest directly in one of the eReits, but now all they seem to offer are portfolio choices where they charge a management fee for a mix of eReits. If you try to create an account, you are forced to choose one of these plans during the sign-up process. Is there any way around this?
It can be done, but it’s annoying. To add more to eREITs you are already invested in go here:
https://fundrise.com/account/portfolio
then click an eREIT you like and click “offering info” and look for the small text that says “direct investment”.
If you want to invest in other eREITS you have to find their offering page. Contact Support for details.