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 Review of the Fundrise 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.
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 eREIT 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?