Fundrise ReviewReal Estate
- Basics: Fundrise is a real estate investment platform that lets anyone with at least $500 invest in large real estate projects such as apartment buildings, commercial properties, and development deals.
- Pros: Fundrise provides its investors with a beautiful platform in which they can get the nitty-gritty details of all the real estate deals they're invested in. Also, in my experience, Fundrise returns have outperformed those of publicly-traded REITs.
- Cons: Your Fundrise investment is not very liquid, and the 1% annual fee may sound steep to value-oriented investors. Returns may not beat the stock market.
- Minimum Investment
1% of invested capital
- Accreditation Required
Not for most investments
- Lock-Up Period
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A few years ago I invested $500 into Fundrise, and in this Fundrise review I’m going to tell you what Fundrise is, how Fundrise investments work, how my Fundrise investment performed, the pros and cons of Fundrise, and more.
But first, let’s start with the basics: What is Fundrise?
What Is Fundrise?
Fundrise is an online real estate investment company founded in 2010.
It allows beginner and advanced real estate investors alike to invest in what Fundrise calls “institutional-quality real estate deals.”
Examples of these deals include — and these are actual investments in my Fundrise portfolio — a rental home community near Dallas, an apartment renovation in Northern Virginia, and a commercial redevelopment in South Los Angeles.
Who Can Invest in Fundrise?
Fundrise investments are available to U.S. citizens aged 18 or older.
For most Fundrise investments — such as the Starter Portfolio, for instance — you do not need to have a certain level of wealth or income.
However, some of Fundrise’s investments do require you to be an accredited investor, but those are far and few between.
How Much Do I Need to Invest in Fundrise?
The minimum investment to invest in the Fundrise Starter Portfolio — while I will describe in more detail later in this article — is $10. It used to be $500 when I got started with Fundrise.
How Do I Make Money With Fundrise?
Your investment in Fundrise increases in two ways:
- Dividends: Fundrise distributes to its investors a portion of the cash flow and capital gains earned on the real estate deals it invests in.
- Appreciation: As the real estate that Fundrise owns goes up, the value of your investment goes up as well.
Fundrise Review Video
|Annual Fees||1% of invested capital|
|Accreditation Required||Not for most investments|
|Lock-Up Period||5 Years|
|Property Types||Residential and Commercial|
|Project Types||Renovation, Development, Financing|
|Regions Invested In||East Coast, West Coast, and "Heartland"|
|Tax Document Provided||Form 1099-DIV|
|1031 Exchange-Eligible||No; REIT stock does not qualify for 1031 exchange|
|Office Hours||M-F, 9AM-5PM|
|Support Email||[email protected]|
|Mailing Address||11 Dupont Circle NW, Suite 900, Washington, DC 20036|
How Fundrise Investments Work
Money you deposit into Fundrise is automatically invested into multiple eREITs — “e” as in “electronic” and “REITs” as in real estate investment trusts.
Now, “eREIT” is not a technical term — that’s just what Fundrise brands their REITs as to sound cool and futuristic and communicate to you by the name that now you can invest in real estate from the comfort of your own home.
I’m sure the concept of “electronic” is simple enough to you, but what is all this REIT business?
What Is a REIT?
A REIT is a special type of company that gets tax advantages if it pays out at least 90% of its taxable income to its shareholders as dividends.
Keep in mind that dividends from a REIT are generally non-qualified dividends that are taxed at your normal, regular income tax rates — not the special, lower tax rates for qualified dividends and long-term capital gains.
Yes, there are many publicly-traded REITs that you can buy shares in through any brokerage app.
Fundrise, on the other hand, is a non-traded REIT.
If I Can Buy REITs Anywhere, Why Should I Invest in Fundrise?
So what’s the benefit of Fundrise then vs. normal, old publicly-traded REITs?
Well, the primary differentiator in my opinion is that with Fundrise, you get a lot more information about the specific deals you’re investing in.
You can access a summary for each deal you’re invested in that includes:
- An extensive write-up on the investment
- A matrix showing the risk-return profile of the investment
- The investment’s business plan
- The reasons why Fundrise chose to invest in this particular deal
You can go to the 4:37 mark of my Fundrise review video on YouTube to see an example of this summary for an investment in a rental home community in dallas.
With a publicly-traded REIT, on the other hand, the best you can hope for is some summaries in the annual report and maybe a press release every now and then.
But of course simply having a beautiful platform that keeps investors well-informed isn’t the only thing one should look for in an investment platform.
So how has Fundrise performed historically?
My Fundrise Investment Performance
Well, on December 30, 2017, I invested $500 into the Fundrise Starter Portfolio.
So what is my Fundrise investment worth today? $646.28.
That’s the initial $500 investment plus $101.75 in dividends plus $46.75 from capital appreciation less $2.21 in advisory fees.
So the total return on my Fundrise investment over the past little over three years is about 29%, which comes out to 8.4% annualized that’s about 8.4%.
So that’s not bad.
Fundrise vs. Stock Market Performance
But what if we compare Fundrise performance vs. stock market performance?
What if we had invested $500 in an S&P 500 index fund — say the Vanguard S&P 500 ETF (VOO) — on December 30, 2017? How much would I have today?
Now, you might be tempted to just look at today’s stock price of VOO and compare it to the stock price on December 30, 2017, but that wouldn’t tell you the whole story since that calculation would not include reinvested dividends.
Fundrise reinvests the dividends received into the Fundrise investments, so to do a true apples-to-apples comparison here, you have to compare the total return of VOO, including reinvested dividends, assuming a $500 investment made on December 30, 2017.
Well, I used the Don’t Quit Your Day Job ETF Total Return Calculator to run this math, and it told me that if I had invested $500 in VOO on January 2, 2018 — which was the first trading day after December 30, 2017 — and reinvested all dividends, that investment would be worth $776.04 on February 16, 2021. That’s an average annual return of 15.1%.
This is $129.76 more than a $500 investment in Fundrise on the same date.
Now, the stock market has obviously been on a tear for a while now, so I don’t want to say that the S&P 500 will always outperform the Fundrise Starter Portfolio.
That’s not my point.
My point is that sometimes — as in this particular scenario — a good old-fashioned S&P 500 index fund might do you better than some newfangled investment product.
Is This Comparison Fair?
Now, I know what you’re thinking: “Logan, that comparison you just made isn’t fair.
“It’s not fair for you to compare a real estate investment to an S&P 500 index fund that is heavily weighted toward high-flying tech stocks like Apple, Amazon, and Tesla that has been in a booming bull market for the majority of the time period in question here.
“You have to compare apples-to-apples,” you continue, to which I respond, “Look, you’re completely right — if you’re somebody who already has a diversified stock portfolio and simply wants to gain some exposure to real estate. In that case, then of course, I’m comparing two different asset classes here. But if you’re just somebody who has $500 to invest and you’re just looking to invest in something to put your money to work for you, I would objectively say that investing in an S&P 500 ETF like VOO might be a better investment for you in the long run.”
That said, valuations of certain tech stocks are very high right now. Is the stock market due for a big correction sometime soon? Maybe! We’ve been waiting for one for a while now.
And at that point, sure, maybe Fundrise will outperform the S&P 500 for a time.
Over decades and decades and decades though, I’m not so convinced. But this is really all speculation at this point because no one knows the future.
Fundrise vs. REIT ETF Performance
However, to be fair, let’s look at Fundrise’s performance vs. that of various REIT ETFs.
The results of this comparison actually shocked me.
My $500 investment in Fundrise actually outperformed all of the REIT ETFs I ran through the same total return calculator I used above.
Fundrise’s annual fees come out to 1% of your investment balance, broken down into two components: a 0.85% asset management fee and a 0.15% advisory fee.
Fundrise Asset Management Fee
According to Fundrise, the 0.85% asset management fee “goes toward the ongoing operating expenses of the 100+ real estate projects in our investor portfolios. These expenses can come in the form of things like project-specific accounting, zoning, and construction.”
This fee is charged at the REIT level — kind of like the expense ratio of an ETF — so you won’t see it directly in your account.
It’s already baked into the value of your REIT shares.
Fundrise Advisory Fee
Then there is this 0.15% annual account-level advisory fee that you do see reflected in the account balance.
This is essentially an administrative fee at your account level for managing your real estate investments.
Fundrise Fees vs. Vanguard Fees
Now, here’s the part that kind of ruffled my feathers a little bit.
In this article, Fundrise kind of dogs on Vanguard’s fees, saying:
Fundrise charges investors a small fee for our unaccredited investor offerings — 0.15% in annual advisory fees, to be exact. This means that over a 12-month period, you will pay a $1.50 advisory fee for every $1,000 you’ve invested with us. For the sake of comparison, Vanguard’s famously-low advisor fee is 0.3%…Our obsession with doing everything ourselves, rather than relying on a bloated list of third-party service providers, necessitates that we charge the annual advisory fee — but it’s also the main reason why our annual advisory fee is so low. Even Vanguard’s fee is twice as large — an amount they refer to as “an incredibly low cost for a service.”
In my opinion, there are a few things unfair about this statement.
First of all, Vanguard’s Personal Advisor Services provide a different level of service than Fundrise does.
Now, just so you’re aware — so we don’t have any confusion here — you can invest in Vanguard index funds and ETFs and not pay the 0.3% advisory fee referenced by Fundrise.
However, if you want to sit down or have a call with a Vanguard financial advisor who will sit down with you, discuss your goals, and rebalance your portfolio quarterly, you can sign up for Vanguard Personal Advisor Services and pay a 0.3% advisory fee.
Is this a high level of financial service?
No, it’s not, and it’s probably something that can be approximated by a robo-advisor.
But still, it’s a personal service, it’s in the name, personal advisor services. And that’s what you’re paying this 0.3% annual fee to Vanguard for if you so choose to use their Personal Advisor Services (which I personally do not).
But for the Fundrise 0.15% advisory fee, do you get any kind of this personal service, so it’s apples-to-oranges for Fundrise to say, “Ah, our advisory fee is half of Vanguard’s!”.
You don’t get any personalized service with Fundrise for the 0.15% advisory fee; it’s just another administrative fee.
Also, if you invest in Fundrise as a non-accredited investor, you can escape paying neither the 0.15% advisory fee nor the 0.85% asset management fee; you’re paying 1% of your asset value, period.
With Vanguard, you can choose to not use their personal advisory services and just invest in their index funds and/or ETFs and your expense ratio will be something like 0.1% on average.
Or with Vanguard can pay for the Personal Advisor Services for 0.3% a year, making your total “fees” with Vanguard (even with the Personal Advisor Services) something like 0.4% annually, which is sixty percent less than Fundrise’s fees.
So what’s my point? Are Fundrise’s fees outrageous? No, not by a longshot.
But the way they present their fees in this article — trying to make themselves sound like fee-wise they’re less expensive than Vanguard — is misleading in my opinion.
Fundrise’s fees are not high, but Vanguard’s are lower.
How to Withdraw Money From Fundrise
One major drawback of Fundrise is that your investment is not very liquid meaning that once you’ve invested money in Fundrise, you can’t easily withdraw your money for five years.
In fact, Fundrise makes it pretty complicated to withdraw funds from your Fundrise account.
In this article, Fundrise says:
To withdraw funds from your account, you will have to request to redeem your shares from the settings section of your dashboard. During the request process, you’ll find information about the expected timeline and totals. Keep in mind that any eREIT or eFund shares that you’ve held for less than five years may be subject to a penalty. After you submit your request, you can follow along with the status of your redemption request on the transactions page of your dashboard.
Now, this doesn’t raise any red flags or anything — this is actually quite common when it comes to non-publicly-traded real estate investments — but it just goes to show how illiquid a Fundrise investment is, especially compared to an ETF that you can sell on Monday and have the funds in your bank account later that week.
The Fundrise Starter Portfolio
Now that we’ve covered the basics of Fundrise, let’s talk about the specific Fundrise portfolios.
You don’t need a lot of money to start investing in attractive real estate portfolios with Fundrise.
With multiple investment tracks to choose from, you’ll get full control of your real estate investments and the expert advice from the team at Fundrise.
Start Investing With as Little as $10
By far, the most popular Fundrise investment plan — and the one you can invest in with only $10 — is the Starter Portfolio.
This is the investment plan that requires a minimum of $10 to start investing, meaning this plan is extremely accessible for new real estate investors.
Other platforms feature minimum investments such as $10,000 or $15,000 but with Fundrise, all you need is $10.
Aside from the incredibly low initial investment amount, Fundrise offers two features that are also unheard of in real estate investing.
First is the 90-day satisfaction period.
If you’re not completely satisfied with your investment, just let Fundrise know within the first 90 days and they’ll buy your original investment back for its original amount.
What other platforms offer a risk-free real estate investment option?
Fundrise is extremely investor friendly and is a great platform for new and rising real estate investors.
Optional Upgrade to Premium Plan
The second incredible feature that the Starter Portfolio offers is the option to upgrade to a premium plan for free.
Once you’ve invested a minimum of $1,000 with Fundrise through the Starter Portfolio, you can upgrade to one of the previously mentioned plans absolutely free.
The Starter Portfolio is a smart option for anyone new to real estate investing that doesn’t have a large amount of cash up front.
Starter Portfolio Returns
The Starter Portfolio offers impressive annualized dividend yields, currently sitting at 6.32% annually.
Private market real estate investments outperform public income-focused investments, and when compared to public bonds like the Vanguard Bond Fund, the Starter Portfolio from Fundrise more than doubles the annualized dividend yields.
The Fundrise team has more than 48 real estate projects across the country, so whether you’re investing in the starter portfolio or the long-term growth plan, you’ll have access to the same high-quality real estate investment options as everyone else on the platform.
Fundrise Advanced Portfolios
In addition to the Starter Portfolio, Fundrise also offers advanced portfolio options.
Supplemental Income Plan
If you’re looking for supplemental income, Fundrise has an investment plan that creates a consistent income stream.
The supplemental income plan features properties that are tailored for growth and innovation in order to increase the investment returns over time.
Currently, the annualized investments average around 10%, and consistent income is generated when the property management team collects rent or interest payments on the property.
Through high dividends and attractive total returns, this plan can build an attractive stream of steady income that you can use for yourself and your family.
The balanced plan builds wealth through diversification and has a nice balance of dividends and appreciation for a very high rate of return.
The plan boasts 98 active projects which creates a truly diverse real estate portfolio.
Currently, the annualized returns sit around 12%, with the portfolio balanced between debt and equity real estate assets.
If you don’t need access to your investment returns quickly, the balanced investment plan is an excellent option.
If you’re interested in maximizing the total return on your investment, the long-term growth plan is right for you.
With over 100 active projects, the long-term growth plan focuses heavily on equity-based real estate investments.
Most of the realized gains come at the end of the project when the asset is sold, but the longevity of the investment means a much higher return than on shorter investment periods.
Long-Term Investment Plan
The long-term investment plan has returns capping around 12.5% annually.
Featuring a low rate of dividends and high appreciation, the long-term growth plan has proven to provide consistent returns over a long investment period, typically 20 years or longer.
Who is Fundrise Good For?
While Fundrise is an attractive real estate investment platform for many, it isn’t for everyone.
Good for Those with a Long-Term Vision
Fundrise is best for investors interested in long-term gains.
These investment opportunities are not liquid, so if you have to access your investments early, you may end up paying additional fees and penalties for accessing the funds prematurely.
Most of the investment plans are constructed to be held for a minimum of 5 years, but you’ll want to hold on to them for much longer in order to see real returns.
On each of the investment plan pages, Fundrise has a return estimate calculator so you can see how much you’ll get back on your investment by holding onto it longer.
Good for Those Who Want to Diversify Out of Stocks
Fundrise is also ideal for investors who want to add diversity to their portfolio outside of traditional investment options such as the stock market.
These private real estate investments are not tied to the stock market like some publicly traded investments are, meaning true portfolio diversity when you invest with Fundrise.
Good for Those Who Are OK with Some Risk
If you’re not willing to take risks with investments, Fundrise may not be the best option for you.
Since the idea of crowdfunding real estate investments is so new, it hasn’t been tested in a truly volatile real estate market, so it’s unknown how the investments will perform in a real estate downturn.
Real estate investing is complex, even with a simple platform like Fundrise.
Good for Those Who Enjoy Learning About New Investments
Fundrise is great for investors looking to learn as much as they can about investing while still receiving expert guidance along the way.
Each of the plans has a document outlining the investment offerings, fees, and other details about the plan and it is over 200 pages long.
With so much information available, you have to be willing to understand what you’re getting into with a real estate investment.
Fundrise also makes complex real estate investing easy by assessing current real estate holdings and placing them into different investment options, meaning you don’t have to choose individual properties on your own.
This platform is a great choice for a wide range of real estate investors.
Fundrise Pros and Cons
- Fundrise has a sleek investment platform that keeps you very updated on the real estate projects that the REITs you own shares in are investing in, doing this much better than publicly-traded REITs.
- Low minimum investment. You can start investing in Fundrise’s starter portfolio with only $10.
- You don’t have to be an accredited investor. Many non-publicly-traded real estate deals and platforms you have to be an accredited investor, meaning you must have an annual income in excess of $200,000 ($300,000 for joint income) for the last two years with the expectation of the same or higher in the current year or if you have a net worth exceeding one million dollars, either individually or with your spouse, excluding the value of your primary residence. Fundrise does not have these requirements, at least for many of its investment opportunities, including the Starter Portfolio. Fundrise does have investments only open to accredited investors, but the majority of its investments are accessible to non-accredited investors as well, all you need is the minimum $10 to get started.
- At least based on the investments my portfolio is in, Fundrise does do a decent job of investing your money in different geographies and different asset classes. It’s not all West Coast or East Coast or midwest. It’s not all just single family or multifamily or commercial or development. It’s a mix.
- Obviously historical returns do not predict future returns, but Fundrise outperformed the most popular REIT ETFs for the time period I have been investing in Fundrise.
- Your Fundrise investment is not liquid. When you invest in Fundrise, you’re basically locking up your money for a while, and it can be tough to get it out before five years and you may even have to pay a penalty if you intend to do so.
- While Fundrise’s fees are not high by any means, they’re still higher than the fees you would pay with a low-cost, passive index fund or index fund ETF.
- Fundrise can be a shiny object. You know that investing in the stock market in a very boring fashion can make you a millionaire, so do you really need to be an a relatively illiquid asset like a Fundrise eREIT? That’s for you to decide.
So Is Fundrise Worth It?
So is Fundrise really worth it?
Well, there are a few ways to answer this question.
You could be a cynic and say, “Fundrise is a sham, it’s just forcing people to lock up their money just so they can feel like real estate investors even though they could do the same thing with any publicly-traded REIT, and it’s not nearly as liquid.”
Fundrise Encourages People to Invest
But my counterargument to that is, “Well, if Fundrise encourages people to invest because they do have this slick platform and they tell their investors about the latest investments that their money is being put into and it gets them excited about investing, isn’t that a good thing?
“Isn’t that a good thing if that encourages them to take the five hundred dollars they have and invest it rather than taking it and blowing it on same gadget that’s going to be outdated in less than a year or something else they don’t really need?”
So it’s kind of like the Acorns app — if paying that small monthly fee to Acorns is what’s going to get you excited about investing and to start investing, I’m all for that.
And it’s the same thing with Fundrise.
Fundrise Offers Decent Returns, But They May Underperform
But of course there’s another aspect here, which is, “What about the returns?”
Because look, people get excited every day about the latest penny stock they heard about from their barber or something, and they invest in it, and they lose most if not all of their investment.
So we can’t just say, “Fundrise gets you excited about investing!” and leave it at that.
There’s also a discussion to be had about performance.
And as I showed previously in this article, my personal Fundrise account underperformed the S&P 500, it outperformed the most popular publicly-traded real estate ETFs.
So while perhaps not the best “first investment” for a new investor, Fundrise is a good way to build exposure to real estate in your portfolio, albeit at the cost of locking up your money for at least five years.
Who manages Fundrise assets?
Your money will be managed by a team of investment experts that have combined experience of over 75 years in the real estate investing field.
Do I have to be accredited to invest in Fundrise?
You do not have to be accredited to invest in most of Fundrise’s investments.
What are Fundrise’s fees?
Fundrise charges a combined 1% annual fee, which breaks down into a 0.85% REIT-level asset management fee and a 0.15% account-level advisory fee.
How is my Fundrise investment taxed?
Since most Fundrise investments are in various Fundrise REITs, you can expect to receive a Form 1099-DIV at the end of each year from Fundrise.
You will report the dividends indicated on this Form 1099-DIV in your tax software.
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
Phenomenal information; thanks for sharing!