Fundrise Review

Fundrise is a web-based company that lets you invest in real estate without hundreds of thousands of dollars. By putting together several investors’ money, Fundrise gives you the diversification of real estate and the accessibility of buying stocks or bonds. But how much does Fundrise cost? How does their investing system work? Are they legit? And, most importantly, should you use Fundrise? Our Fundrise review will answer all of these questions and more.

How Does Fundrise Work?

Fundrise pools money from thousands of investors to buy real estate. But, it does so in a unique way.

Unlike banks that mostly invest in real estate that costs hundreds of millions of dollars, Fundrise invests in smaller projects.

With this investing strategy, they can find a middle ground between investments that are too expensive for the average individual without competing against banks and other big investors.

As a company based around making real estate investments more approachable, it’s not surprising Fundrise lets anyone 18+ invest. Many real estate investors need to either earn $200,000+ annually or have a net worth of $1,000,000+. This is what’s known as an “accredited investor.”

Fundrise lets you avoid this restriction, but that’s not all. They also break down the financial barrier to entry: minimum investments.

Usually, it takes several thousand dollars to purchase a rental property. But by using crowdfunding, Fundrise can lower this minimum amount to $500.

Because of this low initial cost, the average person can invest in real estate without saving up for years prior.

With all this in mind, it’s important to note Fundrise invests in properties for the long term. As such, it costs more in fees to use Fundrise as a short term real estate investment. They even directly discourage this on their website:

“We select strategies based on their long-term return potential for our investors, not short-term optics. If you anticipate needing your investment back in the near-term, we don’t recommend investing with us.”

Similarly, if you’re someone who will need your money back in a few months, I recommend looking elsewhere. Fundrise only lets you sell your investments quarterly (every three months), so this is likely best for a long term investor.

How To Get Started On Fundrise

Making an account on Fundrise is very simple and takes about 5 minutes.

To start, pick a portfolio type ranging from $500 – $100,000 (more on these below). Then, fill out your name and email address.

From here, you’ll pick an account type. This can be an individual account (what most people use), a joint account for married couples, or a trust.

Next, fill out some more standard information like your social security number and citizenship status, and then select how you want to fund your account.

You can link a bank account directly to Fundrise, enter your bank information, or use a wire transfer. After that, you’re ready to go!

Pros & Cons Of Fundrise

Fundrise Pros

• Gives access to real estate investment at a more affordable price
• Relatively low account minimum ($500)
• Low management fees
• Highly accessible investing platform
• Simple & straightforward UI
• IRA accounts

Fundrise Cons

• Not great for short-term investors
• Can be difficult to sell your investments
• Complex fee structure
• Higher learning curve to understand investments

Fundrise Account & Investment Options

Account Options

Fundrise lets you invest in individual, joint, entity, and trust accounts. But most importantly, Fundrise also allows you to use a Traditional, Roth, or SEP IRA.

Using an IRA is so valuable because many of Fundrise’s investments pay dividends, or regular payments. These dividends are taxed the same as normal income, so by putting your money in an IRA, you can lessen your tax bill.

Investment Options

All of Fundrise’s investment options are types of real estate investment trusts (REITs). This is another great way to invest in real estate because it prevents you from becoming a landlord.

What Is A REIT?

If you’d rather avoid the hassle of finding tenants, dealing with landlord duties, and don’t have too much money to spend on rental properties, REITs might be a good option for you.

By investing in a REIT, you’re basically investing in a company that buys properties, which means the company’s value is tied to the underlying rental properties.

Think of this strategy similarly to investing in stocks. In both cases, you’re becoming a shareholder and enjoying part of that company’s profits.

However, REITs have their downsides. An absence of tenants still hurts the company’s bottom line (and therefore, your earnings), and the company keeps part of the cash flow rather than giving it to you.

With all that in mind, understand that REITs can be valuable options for diversifying your investment portfolio, so long as you recognize the different risks they carry.

How Are REITs And eREITs Different?

Fundrise uses “eREITs” to invest. These are a specific type of REIT sold straight from Fundrise rather than through a broker, meaning they come without extra fees.

Other than being bought and sold directly from Fundrise, eREITs function almost identically to non-publicly traded REITs.

Publicly Traded Vs. Privately Traded

Fundrise’s eREITs are privately traded. The biggest difference between publicly and privately traded investments is that privately traded investments usually take longer to sell.

The upside of private investments is that they can often have higher returns than public ones.

So what does this mean for you as the investor? Well, if you think you’ll need the money in a couple of months, it means you should probably stick to publicly traded investments. But if you can afford to stick it out for the long haul, you may be able to earn better returns using eREITs.

What Are Fundrise’s eFunds?

Fundrise’s eFunds work very differently from it’s eREITs. Rather than investing in a company and being mostly uninvolved with the actual property management, eFunds focus on flipping homes.

These eFunds are used to buy property, renovate them, and then sell to make a profit. While this strategy is useful for homes in areas with fast-rising housing prices (LA, DC, NY), it’s worth noting that it can be riskier than alternatives. 

By directly purchasing the property, you remove some of the protection that REITs provide. Also, the way profits are created is slightly different. REITs pay a dividend, while eFunds profit once the underlying property is sold (capital gains). 

This matters if you’re looking for a steady stream of income versus a long term “buy and hold” type investment. If you want to receive payments over time, REITs are probably best. Otherwise, consider eFunds.

Fundrise’s Available Portfolios

Fundrise has different portfolios available depending on how much money is in your account. They have four tiers and three broad categories based on your investment goals:

• Starter – $500 minimum
  • The most basic plan Fundrise offers. Your investment’s split 50/50 between growth-focused eREITs (focused on increasing long-term value) and income-focused eREITs (focused on providing a source of steady income through the coming years). This is a good one-size-fits-all strategy, offering a mix of assets that grow over time and income to use in the meantime.
• Core – $1,000 minimum
  • This is where you can start choosing among different investment goals (more on this in a sec). You also gain access to IRA accounts and automatic reinvestment of any dividends, which is useful if you want a more hands-off experience.
• Advanced – $10,000 minimum
  • You get more control over your investments and can make certain specifications like primarily investing in single-family rentals. This ability to customize your strategy is great if you want to dive into more advanced investment strategies, but the passive investor may not get much use.
• Premium – $100,000 minimum
  • This is Fundrise’s highest tier. Here, you’ll get to invest in certain private equity investments, usually limited to accredited investors. While these are usually very difficult to sell in the short term, they can have incredibly high returns.

Fundrise’s Available Investment Strategies

Fundrise’s three investing strategies focus on supplemental income, balanced investing, and long-term growth.

Supplemental income strategies invest in eREITs that, first and foremost, pay you regularly and predictable dividends. These investments’ total profits tend to be lower than in other strategies, but it’s made up for with the regular income you receive by holding these investments.

Long-term growth eREITs instead focus on increasing in value over the long term. While you forego any dividend payments during that period, the total profits tend to be higher. If you want to invest as a way to build up a large nest egg, this is the direction that’s probably best for you.

Balanced investing offers a combination of the two above strategies. This works similarly to Fundrise’s Starter portfolio, where you have an even mix of dividend-paying eREITs and growth-focused ones.

How Much Does Fundrise Cost?

Fundrise Fees

Fundrise’s fees start at 1% and can go as high as 6%. 

The annual 1% fee includes a 0.85% management fee and a 0.15% advisory fee. There’s also an origination fee when you first make an investment that ranges from 0% – 2%. The remaining 3% gets charged when you sell your investment, with older investments resulting in fewer fees.

Luckily, Fundrise has a 90-day guarantee. If you’re unhappy with your investments within 90 days of purchase, you can sell your shares for the original purchase price without any early redemption fees.

Here’s a quick breakdown of how Fundrise structures their extra fees:

• 0 – 90 days = 0% (money back guarantee)
• 90 days – 3 years = 3%
• 3 – 4 years = 2%
• 4 – 5 years = 1%
• 5+ years = 0%

As you can see, Fundrise’s fees decrease as you hold your investments longer. This is another vital thing to consider when deciding between using Fundrise as a short or long term investing platform.

If you use an IRA account, Fundrise also charges a flat $75 annual fee. While this doesn’t make a huge difference if you’re investing thousands of dollars, someone using the $500 starter plan should probably avoid using an IRA with Fundrise.

Is Fundrise Safe?

In the short term, Fundrise’s 90-day money-back guarantee makes this an easy “yes.”

However, over the long haul, the answer becomes a bit more complex. While yes, you can sell off your investment each quarter, a lot can still happen in 3 months. This means your investments may have to go through a lot of price shifts before your request gets fulfilled.

Also, Fundrise reserves the right to stop withdrawals in the event of severe economic events temporarily. With that in mind, recognize that investments with Fundrise will be very slow-moving.

That said, the more procedural parts of Fundrise are very safe, such as linking your bank account and storing personal information. They use the same type of encryption most banks use so that you can rest assured.

Finally, it’s important for you to understand that all investments come with risks. You need to do your homework before any investment you make.

How Does Fundrise Make Money?

Fundrise’s money comes from a combination of venture capital and the fees they charge. Their annual fees are lower than other brokerages like Vanguard, while their selling fees for shorter-term investments and IRA fees help make up the gap.

Fundrise is very transparent about their fee structure, and they go out of their way to show you their fees on their website clearly and briefly.

How Is Fundrise’s Customer Service?

Fundrise’s customer service is so-so. While their support team is very friendly, you can only reach them via email. As such, you obviously won’t be able to get answers as quickly as you could with a phone number. 

But if you have any more questions about how Fundrise works or specific investments, their customer service should be able to answer most questions and provide significant help.

Should You Use Fundrise?

If you understand the risks, Fundrise can be a great product for real estate investing. The ability to cheaply invest in real estate can be a critical part of diversifying your portfolio.

But, it’s important to view Fundrise as a long-term investment. If you’re constantly pulling your money in and out, the fees will rack up in no time, and you’re likely better off storing your money in a short-term CD or high-yield savings account.

If you’re a long-term investor who wants to try to seek protection against stock market crashes, or you’re interested in getting familiar with real estate, check out Fundrise.