Real estate is a great investment but the average person has no idea how to get started. Many people lack the capital and believe it’s only for wealthy investors. This is where Fundrise can be helpful.
Fundrise allows investors to pool their money together and buy shares in an electronic real estate investment trust (eREIT). This allows you to begin investing in real estate with only a small upfront minimum investment.
If you’re interested in getting started as a real estate investor, is Fundrise the right option for you? This article will explain how it works, who it’s best for, and some of the pros and cons of using this service.
What is Fundrise?
Originally founded in 2010, Fundrise is one of the first companies to offer real estate crowdfunding. It allowed people to invest in real estate with as little as a few hundred dollars to start with.
However, in the beginning, the service was only available to accredited investors. Then in 2015, the company began offering its services online which opened up this opportunity to many more people.
Because Fundrise sells directly to the person investing and cuts out any middlemen, the company can charge much lower fees. And the company boasts annual average returns of 8.7% to 12.4%. So it is possible to make money using the company’s service.
How Does It Work?
To get started, there’s a minimum investment of $500. This will get you the Starter Portfolio, which has five to 10 diverse real estate portfolios. You’ll receive quarterly returns and any appreciation in the value of your shares.
If you have $1,000 to invest, you’ll be upgraded to a Core Portfolio and will have access to more than 40 real estate projects. You’ll also get to choose between the following three plans:
- Supplemental income: This investment plan focuses more on dividends and strives to create a consistent stream of income.
- Balanced investing: This plans creates a more diversified portfolio and focuses on building wealth.
- Long-term growth: This plan is designed to offer consistent long-term growth.
When you sign up, you’ll choose which plan you want to get started with and Fundrise will create an investment plan that’s tailored to your goals. Once you’ve invested $1,000 total with Fundrise, you’ll be upgraded to a Core Portfolio for free.
The great thing about Fundrise is that you can get started with little to no risk. After 90 days, if you’re unhappy with the service, the company will buy back your original investment.
Who is Fundrise Best for?
Fundrise is a great option for anyone who is looking to invest in residential or private commercial real estate but doesn’t have tens of thousands of dollars to invest. It’s also a good option for anyone who doesn’t have the time or the desire to choose investment properties on their own.
Fundrise will do all of the heavy lifting for you. However, it is a good idea to do at least some research on the properties you’re investing in. This will help you understand the fees and any potential risks.
This option is also best for long-term investors. To see any real returns, you need to be willing to leave your investment for at least five years. If you do need to take your money out early, there may be a penalty fee.
And finally, Fundrise is a good option for more experienced investors as well. It’s a great way to diversify your investment portfolio beyond the stock market.
Advantages and Disadvantages
Fundrise is a good investment opportunity but it’s not going to be the best option for everyone. Listed below are some of the pros and cons you should consider before investing with the company.
Pros
- Low initial investment: Most real estate investments cost thousands of dollars to get started. In comparison, there is a very low barrier to entry with Fundrise. If you have $500 to invest, you can get started right away.
- Easy-to-use investment platform: Getting started with Fundrise takes as little as 10 minutes. You just enter your name, phone number, and Social Security Number then you’re ready to fund your account. The website is easy to navigate and all the information you need is available in your portfolio.
- Money-back guarantee: One of the best things about Fundrise is that you can get started virtually risk-free. After 90 days, if you decide that signing up was a mistake, Fundrise will give you a full refund.
- Potential for real returns: If you stick with Fundrise, you could end up seeing substantial returns on your investment. On average, the company earns returns between 8.7% and 12.4%, which is comparable to what you’d get on the stock market.
- Diversification: With Fundrise, you get a diversified portfolio of multiple properties. So if one of your properties isn’t doing as well, this should be offset by other investments.
Cons
- Hidden costs: There are fees to using Fundrise and you may have to do some digging to figure out exactly how much. The company only advertises an annual asset management fee of 0.85% and an advisory fee of 0.15% (adding up to 1%), but there are other costs to using the service.
- Investment isn’t liquid: When you invest in eREITs, you’re putting your money in a long-term investment strategy. These assets aren’t liquid or publicly traded. If you do need to take your money out, it could involve a lengthy process and penalty fees.
- No guarantee on returns: The company has a history of strong returns but there’s no guarantee you’ll get a return on your investment. Of course, this is true with any investment.
- Not recession-proof: And finally, Fundrise began in 2010, after the 2007 financial crash. The company hasn’t yet experienced a recession so it’s unclear how well the company will fare in that environment.
Is Fundrise Safe?
Fundrise is a legitimate company and has produced strong returns for many of its investors. The company received an A+ rating from the Better Business Bureau and has mostly positive customer reviews. So you don’t have to worry that eREITs are a scam.
That being said, all investments come with a certain amount of risk. Make sure you do your homework first so you can pick the investment option that’s best for you.
Summary
Investing in real estate can feel overwhelming but Fundrise takes most of the uncertainty out of this process. Fundrise offers a simple, low-cost way to get started in real estate. And it even backs up its claims with a money-back guarantee.
If you want to learn about other real estate investment opportunities, check out five ways you can start investing.
