Fundrise Review 2020: Passive Real Estate Investing

By Marko Zlatic
|
Last Updated: July 13, 2020
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What Is Fundrise?

Fundrise is an online investment platform that allows you to invest in commercial real estate passively. Real estate is an important part of a balanced investment portfolio and Fundrise makes it easy to get started even if you don’t have a lot of money in the beginning. 

You can buy into private commercial or residential properties by pooling your money with other investors. Fundrise has been around since 2010 and you can open an account with just $500.

One of the biggest benefits of using Fundrise is that as long as you’re a U.S. resident who’s at least 18 years old, you can invest regardless of your assets or income. Some platforms require that you be an accredited investor to use them. An accredited investor is someone who has a net worth of a least $1 million or a personal income exceeding $200,000 annually ($300,000 joint income).

If you’re wondering ‘is Fundrise legit?’ there’s no need to worry since this company is as real as they come and we’ll be breaking down how everything works in this Fundrise review.

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How Fundrise Works

Fundrise takes an actual real estate project from across the 50 states and turns them into eREITs. eREITs stands for Electronic Real Estate Investment Trusts. If you’re familiar with crowdfunding, Fundrise allows you to invest in eREITs which allows you to own a portion of an investment property along with other investors. 

Why Invest in eREITS over REITs?

A REIT is sometimes called a real estate stock and it allows you to invest in a publicly-traded corporation. With Fundrise, you’re investing in eREITs which includes actual properties so you can see the physical locations that you own a portion of.

If you want to gain direct access to a real estate property, eREITs through Fundrise is the way to go. With a REIT, you are just investing in a corporation that owns and manages income-producing real estate properties.

Choosing an Account

Fundrise boasts an average annual return of 8.76% to 12.42%. Take a closer look at Fundrise returns over the past 5 years. 

Average Annualized Returns

YearReturn
201412.25%
201512.42%
20168.76%
201711.44%
20189.11%
20199.47%

There are 3 different accounts to choose from when you sign up. Just click the orange ‘Get Started’ button in the upper right corner to begin the process.

Enter your email then choose your plan. Plan options include: 

Starter - $500 minimum

Core - $1,000 minimum

Advanced - $10,000 minimum

Premium - $100,000 minimum

What’s nice about Fundrise is they tell you what you can expect with each plan. For example, their core plan would be best for someone who is new to investing outside of their 401(k) and is looking for a diversified hands-off investment. 

In fact, with the Core plan, you can choose between goals like:

  • Supplemental Income: With a focus on earning dividends for a more steady stream of income 
  • Balanced Investing: Earning income through dividends while also setting you up for long-term returns.
  • Long-Term Growth: For those who are looking for long-term gains and potentially the highest returns later down the line.

With each plan, you can determine your level of risk and desired growth. Fundrise’s technology will help allocate your investment according to your goals. 

You can expect quarterly dividends and hopefully appreciate but as with all investment tools, nothing is guaranteed. It’s important to keep in mind that investing in eREITs with Fundrise is not a liquid investment that you can get in and out of quickly like stock trading for example. 

Realistically speaking, you’ll want to hang around for at least 3-5 years to accurately measure how well your real estate investment is doing. 

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What’s In Your Fundrise Portfolio?

Depending on the plan you choose, Fundrise will invest your money in a variety of eREITs and possibly some eFunds. The most common are:

  • Income eREITs: These are often debt investments in commercial real estate projects which means your money funds the loan for the property and you can earn interest on it. 
  • Growth eREITs: These are commercial properties (like multi-family units) that will collect rents and appreciate over time. 
  • eFund: There are actual real estate projects so you can’t expect to liquidate before the project completes. Right now, eFunds are limited to specific areas of the country like Washington D.C. and Los Angeles

Fundrise 90-Day Guarantee

Another interesting feature that sets Fundrise a part is their 90-day guarantee. This is rare to see with an investment company but if you are unsatisfied during your first 90 days, Fundrise will buy your investment back. 

Fundrise promotes long-term real estate investments so don’t expect significant growth during the first 90 days of opening your account. Still, this is a nice get out of jail free card to consider if you change your mind and think you’d need it.

Fundrise Fees

So what type of fees does Fundrise have? Fundrise charges a 0.85% annual asset management fees as well as a 0.15% annual investment advisory fee. There’s also an upfront asset origination fee of 0% - 2% which allows their team to help build your portfolio. 

These Fundrise fees are lower than other traditional investments, however, it’s still something to factor in when you’re getting started. 

Another fee you’ll want to consider is if you want to sell back some of your shares to Fundrise. This redemption fee is paid into the eREIT or eFund and calculated as a percentage reduction to the share price value. 

For example, you’ll get a 0% fee reduction during the first 90 days (which is why the 90-day guarantee can come in handy). There’s a 2% fee if the shares were held in the last 3 years but less than 4 years and a 1% fee if the shares were held at least 4 years but less than 5 years. 

If you hold onto your shares for 5 years, there’s no redemption fee if you wish to sell them back to Fundrise.

How Taxes Work

Knowing how you’re taxed on your investments is important. With Fundrise, your dividends are taxed as ordinary income so this could increase your tax liability. According to Fundrise, REIT dividends can be categorized as ordinary dividends, qualified dividends, or a return of capital - all of which are taxed at different rates. 

Ordinary dividends are shares of a REIT’s profits passed on to shareholders so it’s taxed as ordinary income depending on your tax bracket. With qualified dividends, these are taxed at the long-term capital gains rate based on the historical performance figures. 

Below is a great example of how your Fundrise investment might be taxed based on your income.

Pros and Cons

No review is complete without comparing the pros and cons. Here are some key benefits to look forward to when using Fundrise along with some drawbacks.

Pros

  • Don’t have to be an accredited investor to open an account
  • Low minimum investment to get started
  • Lower fees .15% - .85%
  • 90-day money-back guarantee
  • Truly passive (there’s not much work to do to manage your real estate investment)

Cons

  • It’s not liquid 
  • Distributions are taxed as income

Final Verdict

FeaturesFundrise Score
Commissions and Fees (Cost)08/10
Customer Service09/10
Ease of Use9.5/10
Tools and Resources7.5/10 - Aren’t really any tools, resources are nice that it’s transparent
Investment OptionsInvesting in good parts of the country
Asset Allocation8.5/10
Marko Score05/10

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