Investing in real estate has become more popular over the last few years. Years ago, the only way you could get into real estate was if you had the money to buy a property outright.
Then came REITs, where you could buy chunks of real estate like a stock.
But now, you can invest in large-scale commercial and residential real estate projects, or simply buy an entire property online with a few clicks. It’s really changed, and so in this article, I want to talk about two popular real estate investment platforms: Roofstock and Fundrise.
We’ve done complete reviews of both, but here, well compare the two so you can determine which is right for you.
What Are Roofstock and Fundrise, and How Do They Work?
With Roofstock, you can buy a rental property outright--meaning you completely own the property. And you can give the day-to-day management responsibilities to Roofstock--who will actually serve as your property managers. Roofstock is perfect for someone who wants to buy a rental property but doesn’t want to be a landlord or someone who wants to buy a property outside of the area they live in.
With Roofstock, you can invest in both income-generating as well as growth-oriented real estate. But unlike Fundrise (which I’ll discuss below), Roofstock isn’t a crowdfunding platform. It’s just an easier way to buy a property. Brokers like Fundrise will pool money from others to invest in large-scale real estate projects. Now, Roofstock did just launch Roofstock One, which is somewhat similar but I’ll talk more about that later.
What's great about Roofstock is that you can buy a property and have Roofstock manage it for you. This way you're not taking calls at 2:00 AM from angry tenants who are complaining about a broken pipe.
Fundrise is a little different. It’s a platform that allows regular investors to take part in large-scale commercial and residential real estate projects. Historically, you had to have hundreds of thousands of dollars (and probably know someone) to get involved in deals like this. But with new investment regulations, you can invest in these types of projects with as little as $500. And what’s even better is you can get exposure in both residential and commercial real estate property with Fundrise.
Buying a Property
What makes Roofstock unique is your ability to buy a property outright. It’s as if you have a realtor showing you hundreds of different homes that you can buy - right from the comfort of your own home.
Now, obviously, there’s some inherent risk to this strategy, which is why some homes offer open houses. The reality is, though, you’re able to buy a property (already rented if you’d like) and have Roofstock handle the property management for you. So if you have the cash, it could be an excellent way to boost your passive income.
Roofstock One is a new feature available that allows people to buy shares of properties--this way they don't have to buy the whole property outright. You do have to be an accredited investor, though, and invest a minimum of $5,000.
Once approved, you can buy up to a 10% ownership in a property. If you're a part-owner, you'll collect a share of the rental income as well as split any proceeds from the sale of the home, if and when it's sold. And just like other Roofstock home purchases, you don't have to worry about managing the property. Roofstock takes care of that.
Roofstock Self Directed IRAs
You're now able to invest in an IRA with Roofstock - which is pretty cool. You're able to open an IRA (serviced through New Direction IRA), and put Roofstock investments into the account. In addition, you can rollover an old 401(k) or an IRA from another broker to Roofstock.
Fundrise is a bit different. Instead of buying a single property outright, Fundrise acts more like Roofstock One - only a bit easier. You can invest in one of 4 different portfolios based on your risk tolerance and financial goals. Each portfolio has a blend of real estate investments that you get to become a part-owner in.
Fundrise is a crowdsourcing investment platform, so you’re essentially pooling your money with other people to invest in large-scale real estate (both commercial and residential) projects. You then reap the rewards of the projects--whether that’s growth-oriented or income-generating. And what’s great is you can start for just $500.
Here’s a quick look at each of the portfolios offered by Fundrise:
This one is for newer investors who just want to dip their toe in the water. The minimum investment amount is just $500 and you’ll get a portfolio that has a blend of half income-generating investments and half growth-oriented investments.
This is nice because it gives you diversification right off the bat and lets you see if investing in real estate is for you. What’s also nice is you can upgrade to a different portfolio later on if you decide to (which have higher minimum investment amounts).
The Supplemental Income portfolio exclusively focuses on income-generating real estate investments. So you’ll earn returns through both rental income and interest payments on the projects that are held within the portfolio. The minimum investment is $1,000.
The Balanced Investing Portfolio has an even blend of both income-generating and growth-oriented projects. It’s similar in setup to the Starter Portfolio in terms of diversification, but it’s got more projects within it and expects higher returns. That’s why the minimum investment is $1,000 (instead of $500).
Long Term Growth
The focus of the Long Term Growth portfolio is, well, long-term growth. The returns are expected to be the highest of the four portfolios, but your investment time horizon will be longer since the anticipated ROI will be mostly from the sale of real estate within the portfolio.
With Roofstock, you’ll pay half of a percent (0.50 percent) in setup fees for every transaction you make, with a minimum of $500.
Fundrise charges a flat 1 percent fee per year, regardless of how much you have invested. Yes, this is much higher than your average brokerage, but Fundrise doesn’t have any other hidden costs and their expected returns are much higher than you might get with your typical robo advisor.
Signing up for Roofstock can be a little more complex. You can sign up easily, but actually getting started investing will require a little more work. For example, if you’re going to purchase a home outright, you’ll need to have a lot of financial documentation ready, especially if you’re financing it (which you can do through Roofstock, by the way).
Alternatively, if you’re using Roofstock One and investing in partial ownership of a property, you’ll have to be approved as an accredited investor. This typically means you need to have a certain income or level of assets (which you’ll have to verify) before investing.
So, while sign-up is simple, it can take a while to actually get your investments going, based on the nature of how Roofstock and Roofstock One work.
Fundrise’s signup process is a lot easier. It’s really no different than opening up an online brokerage account. You give some basic information, fund your account, and choose your portfolio. It’s really that simple. No accreditation, no pre-approvals, nothing but a few clicks.
Both of these companies are accredited investment brokerages and abide by the security guidelines to operate as one. That being said, here is some additional information found on their sites.
Roofstock doesn’t go into depth about the security of their website (though it is a secure site) but does say this:
Roofstock never sees your credit card information and we do not store it. We use an industry-standard credit card processing platform called Braintree that is trusted and secure.
Fundrise is also incredibly secure. According to their website:
Fundrise uses bank-level security for our investor’s protection. Investor information is encrypted with an AES bit symmetric key, the same as level as the largest commercial banks. Each investor’s connection to Fundrise is always encrypted over HTTPS with Transport Layer Security (TLS). Fundrise applications and data are physically located in multiple secure data centers. We utilize Amazon Web Services for our hosting which is compliant with numerous security certifications.
Roofstock has a pretty awesome app, called Roofsavvy, that allows you to track your real estate investments with as much detail as you need. Find out when rent is paid, know how the property is performing, and get any other data you need that’s relevant to your investment.
Fundrise came out with an iPhone app just last year, and it’s pretty slick. You can get real-time alerts when major developments are happening with properties you’re invested in, track performance, stay up-to-date on relevant newsfeeds, and do a lot more.
It’s an incredibly detailed app and will make even new real estate investors feel at ease knowing how their portfolios are performing.
Roofstock is available through email or phone while Fundrise is only available through email support. Both of their websites encourage email support and leave a lot to be desired. That isn’t to say the service is bad, but it’s not as responsive as something you’d see with a major online broker like TD Ameritrade or something.
Who Are Roofstock and Fundrise For?
Roofstock and Fundrise together are geared toward those who want to get into real estate investing, and do it passively. That being said, though, their target audiences are completely different.
Roofstock is geared toward those who have a lot of money to invest and want to own real estate investment properties. The big draw is that you can own a property in areas you don’t live in and you don’t have to worry about managing the property. With Roofstock One, you can invest up to 10% of a property, but the idea is the same (and you have to be an accredited investor).
Fundrise, on the other hand, is geared toward people who want to invest in real estate but do it more like a REIT, which is a basket of real estate investments. The draw with Fundrise, though, is that you cant buy their funds anywhere else. You can only buy them through Fundrise. That means the projects they invest in are private and exclusive, so you’ll be in a smaller crowd and dealing with higher-reward projects. The barrier to entry is very low, but you won’t have as much ownership as you would with Roofstock.
Bottom Line - Who Wins?
It’s really tough to say who wins the battle of Roofstock vs. Fundrise because they’re just so different, and require such different levels of cash flow to get started. That said, however, if I had the ability to invest in either, I would choose Fundrise if I wasn’t already investing in real estate. This is because you’re instantly diversified, as you would be with something like an ETF.
If you were someone who either had a lot of money to buy multiple properties or you already owned other properties, then Roofstock would totally be your jam. But I’m guessing if you’re reading this, you don’t have hundreds of thousands of dollars to invest in real estate. So, I would check out Fundrise first.