Investing $20,000 in real estate would have been almost impossible in the past but now there’s crowdfunding. We’ll tell you how to put your real estate money to work using Fundrise.
In the past, your real estate investment options were likely limited to projects and buildings in your zip code. And with just $20,000, there probably aren’t very many options, even in developing areas! But then along came the idea of real estate crowdfunding. Through crowdfunding, you can invest your $20,000 in thousands of projects across the country–along with thousands of other investors. Fundrise is a leader in the real estate crowdfunding enterprise. And they’ve developed a few unique tools to make investing in real estate easy and profitable.
How Do I Invest With Fundrise?
Fundrise offers a couple of different options for investing. The most common is through their eREIT (electronic Real Estate Investment Trust) option. The other is the eFund. Besides these, though, Fundrise offers a variety of investment types, from starter portfolios to advance investing options.
This option lets you put your money into a group investment in a cluster of commercial real estate buildings. Think of it like a mutual fund except for real estate. The properties include things like apartments, shopping centers, and office buildings.
Fundrise lets you buy the eREIT straight from the company. That means you can skip the commissions and other fees that can add up when you buy through a broker. Plus, the volatility is pretty low. However, the eREIT also has pretty low liquidity. You’ll get charged a fee for withdrawing your money before the end of your contracted period.
If you’re looking for a slightly different investment, Fundrise offers e-funds. These are investments in residential-only real estate assets. These investments are not publicly-traded and consist of single family homes. eFunds are structured as partnerships, not with dividend income like the eREIT’s above. This means come tax time, you’ll receive a 1065 K-1 form, which is different than the tax form you receive if investing in eREIT’s.
With the eFund, you’ll still get direct access to the portfolio, which saves on costs. And you’ll still be diversified across different areas and types of homes, so you can count on a relatively stable investment.
More recently, Fundrise has started offering portfolios, including a starter portfolio with a $500 minimum investment fee. There are also passive income plans, plans for more balanced investing, and plans meant to drive long-term growth. You can see the projected growth over the next several years of each of these portfolios at Fundrise’s website.
These managed plans are a little bit more expensive. But you don’t have to worry as much about balancing your risk and rewards.
Fundrise is available to any United States citizen that is over the age of 18. You must have a Social Security Number to invest with Fundrise, and the minimum amount to invest is currently $500.
Fundrise Fee Structure
When investing with Fundrise, you are charged two standard fees plus a third that may or may not impact your investment:
- Asset Management Fee: 0.85%
- Investment Advisor Fee: 0.15%
- Asset Origination/Acquisition Fee: 0% – 2% (Depending on your investment)
Add ’em up and you’ll see the fees charged equate to 1 – 3% of your portfolio with Fundrise. For example, if you were to invest $100,000 for a full calendar year, you would be charged a total fee of $1,000 – $3,000. Fundrise charges these fees to your account monthly.
Pros and Cons of Fundrise
There are several things to consider when it comes to this particular investment option. Here are some pros and cons you should look at before deciding to invest:
Access to More Diverse Investments – Pro
Investing in real estate used to be difficult and expensive. And it was only for elite investors with healthy amounts of cash to invest. This is no longer the case. Added to a more traditional stock and bond portfolio, a Fundrise account is a great way to get more diversity in your investments. That’s pretty much always a good option.
Great ROI – Pro
From 2014 to 2017, Fundrise has boasted between 8.76% and 12.42% average annualized returns. This is great performance, so it’s definitely tempting to take advantage.
Investing is Relatively Simple and Cheap – Pro
Investing through Fundrise isn’t the absolute cheapest way to invest based on fees. But it’s not a bad option. It’s definitely one way to make investing in advanced options like real estate simple and straightforward. You just need to know enough to make a good decision about which portfolio to choose. And even then, Fundrise can offer you some help and advice when choosing the investments that are correct for you.
Great Reviews – Pro
When you check them out online, Fundrise has great reviews with places like the Better Business Bureau. Customers seem to be happy with not only their returns, but also with the fees and the company’s level of customer service. That’s definitely a point in their favor.
Limited Liquidity – Con
Depending on how you decide to invest with Fundrise, you may have limited liquidity. If you hit hard times financially, you can always sell publicly-traded stocks whenever you need to get some cash out. With Fundrise, that may not be the case. Fundrise’s eREITs are not publicly traded, so you can’t get your cash out whenever you want. Once you buy in, you’re in for a set amount of time, or you risk paying fees.
Distributions May Be Taxed as Ordinary Income – Con
This from the public offering document provided by Fundrise:
Unless your investment is held in a qualified tax-exempt account or we designate certain distributions as capital gain dividends, distributions that you receive generally will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. The portion of your distribution in excess of current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the tax basis of your investment, rather than result in current tax, until your basis is reduced to zero.
Is Fundrise Right for You?
If you have access to cash that you don’t need right away, investing in Fundrise may make sense. But it probably only makes sense as an additional investment after you’ve maxed out your tax-advantaged options. So, first max out that 401(k) and IRA. Then, invest what’s left over in Fundrise.
When looking at a new investment opportunity, the best advice I can give is to first dip a toe into the water. Sign up for a Fundrise account, take advantage of their low minimum to invest, and try it out. If you’re satisfied with the terms, the return, and their customer service, look to invest more in the future.
Topics: Real Estate Investing