Fundrise is a startup financial company that advertises itself as “a real alternative to investing in the stock market.” The company presents that alternative by letting individuals invest in private real estate markets, something that was difficult or impossible before.
Team Clark has gotten a number of questions about how Fundrise works and if it’s a good idea to invest with them, so let’s walk through it.
How does Fundrise work?
When you invest with Fundrise, your investment is spread among a mix of private real estate assets located around the United States. Fundrise claims that investing in the private market can produce returns that are 30-40% higher than you would get if you invested in the public market.
With Fundrise, you are investing in “eREITs” and “eFunds”, which are limited liability companies that hold the real estate projects in your Fundrise portfolio.
Examples of those projects shown on the Fundrise website include:
- Apartments and retail in Washington, D.C.
- Townhomes in suburban Seattle, Washington
- Office in Santa Monica, California
The company offers separate investment plans aimed at people who are interested in generating supplemental income, balancing their investment portfolios or looking for long-term growth.
You earn returns through quarterly dividends and appreciation in the value of the shares of your investment. These returns come from the individual assets you’re invested in through interest or rental income collected, and they potential appreciation in the property’s value.
Of course, as with any legitimate investment, there is the standard (but important) caveat: “Actual results may vary and there can be no guarantee of enhanced returns due to investing on Fundrise or the use of Fundrise Advisors’ services.”
As an investor, you will receive typically receive dividends in the middle of the month following the end of each quarter, and may also get periodic cash distributions if certain properties are sold. The value of your shares is also typically re-calculated periodically — quarterly or semi-annually.
How much do I need to invest with Fundrise?
Fundrise offers a “Starter Portfolio” with a $500 minimum investment. This will typically get you invested in 5 to 10 projects and there is a 90-day money back guarantee — Fundrise says it will buy out your investment if you change your mind during that initial period.
If you invest in the Starter Portfolio, you have the opportunity to upgrade to Fundrise’s “Core” plan for free.
What are the fees for investing with Fundrise?
You can expect to pay a 0.85% annual asset management fee and a 0.15% annual investment advisory fee, which may be waived under certain circumstances, according to the company. So, you’re generally looking at a 1% annual fee to invest with Fundrise, though
What kind of returns has Fundrise had?
Fundrise says on its website that its average annual returns from 2014-2018 have ranged from 8.76% to 12.25%.
For contrast, annual returns for the S&P 500 over the same period have ranged from -6.24% to 19.42%.
Should I invest in Fundrise?
Money expert Clark Howard says he understands why Fundrise might be attractive to people who want to put their money in real estate but don’t want the hassle of managing individual properties. Still, he’s not sold.
“There are much less expensive ways to invest in real estate,” Clark says. “There are already publicly traded ways to do this. I’d much rather you invest in a REIT index fund. There are no commissions going in and you get tremendous diversification.”
Diversification of your portfolio is always a good idea, but Clark thinks in this case a more traditional approach is the way to go.
“Fundrise is not a scam,” he says, “but with something like this, once you get in you can’t easily get out. That’s not the case with publicly traded funds, where you can sell at any time.”