Fundrise isn’t the most familiar name in the investing platform sector, but that’s not because it doesn’t fill a really important function. Like many other investment platforms available through web and mobile, Fundrise is about crowdfunding – taking little sums of money from lots of people, applying that money to big projects, and providing juicy returns back to all the investors. Fundrise is different because the investments they supply are in real estate.
In the old days, regular people couldn’t invest in big real estate projects. Only “Accredited Investors” could get of the action. “Accredited” is a snotty term the SEC used for people with more than a million dollars in personal net worth (not including primary residence), or those making $200-$300k per year, or more. Clearly, this kept a lot of potential investors out of the game, but things changed in 2012 when the SEC opened the door for crowdfunded major real estate investments.
Enter the Miller Brothers, Dan and Ben. These two enterprising entrepreneurs saw the writing on the wall in 2010. The started laying the foundations of Fundrise back then, and were finally able to open up shop in 2012, just when the SEC started to show signs of making real estate investment more accessible to all. Since then, Fundrise has gradually eliminated barriers for entry into low-stakes, high-return real estate investment.
At first Fundrise only accepted accredited investors. Then they accepted everyone, but only with a minimum $5,000 first investment. Today, they accept all investors with the ability to make a single $1,000 investment. That’s opens up the field considerably. Fundrise provides a curated list of investment possibilities to these users. We’ll take a closer look at how it all works below.
Fundrise Review – Strengths, Weaknesses, and Exciting Possibilities
Fundrise isn’t the only game in down when it comes to crowdsourced real estate investment. Sharestates, Realty Mogul, and RealtyShares all come to mind. They are the first organization, however, to offer so much to the average investor. If you have $1,000 scraped together, you can take part. Here is how it all works.
Fundrise has several levels of screening before they decide to fund a real estate project. Developers approach them with proposals. After basic screening, a full 50% of these submissions are rejected, because they don’t meet Fundrise’s standards. These proposals are then examined with a fine-toothed comb, and only about a quarter of these are moved forward to a final level of scrutiny. In the end, Fundrise only funds 1% of the proposals it receives. Why is that?
Fundrise pre-funds all selected real estate proposals, before making them available to its stable of user investors. This is a lot of risk for Fundrise to take on, but this risk also cuts both ways. By this I mean that, were a developer to renege on their repayment agreement, Fundrise would work to get their money back first, before repaying the investor. This obviously doesn’t happen often, and I can’t find user reviews to explain how this might have actually gone down in the past. This is the language from Fundrise’s website:
“Payment on the corresponding project investment will remain due even in the event Fundrise goes out of business. However, payments on Notes issued by the National Commercial Real Estate Trust could be delayed or modified in the event of a business disruption.”
Indeed… I wouldn’t worry about this too much. Fundrise has 93,000 user investors and more than $3 Billion up in the air. In many ways, though, it’s still a developing company. I am curious and optimistic about this as a bold, accessible model for low-stakes real estate investment, and well worth a $1,000 gamble to give it a try.
Opening an Account: Types of Real Estate Investments
Starting your account with Fundwise will take you less than one minute. You will be prompted to deposit your first funds. Once you do, these will take several days to appear. Once those funds have landed, you’ll have to make a choice between two possible investment types:
Real Estate Equity Investment – This option is really cool! But it’s also risky. As the name implies, with REEI, investors are buying actual ownership stakes in real estate projects. That means that if the project goes off the rails, you lose your money. But, if the project is wildly successful, you own a chunk of a real estate project that may double or triple in value! Never before have people with small investable resources been able to buy pieces of major developments. I think this is an exciting value proposition from Fundwise.
Real Estate Debt Investment – Rather than buying actual property, you’ll be buying the loans/debt associated with it. It’s not as risky as the REEI option above. These debts tend to be paid, and if they don’t, the owner of the debt can go after the asset itself.
Fundrise will charge between .3% and .5% of your annual returns. This seems reasonable. Without knowing more information about real Fundrise investor returns, I can’t say much about these costs, but maybe you can help me there. Any readers have money in Fundrise?
Fundrise is definitely an interesting concept. By providing short term loans to major developers (1-3 years, early repayment accepted), then making those investments available to Average Joe investors, they’ve made a true innovation in the crowdfunding investment marketplace. I have yet to use Fundrise for more than a couple of months, so I can’t speak to the long term user experience.
I can say that sometimes you have to wait around for an investment opportunity to be provided. This means that Fundrise really is choosy about the projects they fund. It’s conceivable that as this model takes hold, there will be more and more investments available. In the meantime, the investments I’ve seen have seemed strong and trustworthy, and I have no complaints. But the night is young….we’ll definitely update this review as we learn more.
Try Fundrise out for yourself. It’s the cheapest and easiest way to get equity stakes in major real estate development, without having to sink millions into a single project. You can also buy stable real estate debt from your self-managed IRA or other account. Try Fundrise and let us know your experience. It fills a unique spot in the investment landscape and we’re excited to see how it develops.