Fundrise vs REIT
On the surface, REITs and Fundrise appear to be comparable investments. They are similar in many ways, but several differences distinguish each in the real estate investment space.
While Fundrise may appear to be very similar to basic REITs, there are significant differences to be aware of. Here’s what you should know.
|Fundrise is Better For:||REIT Best for:|
|New real estate||Investors seeking to expand their portfolio|
|Passive investors||Investors who want to take their real estate business beyond mutual funds or publicly-traded company stocks|
|Those who can’t afford down payments||Investors interested in a platform that pays large and growing dividends|
|Those looking to diversify their investment portfolio||Investors seeking to take advantage of greater liquidity|
With so many options for investing in real estate assets, it only makes sense to seek advice from a financial advisor when selecting such securities.
|Minimum Investment||$500||The price of a REIT share|
|Investment Type||Public non-traded REITs (eREITs)||Publicly-traded REITs|
|Accredited Investor Requirement||No||No|
|Fees||1% annual fee, + 1% redemption fee within the first five years||Expense ratios, generally ranging from 0.6%-1%+|
|Liquidity||Quarterly redemption option (not guaranteed)||High|
|Available for Retirement Accounts||Self-Directed IRAs (SDIRAs) only||Standard IRA, 401(k), 403(b), and 457 plans|
|Average Annual Return||7.31% to 16.71% between 2017 and 2021||11.51% over 40 years|
|Modest Money Overall Rating|
Fundrise vs. REIT: Determining Factors?
Fundrise, a type of REIT, is an online marketplace where investors can buy shares of real estate interests. Investors can diversify their portfolios by adding low-cost real estate investments without the hassle of purchasing, modernizing, or managing those properties. This also allows more people to invest in real estate. Rather than requesting the full purchase price, Fundrise has lower minimums, making real estate investing for lower-budget investors or accessible to newer.
REIT stands for real estate investment trust, and its popularity among investors looking to diversify their portfolio beyond mutual funds or publicly-traded company stocks is growing. REITs are corporations that own (and frequently operate) income-generating real estate such as self-storage facilities, warehouses, apartments, shopping malls, and hotels. Their allure is straightforward: the most dependable REITS have a track record of paying large and growing dividends. However, the risks associated with that growth potential vary depending on the type of REIT.
With the explanation given above about Fundrise and REIT, in order not to be confused as to the one that is best for you, below are the determining factors to consider.
Factor 1: Cost
Cost is the first factor to consider before deciding either to use Fundrise or REIT.
REIT is more expensive than Fundrise
- For REITs, the minimum investment cost depends on the price of a REIT share, which in most cases is bigger than the minimum investment of Fundrise. For instance, if the current share price of a specific REIT is $1,000 per share, the minimum required investment cost is $1,000 per share which is bigger than the $500 minimum investment cost for Fundrise.
Fundrise offers five investment options through its Starter Portfolio and Premium Plan, as detailed below:
- $500 for the Starter portfolio
- $1,000 for the Basic portfolio
- $5,000 for the Core portfolio
- $50,000 for an Advanced account
- $100,000 for a Premium account
REITs are available for purchase through investment real estate agents or directly from the fund members of the family that issue them. A REIT ETF’s minimum investment is the amount required to purchase a single trust share. For instance, if the current share price of a specific REIT is $1,000 per share, the minimum required investment is $1,000 per share. The minimums for REIT mutual funds can be much higher. The Vanguard Real Estate Index Fund Admiral Shares, for example, has a $3,000 minimum investment.
Factor 2: Investment Strategy
As an investor, to maximize your returns, investment strategy is another factor to consider before making a choice between Fundrise and REIT.
REIT Beats Fundrise in Investment Strategy
- REIT investment strategy enhances the expansion of investors’ portfolio
- It increases the initial properties’ cash flow of investors
- It pulls in more investment returns based on the year and portfolio chosen
Fundrise focuses on building well-rounded, resilient portfolios that deliver consistently and remarkably strong results based on clients’ goals and risk tolerance by utilizing a combination of strategies.
Fundrise strategy is broken down as follows:
1. Fixed Income
Fundrise Fixed Income aims to generate above-market yields by offering innovative and detailed financing solutions backed by high-quality real estate.
2. Core Plus
The Fundrise Core Plus strategy focuses on stabilized real estate with moderate leverage and a long investment horizon, where we can add value through focused asset management.
3. Value Add
The Fundrise Value-Add strategy involves obtaining existing properties for less than investing capital and replacement cost to enhance their profit margins.
The opportunistic Fundrise strategy focuses on gaining underused, well-located properties in the most competitive environments. Fundrise reimagines these properties, often from the ground up, using the combined expertise of its best-in-class partners and in-house development team.
Growth is one of the fundamental goals of REITs, and it employs various strategies to achieve this goal.
A REIT’s primary internal growth strategy focuses on increasing the initial properties’ cash flow. This goal is typically attained by enhancing maximum occupancy of the market and average monthly rents based on local geographic conditions, following operational costs, and by boosting its asset base through infrastructure improvement programs.
Factor 3: Performance
Needless to say, the importance of the performance of an investing online platform cannot be overemphasized. It is the ultimate factor to be considered to be able to make an informed decision.
REIT Outperformed Fundrise during peak years 2019 and 2021. On the flip side, Fundrise outperformed REIT between 2018 and 2020
- REIT has an annual average return of 11.51% over 40 years, while Fundrise has a track record 7.31% to 16.71% returns between 2017 and 2021. It can be deduced from these historic results that REIT outperformed Fundrise during peak years 2019 and 2021 while Fundrise outperformed REIT between 2018 and 2020.
According to track record, the average annualized Fundrise returns ranged from 7.31 percent to 16.11 percent between 2017 and the third quarter of 2021. Fundrise intends to be a long-term investment vehicle. As a result of this strategy, performance might be slow during the first few years before picking up.
Over the past 40 years, investors have enjoyed high total return performance made possible by reliable and growing dividends in conjunction with ever-increasing long-term capital. This track record exceeds the track record of the broader stock market, bonds, and other assets.
Listed REITs are publicly traded, professionally managed companies that manage their businesses to maximize shareholder value. The preceding includes ensuring their properties are well-positioned towards attracting tenants and earning rental income.
Fundrise vs. REIT – The Bottom Line
Real estate is an effective way to diversify a well-balanced portfolio. Your investment preferences and risk tolerance will determine whether you use REITs or Fundrise.