Fundrise vs Betterment: Which Is The Better Investment?

Investing Simple is affiliated with Fundrise and Betterment. This relationship does not influence our opinion of these platforms.

As investors, we have countless options when it comes to the platforms we use to invest our hard earned money. Over the past decade, thousands of different investing and trading platforms have emerged. It can be very overwhelming to the average investor looking to make an informed decision. This is one of the main reasons why we started our blog Investing Simple. We help investors decide which platforms may fit their investment style and personal preferences. In this post, we are going to review and compare two prominent platforms; Fundrise and Betterment.

Fundrise vs Betterment

What Is Fundrise?

Fundrise is a new investing platform that allows everyday investors to invest in private real estate projects traditionally limited to high net worth individuals or accredited investors. Using the Fundrise real estate investing platform, you have the ability to have investment exposure to both commercial and residential real estate.

Here is our full review of the Fundrise investment platform.

How Does Fundrise Work?

Fundrise is a crowdfunded real estate investing platform. Similar to real estate investment trusts or partnerships, all the investors pool their money together to purchase real estate assets. These assets then produce income and/or growth and historically have provided investors with a positive return on their portion of the investment over time.

Real estate is traditionally a high barrier to entry investment, but crowdfunded real estate platforms like Fundrise have allowed average retail investors to get exposure to this asset class. You can get started with Fundrise with as little as $500!

Fundrise takes a new approach to the traditional Real Estate Investment Trust (REIT) structure. Through the use of technology, Fundrise makes it easy to fund your account, check in on projects and choose your portfolio. By leveraging a new regulation, Fundrise gives the average investor access to commercial and residential real estate with as little as $500.

Click here to get started with Fundrise!

The Fundrise platform offers a variety of benefits such as low account minimums and quarterly redemption periods. However, investors should understand the liquidity and time horizon of an investment in the Fundrise platform. We will discuss this in further detail throughout the article.

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Fundrise Real Estate Projects

Fundrise offers plans to invest in different types of real estate such as income producing rental properties or growth oriented real estate developments. Fundrise offers different investment plans based on your investment objectives. You can keep track of Fundrise real estate projects within your account. Fundrise will also notify you about major developments with their projects.

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Fundrise Project Addition

The main investment objectives of Fundrise are to generate revenue from income producing properties as well as buying and selling real estate in thriving markets. As a Fundrise investor, you can choose whether you want to be in a growth-oriented portfolio or income-oriented portfolio. Income from rental payments and proceeds from flips are passed along to Fundrise investors in the form of dividend payments or distributions. In exchange, Fundrise collects a 1% fee as the investment manager. 

It is important to understand that Fundrise is a private real estate investment. The Fundrise eREITs and eFunds can only be bought and sold through this platform. They are not publicly traded on a stock exchange like a publicly traded REIT.

Fundrise Investment Options & Portfolios

Fundrise allows you to choose from four professionally built real estate portfolios based on your risk and investment preferences. Some portfolios are geared towards cash flow and others focused on the growth of the underlying assets. If you invest the minimum of $500, you will be placed in the starter portfolio. The other three advanced plans require a minimum investment of $1,000.

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Fundrise Portfolio Options

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income-oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!

Supplemental Income: This portfolio is geared toward income-producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Dividends are generated through rental and interest payments in proportion to your share of the fund.

Balanced Investing: This portfolio offers a blend of 50% growth and 50% income-oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income-generating real estate, as well as real estate that is appreciating in value.

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

Fundrise Technology: eREIT & eFUND

Each portfolio consists of eREITs and eFunds designed by Fundrise. These investments are set up as real estate investment trusts or partnerships and they are managed by Fundrise.

An eREIT will produce income for your portfolio in the form of dividends. Dividends are earned from the rent payments from the underlying apartment and commercial leases owned within the eREIT as well as interest payments from underlying real estate debt investments owned by Fundrise.

An eFund is a partnership created by Fundrise to be treated differently for tax reasons and to provide greater investment flexibility. Partnerships have the advantage of avoiding the double taxation of normal C-Corps. eFunds are designed in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are designed to generate income, eFunds are geared towards growth.

Fundrise Investment Liquidity

Fundrise uses the funds you invest to purchase real estate. For this reason, there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods.

This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long-term investment of at least 5 years in duration when investing with Fundrise. Real estate is not an investment with high liquidity and it is not for everyone!

It is important that investors understand that liquidity and distributions are never guaranteed.

Fundrise Historical Returns

Past performance does not guarantee future returns. All investing involves risk, including the potential loss of principle.

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Fundrise Historical Performance

Fundrise Fees

Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front load fee with Fundrise. The returns shown above are the returns after Fundrise collects the 1% fee.

Pros of Investing With Fundrise

  • The minimum to get started with the Starter Portfolio is $500.
  • Small retail investors are able to access private real estate investments.
  • Since this is a non traded REIT, it may be less correlated with the overall market.
  • Fundrise has a transparent fee of 1% per year.
  • This investment allows you to earn compound interest, with the option of automatically reinvesting quarterly dividends using a drip (Dividend Reinvestment Plan).
  • Fundrise does not have a minimum net worth or income requirement like most private investment funds do.
  • This is a 100% passive real estate investment.
  • Fundrise gives you diversified exposure to real estate.
  • Fundrise supports retirement accounts.
  • Monthly redemption periods eliminate the temptation for panic selling.

Cons of Investing With Fundrise

  • Liquidity is never guaranteed. During a downturn, liquidity may not be available as many investors will rush to sell and buyers may be few and far between.
  • Distributions (dividends) are never guaranteed.
  • Distributions (dividends) are taxed as ordinary income rather than capital gain rates.
  • Fundrise has a limited track record of four years and not a long investment history.

Fundrise: The Bottom Line

In most cases, Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also a good option for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, investors may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

In most cases, Fundrise is best for investors with a minimum 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90-day satisfaction guarantee, you should not invest if you have a short-term investing mentality.

Click here to get started with Fundrise!

What Is Betterment?

Betterment is an online roboadvisor geared towards everyday investors who want automation of their investments paired with personalized financial advice. Through the use of technology, Betterment is able to offer management fees that are extremely competitive compared to the industry average. Refined investing strategies such as tax loss harvesting and smart rebalancing are some of the many features offered by Betterment.

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Betterment Home Page

Betterment also offers ongoing financial guidance. Depending on the plan, investors can have unlimited access to professional financial advice from CFP® professionals. Since Betterment and its professionals are fiduciary advisors, they must act in the clients best interest at all times. Betterment advisors have no incentive to sell products or funds hoping to make a commission off your purchase. A fiduciary duty is the legal obligation to act in the clients best interest at all times and is the highest level of customer care in the investment advisor community.

Here is our full review of the Betterment investment platform.

What Is A Robo Advisor?

A robo advisor is a new technology based financial advisor that advises clients and manages accounts with minimal human interaction. This is capable through the use of algorithms and technology. Financial advice is provided based on mathematical rules and programs. This results in a lower management fee and significant cost savings for the investor.

How Does Betterment Work?

Each Betterment account is tailored to the needs of the individual investor. When you open an account with Betterment, you will be guided through a questionnaire where Betterment will learn more about your goals and objectives.

Here is the process for every new investor using Betterment:

1. Learn about the investor. Using a series of questions, Betterment determines your current financial landscape. By understanding your goals, time horizon, and personality Betterment gets an overall picture of where you currently stand and what you are trying to accomplish financially.

2. Make recommendations. Once Betterment has an understanding of your overall financial picture, they will guide you through a path customized to your specific situation. Betterment will suggest portfolios geared towards your risk tolerance, time horizon, and investment objectives.

3. Invest using cutting edge technology. Using personalized portfolios of stock and bond ETFs, investing is streamlined so you don’t need to worry about the management of your investments. Betterment’s portfolios are focused around minimization of both investment fees and taxes.

Click here to get started with Betterment!

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Betterment Questionnaire

What Are The Betterment Investments?

Betterment uses exchange-traded funds (ETFs) to build the portfolios. ETFs are investment vehicles similar to mutual funds, but they trade on a major exchange like a stock.

ETFs have grown tremendously in popularity over the last 20 years in the investment community due to the low fees and high liquidity. ETFs provide diverse positions where one fund could be trading at $50 per share yet it can have hundreds of underlying holdings. ETFs allow you to invest in many different asset classes such as stocks, bonds, real estate, and commodities. By using ETFs, Betterment can construct cost-effective and diversified portfolios with ease.

Most of the ETFs in Betterment’s professionally built portfolios are from the Vanguard fund company. Vanguard is one of the most well known mutual fund and ETF companies. Known for very low fees and the invention of the index fund, Vanguard has dominated the fund industry with over $5 trillion in assets throughout its funds. Betterment uses Vanguard funds mostly because of their low expense ratios and excellent reputation.

Vanguard
Vanguard Logo

Here are some of the Vanguard funds included throughout Betterment’s portfolios:

VTI – US Total Stock Market
VTV – US Large Cap Value
VOE – US Mid Cap Value
VBR – US Small Cap Value
VEA – Developed International
VWO – Emerging Market Stocks

Betterment also includes a number of bond funds offered by Vanguard. Each Betterment portfolio will consist of a collection of stocks and bonds.

Click here to get started with Betterment!

Betterment Custom Portfolios

Betterment also offers custom portfolios constructed by Goldman Sachs. The Goldman Sachs Smart Beta portfolio aims to provide a diversified portfolio strategy using a balance of actively and passively managed investments. Active portfolio management typically has the goal of beating the market, often associated with hedge funds and mutual funds. Passive management has the goal of generating market returns over the long term. Index investing and buy and hold strategies are associated with passive management.

Goldman’s Smart Beta uses a variety of factors to determine investment allocations across its portfolio. Some of these factors include equities consisting of good value, high quality, strong momentum and low volatility characteristics. Contrary to traditional portfolio allocations that are based on market cap weighted indices, Smart Beta uses a variety of rules based factors that determine allocations across the portfolio. The Smart Beta portfolio using a rules based methodology has a goal of beating the market over the long term.

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Smart Beta Factors

Betterment also offers a professionally built portfolio created by BlackRock. The BlackRock Target Income portfolio is a 100% bond portfolio with the goal of capital preservation. This may be an ideal portfolio for someone who is looking for an income producing investment strategy versus a growth oriented strategy. This portfolio has no exposure to the stock market but can fluctuate in value as interest rates change. BlackRock strategically looks to provide higher yields by investing in long term bonds as well as higher risk bonds in this portfolio.

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BlackRock Target Income Portfolio

What Are The Betterment Fees?

Betterment has a strong focus on minimizing fees and expenses to investors. Betterment specifically chooses ETFs that have some of the lowest expense ratios. Betterment has no trading fees and no markups on prices. The only fees Betterment charges is a management fee of 0.25% to 0.40% depending on the investment plan. This fee structure is extremely low compared to traditional advisors and stock brokers.

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust

Betterment has recently made changes to its pricing structure. All account balances greater than $2M will be given a 0.10% marginal discount for the portion of their balance above $2M. Previously accounts with balances over $2 million had their fee cap out at $2 million so any assets above that amount would not be charged a fee. Betterment will continue to honor the $2 million fee cap for all existing Betterment customers, even if their current balance is less than $2 million.

  • For Betterment Digital, customers will pay 0.15% for the portion of the balance above $2,000,000.
  • For Betterment Premium, customers will pay 0.30% for the portion of the balance above $2,000,000.
Pricing as of 9/18/2018Balances up to $2,000,000Balances over $2,000,000
Digital0.25%0.15%
Premium0.40%0.30%

What Are The Features Of Betterment?

Financial Planning: Betterment Premium offers unlimited access to financial professionals. These professionals will assist you by making recommendations on how much to invest and provide guidance on asset allocation within your portfolio.

The Premium Plan also includes detailed advice on investments held outside of Betterment. Betterment Digital offers algorithm based financial planning with no human involvement. All Betterment plans offer some level of portfolio guidance.

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Betterment Premium Financial Experts

Smart Rebalancing: Betterment offers smart rebalancing of your portfolio. This is offered to both premium and digital investors. Rebalancing of a portfolio should happen when your target weights of assets gets skewed.

For example, if you have a portfolio of 60% stocks and 40% bonds and the stocks increase in value. Now, you may be weighted at 70% stocks and 30% bonds. To tone down risk and return to your target allocation, you should rebalance and sell stocks and buy bonds to return to your 60/40 stock bond allocation.

Betterment’s version of smart rebalancing makes sure your positions are in their right allocation at all times.

Tax Loss Harvesting: Betterment offers a feature called tax loss harvesting which aims to minimize your taxes on capital gains. Betterment does this by selling securities that have underperformed in your portfolio and realizing a capital loss. This loss can be used to offset capital gains or ordinary income up to $3,000 per year.

Once the loss is realized, Betterment then purchases a similar security to replace the one you just sold in your portfolio. This way you avoid any wash sales which occur when you realize a loss on a security and purchase it back within 30 days. The government identifies wash sales in order to prevent tax loss harvesting. This tax loss harvesting is something that separates these automated platforms like Betterment from the traditional investment options.

Betterment also has the functionality of implementing tax loss harvesting across your accounts as well as your spouse’s accounts. Spousal tax loss harvesting will allow you to optimize your tax minimization strategies on one tax return.

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Betterment Spousal Tax Loss Harvesting

Tax Coordinated Portfolio: Betterment uses a method of asset location to construct tax coordinated portfolios. This is accomplished by putting your highest taxed assets in your IRA first (where you have a tax shelter) then putting your lower taxed assets in your taxable brokerage account. Betterment claims this strategy could boost your return by 0.48% each year. You can set up a tax coordinated portfolio at any time on Betterment for no additional fee outside of the asset management fee.

Smart Saver: As interest rates remain extremely low in the current economic environment, interest rates on savings accounts are virtually non-existent. Betterment offers a solution to this issue by offering an alternative to a savings account.

The Betterment smart saver account yields 2.20% annually. This is significantly higher than most savings accounts. Betterment offers this feature while still providing liquidity. According to Betterment, you will have access to your funds in 4 to 5 business days.

investing simple betterment review smart saver
Betterment Smart Saver

Smart Deposit: Betterment offers a feature called smart deposit that will allow you to set a minimum amount of cash you would like in your bank account. Once your minimum is set, any amount above your minimum will be sent to Betterment and invested.

Say you set your bank account minimum at $5,000. Once your bank account balance is over $5,000 smart deposit will transfer any funds over this threshold to Betterment. Smart deposit in Betterment will allow you to maximize your invested capital while retaining a safety net in your bank account.

Retire Guide: This is a retirement planning tool offered by Betterment. You will input your current savings, projected budget, and retirement date to get a picture of where you stand in reaching your retirement goal.

Retire Guide will show you how to save, what accounts to utilize, and recommend any changes you need to make to reach your goal. This allows you to have an understanding of your projected financial position and budget when you retire.

Fractional Investing: Betterment also offers a unique feature called fractional investing. Fractional investing allows an investor to buy fractional shares of an ETF. For example, if you want to buy VTI which is trading at $150 per share and you only have $100 you could buy .67% of a share using Betterment’s fractional share investing. The advantage of using fractional shares allows an investor to be fully invested at all times. Fractional shares also provide for greater diversification as you will have more precise allocations across your portfolio at all times.

What Are The Pros Of Betterment?

  • Passive investing. Betterment is a set it and forget it investing platform. You do not need to worry about account maintenance. Betterment takes care of everything.
  • Automation. The entire investment process can be automated. You can automate contributions to your account that will automatically rebalance your portfolio upon contribution. Your investments are on autopilot!
  • See the big picture. Betterment allows you to link up all of your investment accounts and get an idea of what all of your investments are doing in one place.
  • Fiduciary responsibility. Betterment advisors are held under the fiduciary duty standard. This is the highest standard in the investment advisor community. This means the advisor is legally required to act in the client’s best interest at all times. Remember, this in person advisement is only offered through Betterment Premium.
  • Low fees. Betterment focuses on minimizing fees for investors. They do this by selecting low-cost ETFs that have low expense ratios and leveraging technology.
  • No minimum. You can open a Betterment Digital account with any amount of money. Betterment Premium requires a balance of $100,000 or more.

What Are The Cons Of Betterment?

  • No direct indexing. Some other investment accounts offer direct indexing or stock level tax loss harvesting. This is typically reserved for accounts with $500,000 invested or more. This allows direct ownership of individual stocks, not funds, which allows for more tax loss harvesting opportunities. Betterment does not offer this feature.
  • Too passive for some. If you are interested in being active in your selection of stocks or ETFs, Betterment is not for you. Betterment is for passive investors.
  • Limited to stocks and bonds. Your asset allocation is limited to stocks and bonds. You cannot invest in other assets like real estate or commodities through Betterment. It is important to note however that Betterment has stated that these assets added no value to portfolios that they tested.

Betterment: The Bottom Line

Betterment has revolutionized the brokerage industry through the use of technology. This has significantly lowered the barriers to entry to receiving high quality financial advice. Traditionally, you would need thousands if not tens of thousands of dollars to invest with an in-person financial advisor.

Now, you can get started with a robo advisor like Betterment with any amount that you have. Betterment is a long term investing platform for passive investors. If you are interested in short term trading, individual stock ownership or DIY investing Betterment is not for you.

Click here to get started with Betterment!

Fundrise vs Betterment

Fundrise and Betterment are both very different investing platforms. The Fundrise platform gives you the ability to invest in commercial and residential real estate. With a minimum balance of $500 to open an account, Fundrise gives the average investor an opportunity to invest in assets typically limited to high net worth individuals. By using technology and offering a user-friendly experience, Fundrise remains very transparent about any project developments or updates to their portfolios.

Betterment, on the other hand, offers a robo advised investing experience with the goal of creating a broad portfolio of stocks and bonds. The Betterment platform offers some of the most valuable investment features available today. Smart rebalancing, smart deposit, smart saver and advice from securities professionals are just some of the features that create tremendous value for investors.

When comparing the two platforms it is important to understand what your goal is as an investor. If you would like to own growth or income-producing real estate on a dynamic user-friendly platform, then Fundrise may be a good option for you. Fundrise gives you the ability to invest in real estate projects without having to outlay a huge amount of capital. If you are an investor with the goal of building a broad portfolio of stocks or bonds, then Betterment may be a great option for you. Betterment is one of the most dynamic robo advisors available today.

Click here to get started with Betterment!

Click here to get started with Fundrise!

 

 

Fundrise vs LendingClub: Best Alternative To The Stock Market?

Investing Simple is affiliated with Fundrise and LendingClub. This relationship does not influence our opinion of these platforms.

As investors, we are always trying to diversify our portfolios. Diversification can be a key factor in long term success as an investor. Many of us tend to diversify across core asset classes such as stocks and bonds. For those of us looking for alternative investments to the stock market, there are a variety of different options. In this article, we are going to review and compare two very popular alternative investments; Fundrise and LendingClub.

Fundrise vs LendingClub

What Is Fundrise?

Fundrise is a new investing platform that allows everyday investors to invest in private real estate projects traditionally limited to high net worth individuals or accredited investors. Using the Fundrise real estate investing platform, you have the ability to have investment exposure to both commercial and residential real estate.

Here is our full review of the Fundrise investment platform.

How Does Fundrise Work?

Fundrise is a crowdfunded real estate investing platform. Similar to real estate investment trusts or partnerships, all the investors pool their money together to purchase real estate assets. These assets then produce income and/or growth and historically have provided investors with a positive return on their portion of the investment over time.

Real estate is traditionally a high barrier to entry investment, but crowdfunded real estate platforms like Fundrise have allowed average retail investors to get exposure to this asset class. You can get started with Fundrise with as little as $500!

Fundrise takes a new approach to the traditional Real Estate Investment Trust (REIT) structure. Through the use of technology, Fundrise makes it easy to fund your account, check in on projects and choose your portfolio. By leveraging a new regulation, Fundrise gives the average investor access to commercial and residential real estate with as little as $500.

Click here to get started with Fundrise!

The Fundrise platform offers a variety of benefits such as low account minimums and quarterly redemption periods. However, investors should understand the liquidity and time horizon of an investment in the Fundrise platform. We will discuss this in further detail throughout the article. 

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Fundrise Real Estate Projects

Fundrise offers plans to invest in different types of real estate such as income producing rental properties or growth oriented real estate developments. Fundrise offers different investment plans based on your investment objectives. You can keep track of Fundrise real estate projects within your account. Fundrise will also notify you about major developments with their projects.

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Fundrise Update Email

The main investment objectives of Fundrise are to generate revenue from income producing properties as well as buying and selling real estate in thriving markets. As a Fundrise investor, you can choose whether you want to be in a growth-oriented portfolio or income-oriented portfolio. Income from rental payments and proceeds from flips are passed along to Fundrise investors in the form of dividend payments or distributions. In exchange, Fundrise collects a 1% fee as the investment manager.

It is important to understand that Fundrise is a private real estate investment. The Fundrise eREITs and eFunds can only be bought and sold through this platform. They are not publicly traded on a stock exchange like a publicly traded REIT.

Fundrise Investment Options And Portfolios

Fundrise allows you to choose from four professionally built real estate portfolios based on your risk and investment preferences. Some portfolios are geared towards cash flow and others focused on the growth of the underlying assets. If you invest the minimum of $500, you will be placed in the starter portfolio. The other three advanced plans require a minimum investment of $1,000.

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Fundrise Investment Portfolios

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income-oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!

Supplemental Income: This portfolio is geared toward income-producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Dividends are generated through rental and interest payments in proportion to your share of the fund.

Balanced Investing: This portfolio offers a blend of 50% growth and 50% income-oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income-generating real estate, as well as real estate that is appreciating in value.

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

Fundrise Terminology: eREIT And eFund

Each portfolio consists of eREITs and eFunds designed by Fundrise. These investments are set up as real estate investment trusts or partnerships and they are managed by Fundrise.

An eREIT will produce income for your portfolio in the form of dividends. Dividends are earned from the rent payments from the underlying apartment and commercial leases owned within the eREIT as well as interest payments from underlying real estate debt investments owned by Fundrise.

An eFund is a partnership created by Fundrise to be treated differently for tax reasons and to provide greater investment flexibility. Partnerships have the advantage of avoiding the double taxation of normal C-Corps. eFunds are designed in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are designed to generate income, eFunds are geared towards growth.

Fundrise Investment Liquidity

Fundrise uses the funds you invest to purchase real estate. For this reason, there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods.

This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long-term investment of at least 5 years in duration when investing with Fundrise. Real estate is not an investment with high liquidity and it is not for everyone!

It is important that investors understand that liquidity and distributions are never guaranteed.

Fundrise Historical Returns

Past performance does not guarantee future returns. All investing involves risk, including potential loss of principle.

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Fundrise Historical Performance

Fundrise Fees

Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front load fee with Fundrise. The returns shown above are the returns after Fundrise collects the 1% fee.

Pros Of Investing With Fundrise

  • The minimum to get started with the Starter Portfolio is $500.
  • Small retail investors are able to access private real estate investments.
  • Since this is a non traded REIT, it may be less correlated with the overall market.
  • Fundrise has a transparent fee of 1% per year.
  • This investment allows you to earn compound interest, with the option of automatically reinvesting quarterly dividends using a drip (Dividend Reinvestment Plan).
  • Fundrise does not have a minimum net worth or income requirement like most private investment funds do.
  • This is a 100% passive real estate investment.
  • Fundrise gives you diversified exposure to real estate.
  • Fundrise supports retirement accounts.
  • Monthly redemption periods eliminate the temptation for panic selling.

Cons Of Investing With Fundrise

  • Liquidity is never guaranteed. During a downturn, liquidity may not be available as many investors will rush to sell and buyers may be few and far between.
  • Distributions (dividends) are never guaranteed.
  • Distributions (dividends) are taxed as ordinary income rather than capital gain rates.
  • Fundrise has a limited track record of four years and not a long investment history.

Fundrise: The Bottom Line

Fundrise may be a great platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also a good option for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, investors may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

In most cases, Fundrise is best for investors with a minimum 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90 day satisfaction guarantee, you should not invest if you have a short-term investing mentality.

Click here to get started with Fundrise!

What Is LendingClub?

LendingClub is a peer to peer lending platform that allows investors to earn interest in return for lending money to borrowers on the platform. You can choose which type of lenders to lend to and earn interest on a monthly basis.

Here is our full review of the LendingClub investment platform.

What Is Peer To Peer Lending?

Peer to peer lending takes a modern approach to the traditional bank loan. Traditional lending has been reserved for the banks for hundreds of years. Now, investors can get rid of the middleman and lend directly to borrowers. This allows investors to fund loans and earn principle and interest in return. It also allows borrowers to take out loans and make monthly payments on those loans. LendingClub acts as the exchange; its’ purpose is to connect lenders and borrowers. By enabling this mutually beneficial relationship, and creating the note structure, LendingClub collects a 1% investment management fee on any interest payment received by an investor. 

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Peer To Peer Lending Explained Simply

LendingClub Note Structure

LendingClub offers a wide variety of notes on their platform. Each LendingClub note is identified by its relative risk to the investor and rated from A to E. Notes rated A are of the highest quality and E being the lowest quality. A note’s risk is identified by a set of criteria such as credit score, debt to income ratios, credit history and activity of the borrower. The higher the risk, the higher the interest rate on the note. Therefore investors who take higher risk and invest in E grade notes will have the highest interest rates. Notes graded E also have the highest risk of losing part, if not all, of their investment.

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LendingClub Note Risk Structure

It is recommended by LendingClub to invest in a number of different notes in order to diversify your exposure to a variety of different borrowers and lower your risk. We all have heard the saying, “don’t put all your eggs in one basket.” Investors may choose to invest in a variety of different notes with different risk aiming to lower the volatility and overall risk of their portfolio. If you are curious about the average returns on LendingClub, check out this article.

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LendingClub Note Diversification

LendingClub Investing Strategies

When choosing the specific notes you would like to invest in, you have different options for investment strategies. LendingClub offers both manual and automated investments on their platform. You have the ability to manually select specific notes and perform any due diligence before investing in a single note. This is a good option for investors that are more hands on and would like to implement their own unique investment style. This manual investment strategy will allow you to hand pick each note.

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LendingClub Manual Strategy

LendingClub also offers automated investing on their platform. You will select your investment criteria and risk tolerance and LendingClub will automatically purchase notes on your behalf. This saves the investor time and applies a consistent investment approach across your portfolio. This approach is geared towards the passive investor.

Click here to get started with LendingClub as an Investor!

LendingClub Investment Time Horizon

LendingClub recommends investors plan on holding their investments until maturity. Currently, LendingClub offers two time horizons for their notes; 36 months and 60 months. Because there is greater risk in notes that have longer maturities, the interest rates are slightly higher for 60-month notes compared to 36-month notes.

You have the option to sell your notes before maturity on a secondary market, but liquidity is never guaranteed. That being said, you can buy and sell LendingClub notes to other investors on the Folio investing platform. This provides liquidity to investors and allows more flexible investing.

LendingClub Borrower Account Fees

There is no application fee for LendingClub, however there are often origination fees for borrowers. Borrows must pay up to 5% of the loan balance on the origination of the loan. These fees vary by the loan type and grade. Check with LendingClub to understand what origination fees may be involved. Investors do not pay these origination fees.

LendingClub Investor Account Fees

LendingClub has certain transaction fees when investing on their platform. There are no fees when purchasing notes, however there is a 1% transaction fee whenever you receive payment from a borrower.

LendingClub also has fees when performing transactions on the Folio platform, the secondary market where you can sell notes you own. There is a 1% fee for selling any notes on Folio.

LendingClub IRA accounts have a $100 annual fee. LendingClub will pay your IRA maintenance fee on your behalf if in the first year you maintain a balance of at least $5,000 in LendingClub notes. In subsequent years you must maintain at least $10,000 in LendingClub notes to have the fee waived.

Pros Of Investing With LendingClub

  • LendingClub offers an alternative investment that may be less correlated to the stock market.
  • Lenders can achieve diversification by investing in a variety of different notes. 
  • You can set up automated investing on LendingClub.
  • Exposure to an asset traditionally reserved for the banks.

Cons Of Investing With LendingClub

  • LendingClub charges a 1% fee for every payment received by an investor.
  • All LendingClub loans are unsecured, meaning there is a greater risk for lenders in the case of a default by a borrower.
  • All investment as at risk. Investors have no FDIC protection or guarantees of investment returns.
  • Any interest earned on LendingClub is taxed as ordinary income and not capital gains tax rates.

LendingClub: The Bottom Line

LendingClub allows investors to diversify by investing in an asset class traditionally reserved for banks. Because LendingClub is a private investment, shares or notes are not traded on a major exchange. As a result, this asset class may be less correlated to the overall stock market but may be less liquid if you’d like to sell.

One negative of investing in interest bearing assets such as peer to peer lending is that all interest is taxed as ordinary income and not at capital gains tax rates. If you plan on investing in LendingClub, you may want to consider investing in a tax sheltered retirement account.

Click here to get started with LendingClub as an Investor!

Fundrise vs LendingClub

Alternative investments to the traditional stock and bond portfolio may be a good option for an investor trying to diversify their holdings. Both LendingClub and Fundrise can be good alternatives and provide investment exposure to different types of assets. In the end, you should be conscious of the risks and opportunities with each investment option.

LendingClub gives you the option to lend money to a variety of borrowers and earn interest on a monthly basis.

Fundrise, on the other hand, is a good option to gain exposure to the commercial and residential real estate markets with a small initial investment.

One of the core differences between Fundrise and LendingClub is the historical returns. Based on historical performance, returns on Fundrise range from 8% to 12% per year. On the other hand, returns on LendingClub range from 6% to 8% per year. It is important to remember that both Fundrise and LendingClub have a limited operating history. We hope to see returns like this going forward, but it is never guaranteed.

Another key difference is collateral. Through LendingClub, you are investing in unsecured debt like personal or medical loans. Through Fundrise, you are investing in secured debt where the real estate serves as collateral. If you are not comfortable with investing in unsecured debt, peer to peer lending is not for you!

Both LendingClub and Fundrise collect a 1% fee for managing your investments. The minimum to get started with Fundrise is $500 while the minimum to get started with LendingClub is $1,000.

 

What is a Fundrise eFund? (Fundrise eREIT VS eFund)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. By combining technology and the release of new regulations, Fundrise has been able to establish a platform that differs in many ways compared to traditional real estate investments.

Check out our full review of the Fundrise platform here.

Through Fundrise, you can invest in two different investments known as eREITs and eFunds. To learn more about eREITs read our article here.

Fundrise eREITs are designed to provide income to the investor, while eFunds are designed for growth. More details on that later!

What Is The Fundrise eFund?

Fundrise eFunds consist of investments with the objective of providing a growth opportunity to the investor. This is possible by buying existing real estate, renovating and later selling the property for a higher price and recognizing a capital gain.

Fundrise currently offers 3 types of eFunds based on their geographic location: Los Angeles eFund, Washington DC eFund, and the National eFund. The focus is primarily on single family homes along with townhomes and condominiums located in growing and developing metropolitan areas.

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Fundrise eFund Explained

Fundrise eFund VS eREIT

Fundrise builds the eFunds using a slightly different structure compared to eREITs. In an eFund there is no minimum requirement for return of earnings to shareholders every year in the form of dividends. A REIT is required to pay out 90% of the taxable earnings to the investors in the form of dividends. It is important to understand the goal of the Fundrise eFund is to recognize capital gains over time, so this traditional REIT model does not make sense for this application. Fundrise is not investing in properties with the goal of cash flow through the eFunds. If you are interested in that, check out the Fundrise eREITs.

Since eFunds are designed for growth rather than income, they are set up as partnerships which are slightly more flexible to manage than REITs. In a partnership, your share of the net income that is generated by the eFund will be reported to you on a K-1. At the end of the year, you will report earnings from the K-1 on your tax return.

Partnership earnings are generally taxed as ordinary income to the taxpayer. Any capital gains in the partnership will be taxed at capital gain tax rates to individuals. Consult your tax advisor for questions about your specific tax situation.

Fundrise eFunds offer diversified investments in residential real estate. These investments are difficult for individuals to construct on their own and would require millions of dollars of start up capital. By setting up partnerships, Fundrise can leverage investor capital and participate in growing real estate markets throughout the US.

One of the main goals of Fundrise eFund investments is to participate in growing real estate markets. They do this by identifying specific areas that are showing a high demand for affordable housing. Most of the cities Fundrise focuses on are metro areas with high affordability gaps. This is the gap between rental housing costs and the average monthly income of residents. Fundrise sets the goal to provide more housing options in these high demand areas.

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Areas with the Largest Affordability Gap

Fundrise eFund Investment Strategy

Fundrise has a strategic investment approach to their eFunds. They aim to buy residential real estate or land in areas of high growth; specifically areas with high likelihood of first time home buyers and growth in younger demographics. They then renovate or develop entirely new projects to increase the value of their land or real estate acquisition. Once they have completed redevelopment of the area, Fundrise will sell the property realizing any profits or losses. Investors earn a return through asset appreciation, not rental income or cash flow.

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Fundrise eFund Investment Strategy

Currently, Fundrise offers 3 different eFunds:

  1. National eFund
  2. Washington DC eFund
  3. Los Angeles eFund

National eFund

The National eFund plans to invest in residential housing in major metropolitan areas throughout the US. This fund strategizes in targeting first time home buyers and areas with high potential for development. The National eFund plans for construction of single family homes, townhomes, and condos. This eFund plans to acquire land and other real estate in areas of the US that are not being sponsored by another eFund. In LA for example, this eFund aims for single family renovations and rentals where the LA eFund targets new housing development.

Washington DC eFund

The Washington DC eFund looks to purchase land for development in the metropolitan areas of Washington DC. Like the other eFunds, this fund aims to develop single family homes, townhomes, and condominiums in high growth areas. This fund has a main focus on first time home buyers and areas of DC with high affordability gaps.

Los Angeles eFund

The Los Angeles eFund aims to purchase land in the metropolitan areas of LA for the development of residential housing. The main focus is on the construction of single family homes, townhomes, and condominiums in high growth neighborhoods. The LA eFUND targets areas with high potential for first time home buyers and younger demographics.

Click here to get started with Fundrise!

Fundrise vs Vanguard (VNQ): Best Real Estate Investment?

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. People have been investing in traditional publicly traded and private REITs since their invention in the 1960’s. Today, over 70 million people in the US alone invest in REITs. Fundrise has taken a new approach to the traditional REIT structure with the introduction of the eREIT. In this article, we will be outlining the differences between the Fundrise eREITs and the traditional public and non traded REITs.

Read our full review of Fundrise here.

What Is A REIT?

A Real Estate Investment Trust (REIT) is a company that purchases real estate assets and then issues thousands or millions of shares of the company to investors. This gives retail investors the ability to invest in real estate investments they may not have been able to before often due to high costs or exclusivity of the investment. REITs can give you exposure to real estate that you would not typically be able to buy directly. For example, consider American Tower Corporation. This is a REIT that owns cell towers. Your average investor would not be able to go out and buy a cell tower, but it is possible through a REIT.

REITs are attractive investments because of the relatively high dividend yields along with the ability to provide passive exposure to real estate. In order to be classified as a REIT, at least 90% of the taxable income needs to be passed along to shareholders in the form of dividends. REITs allow investors to gain diversified exposure to thousands of real estate assets throughout the world. Before the invention of the REIT, investors would have to purchase real estate themselves or in syndicates, which were limited to wealthy and accredited investors. REITs have opened up real estate markets to common everyday investors, providing more liquidity and an explosion of investment into real estate.

There are two core types of real estate investment trusts, publicly traded REITs and non traded REITs. Most of us are familiar with publicly traded REITs, these are investments that trade on public security exchanges and offered to everyday investors.

Non traded REITs are investments that are bought and sold privately. This means you must have a buyer or seller willing to conduct a transaction to provide liquidity as there is no secondary market.

Non traded REITs are less common because of their exclusivity, liquidity, and often high front end load fees. Front end load fees are commissions paid to brokers on the purchase of your investment. Non traded REITs have an advantage of gaining exposure to private real estate and offering higher distributions, on average, than publicly traded REITs. Another advantage is that non traded REITs are less correlated to the overall stock market, as they are not traded on an exchange. Publicly traded REITs also hold liquidity premiums, making them more expensive compared to non traded REITs.

What Is A Fundrise eREIT?

Fundrise has created a new investment called the eREIT, which is a non traded REIT offered on the platform. eREITs are unique to Fundrise and offer a number of benefits that are not typically offered by a traditional non traded REIT or publicly traded REIT.

Fundrise released many of its eREITs over the last few years under a new provision of Regulation A. This new provision in the Securities Act allows unaccredited investors to purchase up to $5 million worth of a security over a 12 month period. This new provision has allowed platforms like Fundrise to emerge, creating more investment opportunities and a new concept to the non traded REIT structure.

In the United States, to be an accredited investor you need to have a net worth of $1,000,000 or more excluding your primary residence or an income of at least $200,000 for the last two years. In the past, these accredited investors were the only ones that had the ability to invest in these private real estate investments.

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Fundrise eREIT

Fundrise eREIT VS Publicly Traded REIT

Publicly traded REITs trade on a major exchange like the NYSE or the NASDAQ. These investments change hands just like stocks, and as a result the performance of the asset is heavily correlated with the overall stock market. Publicly traded REITs are very similar to a dividend stock.

If you have done your research, you have come across the Vanguard Real Estate Index Fund. This is a low fee publicly traded REIT that gives you exposure to a diversified collection of real estate. This REIT has an expense ratio of 0.26% compared to the 1% fee associated with Fundrise. Is this Vanguard REIT a better investment? Let’s take a look at the performance of these investments over the last four years.

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Fundrise Historical Performance
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Vanguard Real Estate Index Fund Historical Performance

In 2014, the Vanguard REIT significantly outperformed Fundrise. However, each year thereafter Fundrise has had significantly better performance than the Vanguard REIT.

One con with investing with Fundrise mentioned in our full review is the limited operating history. We only have four years of returns to go off of, and that is not a large sample size. It is certainly possible that Fundrise will continue to outperform the Vanguard REIT, but returns are never guaranteed.

It is important to understand the difference between Fundrise and other publicly traded real estate investments like this Vanguard REIT. Fundrise is a unique real estate investment, where most traditional REITs contain real estate that has already been purchased. Fundrise takes a venture capital approach where they are constantly purchasing and selling real estate assets and debt. This unique approach could give Fundrise an edge.

Fundrise eREIT VS Traditional Non Traded REIT

Fundrise eREITs offer a variety of features not typically seen in traditional non traded REITs. These features are:

  1. Quarterly Liquidity – Though Fundrise does not guarantee liquidity, they offer quarterly redemption periods following a 60 day notice for withdrawing funds. This is not typically offered by traditional non traded REITs. If you are looking for a highly liquid investment, this would be a publicly traded REIT.
  2. Direct Distribution – Fundrise offers eREITs directly to investors, without going through an investment bank or middle man. This saves a considerable amount of money for the investor as you are not paying any fees or mark ups.
  3. Low Investment Minimums – The starter portfolio has a minimum investment of $500 and the advanced plans have a minimum investment of $1,000. This is significantly lower than most other non traded REITs which often have minimum investment requirements of $10,000 or more.
  4. Low Fee Structure – One of the greatest strengths of the eREITs offered on the Fundrise platform is the low fee structure. Fundrise charges a 1% annual fee to manage your investment. This is considerably lower than most traditional REITs.

Click here to get started with Fundrise!

What Are The Different Fundrise eREITs?

East Coast eREIT – This eREIT focuses on purchasing commercial real estate equity and debt along the East Coast of the US. This is primarily in Massachusetts, New York, New Jersey, North Carolina, South Carolina, Georgia, Florida, as well as Washington D.C. and Philadelphia, PA. Investments in this eREIT focus on fixed rates of return and assets that have a high potential for value creation. This includes assets that have high potential for redevelopment, brand new ground up projects, and income producing debt.

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Growth of a $10,000 investment in the East Coast eREIT

Heartland eREIT – This eREIT focuses on acquisition of real estate in the Midwest of the US. Specifically, Houston, Dallas, Chicago, and Denver metro areas. This eREIT invests primarily in real estate debt and equity investments, that will provide fixed rates of return as well as aiming for long term value creation.

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Growth of a $10,000 investment in the Heartland eREIT

West Coast eREIT – This eREIT focuses on debt and equity commercial real estate investments in the West Coast region of the US with a focus on certain cities and metro areas. Specific cities include Los Angeles, San Francisco, San Diego, Seattle, and Portland. This strategy focuses on renovation and value adding opportunities for redevelopment, as well as investing in completely new development projects.

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Growth of a $10,000 investment in the West Coast eREIT

Income eREIT – The primary objective of this eREIT is cash flow generation from purchasing real estate debt on commercial properties. This eREIT focuses on real estate in urban areas where there is limited supply and high demand. The income eREIT follows the strategy of acquiring smaller assets that fall out of the scope of larger investment banks.

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Growth of a $10,000 investment in the Income eREIT

Income eREIT II – The objective of this eREIT is cash flow generation. Most of the investments in this eREIT are commercial real estate assets along with commercial real estate debt. This eREIT purchases senior to mezzanine level debt, which can be converted into equity in the asset or company at a later date.

Growth eREIT – This eREIT focuses on acquisition of commercial real estate assets with a goal of value appreciation over time. The growth eREIT looks for opportunities in affordable housing complexes. This eREIT also aims to buy properties below their replacement cost. The growth eREIT is also taking advantage of historic low interest rates by financing it’s acquisitions using long term fixed rate loans.

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Growth of a $10,000 investment in the Growth eREIT

Growth eREIT II – This eREIT is geared toward asset appreciation and long term growth. Primarily investing in commercial real estate properties, this growth eREIT attempts to purchase assets that fall outside the scope of larger institutional investors. Growth eREITs look for long term asset growth over time.

With so many different eREIT options offered by Fundrise, investors can gain diversified exposure to different types and locations of real estate. By leveraging technology, Fundrise has taken a new approach to the non traded REIT. Fundrise gives people an opportunity to participate in private real estate at a fraction of the historic cost along with providing investment portfolios that fit the specific time horizon and investment objectives of the investor.

Click here to get started with Fundrise!

How Does Fundrise Work? (Crowdfunded Real Estate Investing!)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Recently, a number of crowdfunded real estate investing platforms have emerged. One of the most well known and established examples is Fundrise. This is a new investing platform that allows everyday investors to invest in private real estate projects traditionally limited to high net worth individuals or accredited investors. The reason this is possible is because people from all over are pooling money together to invest in these real estate projects.

Crowdfunding allows projects to be funded by collecting small amounts of money from a large number of people. The internet has made this incredibly easy! Traditionally, to invest in real estate you would need thousands if not tens of thousands of dollars for a down payment on a piece of real estate. With Fundrise, you are able to chip in towards these real estate projects with an investment of $500 or more. This has significantly lowered the barriers for real estate investment!

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Fundrise Real Estate Projects

How Does Fundrise Work

Fundrise works like many other crowdfunding platforms out there. First, investors pool money together by investing via the online platform. Then, Fundrise will invest that money in real estate projects. This could be new construction or a renovation project. Fundrise makes money for investors through income producing properties and flipping real estate in hot markets. As a Fundrise investor, you can choose whether you want to be in a growth oriented portfolio or income oriented portfolio. Income from rental payments and proceeds from flips are passed along to Fundrise investors in the form of dividend payments or distributions. In exchange for facilitating this, Fundrise collects an annual fee of 1% from investors.

It is important to understand that Fundrise is a private real estate investment. The Fundrise eREITs and eFunds can only be bought and sold through this platform. They are not publicly traded on a stock exchange like a publicly traded REIT.

Fundrise allows you to choose from four professionally built real estate portfolios based on your risk and investment preferences. Some portfolios are geared towards cash flow and others focused around growth of the underlying assets. If you invest the minimum of $500, you will be placed in the starter portfolio. The other three advanced plans require a minimum investment of $1,000.

Fundrise Investment Portfolios

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!

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Fundrise Starter Portfolio

Supplemental Income: This portfolio is geared towards income producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Dividends are generated through rental and interest payments in proportion to your share of of the fund.

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Fundrise Supplemental Income Portfolio

Balanced Investing: This portfolio offers a blend of 50% growth and 50% income oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income generating real estate and real estate that is appreciating in value.

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Fundrise Balanced Investing Portfolio

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

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Fundrise Long Term Growth Portfolio

Fundrise eREIT and eFund

Each portfolio consists of eREITs and eFunds designed by Fundrise. These investments are set up as real estate investment trusts or partnerships and they are managed by Fundrise.

eREITs will produce income for your portfolio in the form of dividends. Here is how you earn dividends with Fundrise:

  1. Rent payments from underlying apartment and commercial leases owned within the eREIT.

  2. Interest payments from underlying real estate debt investments owned by Fundrise.

An eFund is a partnership created by Fundrise to be treated differently for tax reasons. Partnerships avoid the double taxation of normal C-Corps. eFunds are designed in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are designed to generate income, eFunds are geared towards growth.

How To Invest In Fundrise

When you are ready to begin investing, you can set up an account with Fundrise in a few short steps. Anyone who is 18 years old or older and a US resident can invest with Fundrise. Currently there is a $500 account minimum to begin investing in the Fundrise starter portfolio and $1,000 minimum for the Fundrise advanced portfolios.

Step 1: Create an account with Fundrise here.

Step 2: Decide on an investment plan.

Step 3: Link your bank account and deposit the desired amount.

Step 4: Sit back and watch your money grow!

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Here is our comprehensive article on compound interest.

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Fundrise Investment Performance, 2014 To 2017

Fundrise Investment Liquidity

Fundrise uses the funds you invest to purchase real estate. For this reason there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods. This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long term investment of at least 5 years in duration when investing with Fundrise. Real estate is not an investment with high liquidity and it is not for everyone! Understand that liquidity and distributions are never guaranteed.

Fundrise Investment Taxes

At the end of the year Fundrise will send you any tax documents associated with your account. Investors may receive 1099-DIV for any dividends received throughout the year. Investors may also receive a K-1 for any income generated in an eFund. You may also receive a 1099-B from any other transactions within Fundrise. Your tax situation will depend on which portfolio you are invested in Fundrise. Consult a tax professional for guidance on how any income generated in Fundrise will affect your specific tax situation.

If you are looking to learn more about Fundrise, read our full review here!

Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

Fundrise is best for investors with a 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90 day satisfaction guarantee, you should not invest if you have a short term investing mentality.

Click here to get started with Fundrise!

Fundrise Fee Structure: Are There Any Hidden Fees?

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise is an online real estate investing platform that gives investors the opportunity to invest in private real estate with as little as $500. One of the reasons why Fundrise has become so popular is because of the low fee structure.

In case you missed it, here is our full review of Fundrise.

Compared to traditional real estate investments, fees are significantly lower on the Fundrise platform. Fundrise charges an annual fee of 1% of your investment. In this article, we will be explaining what this fee is and whether or not there are any hidden fees that you should know about.

Fundrise Fees Explained

Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front end load fee with Fundrise.

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Fundrise Fees vs Traditional Investment Fees

This 1% all in fee is broken up into two individual fees.

The first is the asset management fee. This fee goes toward the management and oversight of real estate investments as well as the normal business expenses incurred. The asset management fee is 0.85% annually.

The second is the investment advisor fee. This fee pays for the online investing platform, reporting and other administrative fees related to investing in Fundrise. The investment advisor fee is 0.15% annually.

The Fundrise eREITs and eFunds do not carry any fees. Traditionally, when you invest in a publicly traded REIT you pay management fees indicated by the expense ratio. For example, the Vanguard Real Estate Index Fund has an expense ratio of 0.26% to cover management of the fund. Fundrise does not charge any additional expense ratio.

Fundrise vs. Traditional REIT Investment

Fundrise allows you to invest through two financial instruments that they invented; the eREIT and the eFund. The short explanation of these investments is that they are non traded, meaning they are not available on a public exchange like a traditional publicly traded REIT. The eREIT and eFund are also investments you purchase directly from Fundrise. This cuts out the middleman and reduces the overall fees.

How does the 1% Fundrise fee compare to a traditional REIT?

Many traditional REITs charge a front end load fee. This is a fee paid to the investment institution before a penny is invested. It is not uncommon to pay a front end load fee of 5% or more, meaning only 95% of what you invest ends up in your account. While that may seem insignificant, consider the following example:

$100,000 invested in a REIT

Front end load fee of 5%

Fee = $5,000

There are no front end load fees or large commissions paid to Fundrise to purchase your investment. The only fee is the all in 1% annual fee.

Most investors do not pay attention to commissions and fees. Unfortunately, this can be a detrimental mistake! While these numbers sound small, the compounded fees paid over time can have a huge impact on your overall returns. Traditional brokers often charge significant commissions, sometimes as high as 8% depending on the investment institution. As mentioned, with Fundrise there are no commissions or hidden fees. This allows you to keep more of your money invested and earn greater returns.

Fundrise vs. Vanguard REIT

If you have done your research, you have come across the Vanguard Real Estate Index Fund. This is a low fee REIT that gives you exposure to a diversified collection of real estate. This REIT has an expense ratio of 0.26% compared to the 1% fee associated with Fundrise. Is this Vanguard REIT a better investment? Let’s take a look at the performance of these investments over the last four years.

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Fundrise Historical Performance
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Vanguard Real Estate Index Fund Historical Performance

In 2014, the Vanguard REIT significantly outperformed Fundrise. However, each year thereafter Fundrise has had significantly better performance than the Vanguard REIT.

One con with investing with Fundrise mentioned in our full review is the limited operating history. We only have four years of returns to go off of, and that is not a large sample size. It is certainly possible that Fundrise will continue to outperform the Vanguard REIT, but returns are never guaranteed.

It is important to understand the difference between Fundrise and other publicly traded real estate investments like this Vanguard REIT. Fundrise is a unique real estate investment, where most traditional REITs contain real estate that has already been purchased. Fundrise takes a venture capital approach where they are constantly purchasing and selling real estate assets and debt. This unique approach could give Fundrise an edge.

The Verdict

Fees flat out lose investors money. Why start your investment already down 5% because you paid a broker a fat commission?

Traditional Wall Street fees have been sky high for a number of years. It wasn’t until recently that new online investing platforms have taken a foothold, and are competing against giants in the long established brokerage industry.

With Fundrise, the fees are transparent and minimized to save the investor money. You have the ability to earn higher returns because your initial investment is larger due to the fact that there is no front end load fee. There are no other hidden fees with Fundrise aside from the 1% annual fee.

Click here to get started with Fundrise!

A Beginner’s Guide To Fundrise Real Estate Investing Platform!

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

Fundrise is a new investing platform that allows everyday investors to invest in private real estate projects traditionally reserved for the high net worth investors. For the first time, you can invest in private real estate investments with as little as $500 through Fundrise.

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We did a comprehensive review of Fundrise, you can read it here. 

Getting started with Fundrise can be a bit complicated! We created this beginner’s guide to help you get started today.

Step 1: Open a Fundrise Account!

Start off by opening a Fundrise account here. 

You can fund the account and decide on what plan best fits your needs later on!

Fundrise has the entire application process online where they will guide you through a series of questions to create your account. Currently, Fundrise is only offered to US residents age 18 or above. The minimum to get started with Fundrise is $500, or $1,000 for the advanced investment plans. Fundrise charges an annual fee of just 1%. 

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Fundrise Questionaire

Step 2: Decide on an Investment Plan!

Next, decide what Fundrise plan is best for you.

Fundrise gives you the option to choose from multiple investment plans based on your investment objective. Each portfolio offered by Fundrise will comprise of a blend of eREITs and eFunds created by Fundrise.

If you invest $500, you will automatically be placed in the Starter Plan. If you invest $1,000 or more, you can choose between three Advanced Plans.

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Starter Plan vs Advanced Plans

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income oriented holdings.

Supplemental Income: This portfolio is geared towards income producing real estate. Investors will earn returns primarily through dividends and appreciation of the underlying holdings. Dividends are generated through rental and interest payments in proportion to your share of of the fund.

Balanced Investing: This portfolio offers a balance of 50% growth and 50% income oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income and growth producing real estate.

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

Step 3: Fund the account!

You will link your bank account using your online credentials or by manually entering your routing and account numbers. ACH transfers are mandatory for transactions under $25,000. Above $25,000 Fundrise will accept wire transactions.

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Adding Funds To Your Fundrise Account

Step 4: Decide what to do with Dividends!

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Fundrise Portfolio
This Fundrise account has Dividend Reinvestment enabled

That’s it! Fundrise is a 100% passive investment. You simply fund the account and put your money to work. Down the road, you can add more funds to this account if you want to increase your investment.

Since Fundrise uses your invested dollars to purchase real estate assets and debt instruments, you are not guaranteed immediate liquidity. All Fundrise investors can obtain liquidity monthly. You must submit a redemption request followed by a 60 day waiting period, which is also subject to limitations. Fundrise is considered a long term investment, their investment team looks for opportunities over a 5 year time span. Anyone looking to invest in Fundrise must understand they may not be able to liquidate their position right away and they should be investing for a minimum time horizon of 5 years.

You will be updated on your investment’s performance through ongoing reports and status updates of your holdings. Fundrise will also send you tax forms at the end of the year for any earnings or dividends received for the prior year. You will also receive emails when new real estate projects are added to your plan!

Click here to get started with Fundrise!

Fundrise Review: Best Passive Real Estate Investment?

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

 

It seems like the American dream today is to make money by investing in real estate. I am sure we all have that rich uncle or family member that made a fortune by investing in real estate. One of the biggest obstacles to achieving this dream is the amount of money required to buy a single piece of real estate. The upfront cost for an individual to purchase a piece of residential or commercial real estate can be astronomical. This creates high barriers to entry to many real estate markets.

The typical down payment on a home is 20%. If this is a commercial loan for the purpose of renting it out or flipping it, this down payment could be as high as 25%. If you are looking at a $200,000 property, you could be looking at a $50,000 down payment without factoring in closing costs!

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S&P/Case-Shiller U.S. National Home Price Index

On top of that, home prices are on the rise. It is getting increasingly more difficult to invest in physical real estate.

There are plenty of people that are in their 20’s that want to invest in real estate, but they are unable to save the thousands or even tens of thousands of dollars required to get the ball rolling. The good news is, there are other ways to invest in real estate outside of direct ownership.

The Publicly Traded REIT

Traditionally, investors have been able to overcome these barriers by investing in REITs (real estate investment trusts) or other investment vehicles offered on public exchanges.

These investment vehicles are large pools of real estate split up into millions of shares and sold to hundreds or thousands of investors. These products allow common everyday investors to gain access to real estate markets.

This video provides a great explanation of what a REIT is.

The downside of this publicly traded real estate investment is that these products traditionally have high upfront fees and you may need a minimum net worth or income to participate in the investment. Another downside to this is a bit more complicated, but it is worth explaining. These REITs trade on a public exchange like the NYSE and NASDAQ. They are bought and sold just like a stock.

One way that investors look to achieve diversification is by investing in different asset classes. Typically, these are assets like stocks, bonds, real estate and even precious metals. While publicly traded REITs offer the ability to easily diversify asset classes and own real estate, these investments are heavily correlated with the overall market.

Generally speaking, if the markets are doing well the publicly traded REIT investments are as well. If the markets are performing poorly, the publicly traded REIT investments are as well. The point of investing in different asset classes is to have assets performing in different ways at different times. Maybe the stocks in your portfolio are performing poorly, but the value of the gold in your safe is soaring.

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Consider the example above. On the left is a publicly traded Vanguard REIT and on the right is the S&P 500. In January and February of 2018, there was turmoil in the market and a broad market correction took place. As you can see, a correction also took place with the Vanguard REIT. While it is not identical, the performance of these two investments is very similar. This defeats the purpose of asset diversification, meaning the publicly traded REIT is not the perfect solution to our real estate problem mentioned above.

Fundrise Real Estate Investing Platform

One of these new real estate investment options is Fundrise. This is a new platform for investing in real estate that was founded in 2010. Fundrise is a new online investing platform that gives everyday investors the power to invest in commercial and residential real estate at a very low cost. The minimum investment to get started with Fundrise is just $500.

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Fundrise Logo

Fundrise offers investment plans to invest in different types of real estate such as income producing rental properties or growth oriented real estate developments. Fundrise offers different investment plans based on your investment objectives. Fundrise has significantly lowered the barriers to entry for real estate investment and offered an interesting alternative to the publicly traded REIT.

We will be explaining how Fundrise is different shortly.

Fundrise pools money from investors and separates the investments into different plans based on your investment objective. You can invest in a growth oriented plan, an income oriented plan or a blended plan. Fundrise takes this money and invests it in a variety of different real estate projects. This could be new construction or renovation of existing real estate.

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Fundrise Project, Briar Creek Townhome Renovation

Take the Charlotte, NC townhome renovation project for example. This is a renovation project taken on by Fundrise where they will be modernizing 46 townhomes in a desirable location in North Carolina. These townhomes have a dated look, and they will all look like the newly renovated home on the right upon completion.

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Fundrise Project, Briar Creek Townhome Renovation

Each project has a website where you can learn about the project as well as the investment opportunity. This investment has a Debt Rating of C, giving it a higher projected return. The Projected Return of this project is 10% at a Total Investment of just over $4.1 million. Collectively, Fundrise investors have funded this renovation.

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Fundrise Project, Briar Creek Townhome Renovation

Fundrise Investment Vehicles

Fundrise allows you to invest through two financial instruments that they invented; the eREIT and the eFund. The short explanation of these investments is that they are non traded, meaning they are not available on a public exchange like a traditional publicly traded REIT. The eREIT and eFund are also investments you purchase directly from Fundrise. This cuts out the middleman and reduces the overall fees.

If you want to dive a bit deeper, here is more information!

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Fundrise eREIT

Fundrise eREIT: An electronic non traded REIT built to provide income to the investor.

eREITs are created by Fundrise and have no broker fees and no front end load fees. Many traditional REITs have 7-15% front end load. Fundrise charges a 1% asset management fee annually (0.85% annual asset management fee and 0.15% annual investment advisory fee).

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Delaware Global Real Estate Fund (DGRPX)

Take the Delaware Global Real Estate Fund for example. This investment has a front load fee of 5.75% and an expense ratio of 1.4%!

eREITs are non traded REITs offered by Fundrise. Non traded REITs are highly illiquid, so understand what you are investing in before you decide to commit.

We will be talking more about investment liquidity later on in this review. 

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Fundrise eFund

Fundrise eFund: A professional portfolio of real estate assets.

An eFund is setup as a partnership instead of a publicly traded corporation. This allows the fund to avoid the double taxation that corporations are subject to. You will pay tax on capital gains and dividends as they are incurred. Where eREITs are designed for income, eFunds are designed for growth.

eFunds also cut out the broker in the transaction and helps maximize the investors return on their capital. eFunds also have quarterly redemption periods, so you will not be able to liquidate your position on an immediate basis.

Fundrise Fees Explained

Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front load fee with Fundrise.

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Fundrise Fees vs Traditional Investment Fees

For more detailed information on Fundrise fees, keep reading! 

One of the biggest advantages to investing with Fundrise is the extremely low fee structure compared to other real estate investment trusts. As we mentioned above, a front load of 7 to 15% is not uncommon in the REIT industry.

If you were investing $10,000 in a REIT with a front load of 15%, you would be paying $1,500 in fees on Day 1! 

Traditionally, investors have been able to gain access to some of these real estate markets using non traded REITs. These are real estate investment trusts that are not offered on public exchanges. These non traded REITs carry the same benefit discussed above, having less correlation with the overall stock market.

To invest in a non traded REIT, you must purchase it through a broker or investment advisor. Most brokers will charge 5 to 8% commission on the total amount invested. Be careful when investing in non traded REITs through a broker or investment advisor. Often times, they will tell you they are not being paid any commission. Ask a lot of questions and understand the likelihood of hidden fees!

Beyond the front load fee associated with a non traded REIT, you also pay an annual management fee. This is typically around 1%, and this is the same fee charged by Fundrise. When you invest with Fundrise, you pay a 0.85% annual asset management fee and a 0.15% annual investment advisory fee for a total of just 1%. There are no other hidden fees with Fundrise and there is no front load fee.

Is it Safe to Invest in Fundrise?

Fundrise files with the SEC and is audited on an annual basis. These financial statement audits are disclosed on the Form 1-K. Beyond that, Fundrise offers a 90 day satisfaction guarantee. Some limitations do apply, but if you are unhappy with your investment in the first 90 days, Fundrise will buy it back at the original price you paid. Fundrise is for United States investors only, however international investors can invest through some US based entities. The minimum investment to get started with is $500.

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Fundrise SEC Filing, Form 1-K

Fundrise Investment Liquidity Explained

An asset has high liquidity if it can quickly and easily be converted into cash. Assets like stocks are highly liquid, as you can sell them on a stock exchange in a matter of seconds. Real estate is inherently a low liquidity investment. Real estate does not change hands as easily as a stock. It is important to understand that liquidity is never guaranteed when investing in Fundrise.

When Fundrise invests in a real estate project, it is typically a long term investment of five years or more. It is important to understand that as an investor, you should be ready to leave that money invested for the long term. Fundrise has stated this platform is for investors who have a minimum time horizon of five years. If you are a short term investor, Fundrise is not for you!

Fundrise offers a monthly redemption plan where investors have the opportunity to cash out each month following a minimum 60 day waiting period. It is important to understand however that liquidity is never guaranteed.

In order for Fundrise to generate the greatest return for investors, they need to remain as fully invested as possible. If Fundrise held 20% of the fund in cash for redemption, that means 20% of the fund is earning a return of 0% or close to it. This is referred to as the cash drag of an investment fund. Idle cash is not desired when it comes to an investment fund. In order to achieve high returns and keep investors satisfied, Fundrise remains as fully invested as possible.

Fundrise Investment Options 

Fundrise offers one plan for beginners who invest a minimum of $500 and three plans for advanced investors who invest a minimum of $1,000.

Investment PlanMinimum InvestmentPortfolioAnticipated Return
Starter$50050% Growth, 50% IncomeNot Disclosed
Supplemental Income$1,000Cash flow producing real estate focused on dividends8.5 to 10.3%
Balanced Investing$1,000Blend of both income and growth producing real estate8 to 11.7%
Long Term Growth$1,000Returns are primarily recognized by asset appreciation7.7 to 12.5%

How To Make Money With Fundrise 

Fundrise is a 100% passive investment. You simply invest your cash and it is immediately put to work. With Fundrise, you make money in one of two ways; asset appreciation and dividends or distributions.

Your eREITs within Fundrise will pay quarterly dividends or what Fundrise calls distributions. These dividends consist of interest payments from loans and rental payments. The amount of your investment in the entire eREIT determines the amount of your dividend payout.

If you buy into an eREIT, the first quarter your dividend will be prorated based on the amount of days you owned it during that quarter. After that, you will receive your dividend based on the amount of share ownership you have in the eREIT.

Investors can expect to receive dividends from Fundrise on a quarterly basis, but it is important to remember that these dividends are never guaranteed. Just like with the stock market, dividend payments are never guaranteed. The payout frequency and amount can be increased, decreased or the dividend can be canceled at any time.

In terms of asset appreciation, Fundrise will purchase properties with a high potential to grow in value. Often times this is a property in a booming area where population growth is exceeding the national average. The goal is to buy property ahead of a major trend and capitalize on the growth of the neighborhood. Once a property is acquired, Fundrise will often renovate the real estate and make improvements to increase the sale price and the value of the property. The returns are primarily realized upon the sale of the property.

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North Los Angeles Renovation Loan

Consider the North Los Angeles Renovation project. The city of Los Angels has the nation’s second largest economy and a massive housing shortage. On top of that, environmental and zoning regulations make it difficult to build more density. There is a massive shortage of housing in this booming area, and Fundrise has identified this as a huge opportunity. This $3.8 million renovation of a Los Angeles apartment building is expected to return 8.7% to investors. This is a perfect example of a growth oriented strategy where a return is generated primarily through asset appreciation.

If you’d like to receive mostly dividends in Fundrise, your best bet is to invest in the Supplemental Income Plan which aims to maximize income through dividends. Fundrise also offers a Balanced Investing Plan which aims to give you a mix of asset appreciation and dividend income.

Reinvesting Fundrise Distributions (IMPORTANT!)

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Here is our comprehensive article on compound interest.

Fundrise Portfolio
Fundrise Portfolio Screenshot

Consider the above Fundrise portfolio. This is an investment of $1,000 in the Balanced Investing Plan, so returns will be generated from both income producing properties and asset appreciation. Earnings to date is $6.42 and the next distribution is expected in mid October of 2018. On the right, you can see that dividend reinvestment is enabled.

Fundrise Historical Performance 

Past performance does not guarantee future returns. All investing involves risk, including potential loss of principle.

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Fundrise Supplemental Income Plan

The Fundrise Supplemental Income Plan aims to generate returns through quarterly dividends and it is less geared toward asset appreciation. The money invested in this plan is invested in income producing real estate and rental income is distributed to investors in the form of dividend payments or distributions.

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Fundrise Balanced Investing Plan

The Fundrise Balanced Investing Plan generates returns through both dividends and asset appreciation. The money invested in this plan is invested in both income producing real estate and renovation projects.

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Fundrise Long Term Growth Plan

The Fundrise Long Term Growth Plan generates returns through asset appreciation and it is less geared toward income producing real estate. The money invested in this plan is invested in real estate renovation projects where the majority of the returns are recognized when the property is sold.

Pros of Investing in Fundrise

  1. The minimum to get started with the Starter Portfolio is $500
  2. Since this is a non traded REIT, it is less correlated with the overall market
  3. Small retail investors are able to access private real estate investments
  4. Fundrise has a transparent fee of 1% per year 
  5. Fundrise does not have a minimum net worth or income requirement like most private investment funds do
  6. Fundrise gives you diversified exposure to real estate
  7. This investment allows you to earn compound interest, with the option of automatically reinvesting quarterly dividends
  8. Fundrise supports some retirement accounts
  9. This is a 100% passive real estate investment
  10. Monthly redemption periods eliminate the temptation for panic selling

Cons of Investing in Fundrise

  1. Liquidity is never guaranteed
  2. Distributions (dividends) are never guaranteed
  3. Distributions (dividends) are taxed as ordinary income
  4. Fundrise has a limited track record of four years

The Verdict

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Fundrise Logo

Fundrise is a perfect platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

Fundrise is best for investors with a 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90 day satisfaction guarantee, you should not invest if you have a short term investing mentality.

Click here to get started with Fundrise!