Fundrise vs CrowdStreet
Investing Simple is an affiliate of Fundrise. This relationship does not influence our opinion of this platforms.
Asset allocation is always important in a well balanced portfolio. From stocks to real estate, there are many different ways to diversify. In this post, we would like to review and compare two very popular real estate investing platforms, Fundrise vs CrowdStreet.
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 based on the principal investment. Historically Fundrise has 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 platforms allow average retail investors to gain exposure to this asset class. The Fundrise Starter Portfolio has a minimum account balance of $500.
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.
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.
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. Fundrise investors receive income from rental payments and proceeds from flips 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.
The Fundrise Starter Portfolio is 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!
Next, we have the Fundrise Supplemental Income Portfolio. This portfolio holds 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.
The Fundrise Balanced Investing 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
Finally, we have the Fundrise Long Term Growth Portfolio. 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. You will earn dividends from the rent payments of the underlying apartment and commercial leases owned within the eREIT. As well as interest payments from underlying real estate debt investments owned by the REIT.
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 structured in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs aim 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 a 5-year time horizon when investing with Fundrise. This Real estate investment is not highly liquid and may not be for everyone!
It is important that investors understand that Fundrise cannot guarantee distributions or liquidity.
Fundrise Historical Returns
Past performance does not guarantee future returns. All investing involves risk, including the potential loss of principle.
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 start investing with the Starter Portfolio is $500.
- Small retail investors are able to access private real estate investments.
- Fundrise offers non traded REITs, which may not directly correlate with the fluctuations of the stock 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
- Fundrise cannot guarantee liquidity. 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 not guaranteed.
- Distributions (dividends) are taxed as ordinary income rather than capital gain rates.
- The platform 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. The Fundrise platform may 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. In addition, you can 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.
What Is CrowdStreet?
CrowdStreet is an online commercial real estate investment platform that launched back in 2014. On the site, they claim to have had projects that exceeded returns of 22% for investors and sponsors. This platform differs from the others mentioned above because there are three different ways you can invest with them:
- Invest directly into individual real estate deals
- Contribute to an investment portfolio of 30 to 50 properties
- Fully managed investments based around your goals and objectives
CrowdStreet is one of the only crowdfunded real estate investing platforms we have come across that allows investors to pick and choose individual projects to invest in. This platform also focuses solely on commercial real estate, meaning there is no residential real estate in the mix. On their site, they claim to review around 400 potential investment opportunities each month. Of those reviewed, less than 3% are accepted.
One of the key reasons why CrowdStreet is in fourth place on our list is because of the high upfront investment. For the direct investing approach, a $25,000 or $50,000 minimum is common. They recently lowered the minimum investment for the portfolio option from $25,000 to $10,000. Finally, the fully managed portfolio option has a minimum investment of $250,000. This makes CrowdStreet out of reach for many new investors. Due to federal regulations, most of the CrowdStreet investments are for accredited investors only.
CrowdStreet Investment Options
Through direct investing, you pick and choose properties to invest in. This is ideal for the active investor with a sizable amount of capital to deploy. CrowdStreet offers research tools for investors and is very transparent. Currently, the deals available on CrowdStreet have a minimum investment range of $25,000 to $50,000.
Investing in a portfolio of real estate projects is a great approach for passive investors. CrowdStreet has already done the research on these real estate investments. Each portfolio holds anywhere from 30 to 50 commercial properties. The minimum to invest in the CrowdStreet Blended Portfolio is $10,000.
Finally, there is managed investing. CrowdStreet will personally manage your portfolio to help you reach your investment goals. CrowdStreet experts will build you a personalized real estate investment portfolio and invest in deals on your behalf. This service is reserved for high net worth investors, as the minimum to invest is $250,000.
With the direct investing approach, each project has a targeted investor IRR or internal rate of return. Of the 8 projects available when we did our research, the targeted investor IRR ranged from 9% to 24% based on a number of different factors. Unfortunately, we could not find any historical return data for the CrowdStreet Blended Portfolio. Since the managed plans are tailored to each specific person, returns will fluctuate. CrowdStreet boasts about a number of past projects that have generated exceptional returns.
This crowdfunded real estate platform has a unique approach when it comes to fees. The deal sponsors pay all the fees, meaning there are no fees for the investors. CrowdStreet is very transparent about who the sponsor is for each deal. This fee approach is one of the highlights of this platform.
Pros Of Investing With CrowdStreet
- CrowdStreet does not charge investors any fees
- Historical returns have been very solid
- CrowdStreet allows investors to invest directly alongside a sponsor rather than using an alternative investment vehicle
- You can invest directly in a single property rather than investing in a basket full of multiple properties
- A number of options are available to investors
- CrowdStreet provides access to real estate investments that would be otherwise extremely difficult to find
Cons Of Investing With CrowdStreet
- The minimum investment of $10,000 is quite high
- CrowdStreet does not offer a secondary market where you can liquidate your investment, meaning you are locked in for the entire investment duration
- Most of the investments are for accredited investors only
Fundrise vs CrowdStreet: The Bottom Line
Fundrise and CrowdStreet offer similar, but very different crowdfunded real estate platforms. Both platforms allow you to invest in commercial real estate using the convenience of online platforms. The similarities pretty much end there.
Fundrise has more appeal to an investor with a smaller investment. You can invest in Fundrise real estate projects with only $500 vs CrowdStreet which has a minimum of $10,000 to start investing. Not to mention, most of the CrowdStreet investments are limited to accredited investors only. CrowdStreet is going after an entirely different market of investors.
CrowdStreet is unique because you can decide which properties you’d like to invest in and put your entire investment into that one property. Fundrise, on the other hand, will only let you invest in their assortment of portfolios (Beginner, Long Term Growth, Income, etc). For that reason, in most cases CrowdStreet is better for active, high net worth investors.
CrowdStreet has the advantage when it comes to fees. CrowdStreet investments have sponsors who pay all of the investment fees. Fundrise charges a 1% annual investment management fee.
Overall, we believe Fundrise offers a more appealing platform and one that is more accessible to the average investor. CrowdStreet may be a good option for those higher net worth investors who have the capital to meet the minimum investment and would like to concentrate their real estate portfolio.