Fundrise vs Rich Uncles
Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of these platforms.
As investors, when we are trying to diversify our portfolios we look to differentiate our portfolio using different asset classes, sectors, or regions. After all, diversification is key to a balanced portfolio. Recently a number of real estate investing platforms have emerged. In this post, we would like to review and compare two very popular real estate investing platforms; Fundrise and Rich Uncles.
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 get 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.
This 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!
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.
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.
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 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.
- Since this is a non traded REIT, it may not directly correlate with 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 Rich Uncles?
Rich Uncles is an online crowdfunded real estate investing platform similar to Fundrise. Rich Uncles gives you the opportunity to invest in a variety of commercial and residential real estate projects. By leveraging technology, Rich Uncles provides a unique user experience for the investor. Originally, only accredited investors were able to invest with Rich Uncles. Now, they have released multiple new REITs with an investment minimum of only $5.
What You Need To Know As A Rich Uncles Investor
Rich Uncles is a non traded REIT. This means you cannot exchange your shares of the REIT on an open exchange. Rich Uncles does provide a share redemption service where investors can sell their stake back to Rich Uncles. Rich Uncles provides greater liquidity than a traditional real estate investment, but lacks the liquidity of publicly traded REITs.
2. Minimum Investment.
Rich Uncles has an investment minimum of just $5 for the Student Housing REIT. The National REIT has an investment minimum of $500. This is consistent with other similar real estate investing platforms.
3. Time Horizon.
Rich Uncles is a long term investment. Rich Uncles expects their projects to attract capital for 4 to 7 years. Once the fund has reached capacity, the Rich Uncles investment team may decide to liquidate and disburse the earnings to investors.
Rich Uncles is an open end fund, meaning new shares are constantly being issued so new investors can purchase shares in the fund. When a fund is liquidated, the investors will receive their portion of their principal investment as well as any earnings from the sale of the underlying real estate assets.
4. Dividend Reinvestment.
You will receive dividends on a monthly basis from Rich Uncles. Investors have the option of reinvesting these dividends through the Rich Uncles dividend reinvestment program allowing them to earn compound interest.
Rich Uncles Investment Options
The Rich Uncles platform currently offers two investment options; the National REIT and the Student Housing REIT. Rich Uncles holds strict investment standards in their acquisition strategy. With a focus on quality real estate, Rich Uncles reports that only 0.3% of the deals they review meet their acquisition standards. As a result, the selection is a little bit limited. From restaurants to convenience stores to fitness centers, Rich Uncles provides a broad option of investments across commercial real estate.
1. The National REIT (NNN REIT)
The National REIT aims to invest in industrial, retail, and commercial real estate throughout the United States.
Minimum Investment: $500
States Permitted To Invest: CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SD, TX, UT, VT, WI, WY
Estimated Dividend Yield (annualized): 7%
2. The Student Housing REIT
This REIT aims to invest in student housing throughout the United States. With a focus on student housing in broadly diversified markets around high demand universities. Rich Uncles searches for housing with greater than 90% occupancy rates and a minimum capacity of 150 beds.
Minimum Investment: $5
States Permitted To Invest: All
Estimated Dividend Yield (annualized): 6%
Rich Uncles Investment Fees
Rich Uncles takes a unique approach to their fee structure. Most traditional REITs charge significant maintenance and investment management fees. Rich Uncles, on the other hand, does not make money unless the investor makes money.
The first 6.5% of profits are paid out to investors. Then, Rich Uncles then takes 40% of any profits that exceed 6.5%. This fee structure ensures the investment goals of the investors align with the compensation paid to Rich Uncles.
Pros Of Investing With Rich Uncles
- You can invest in the Student Housing REIT with only $5.
- Rich Uncles only makes money when you make money. The first 6.5% of profits goes to the investor, then Rich Uncles takes 40% of the profits above 6.5%.
- Rich Uncles will issue dividends on a monthly basis.
- Rich Uncles does not require a minimum net worth or income requirement to invest.
Cons Of Investing With Rich Uncles
- Rich Uncles lets you invest in non traded REITs. These REITs do not trade on a secondary market. As a result, it may be difficult to liquidate your investment and receive your cash.
- Rich Uncles recommends investors have a long term time horizon when investing in non-traded REITs. Typically funds will raise capital for 4 to 7 years, then once it reaches its capital threshold it will liquidate and distribute proceeds to investors.
- Currently there are only 2 portfolio options that Rich Uncles offers; the Student Housing REIT and the National REIT.
- Rich Uncles was founded in 2012, so there is a limited track record for investment performance.
- Rich Uncles does not guarantee a return on your investment. There is always the possibility of losing money, including loss of principal.
Fundrise vs Rich Uncles: The Bottom Line
Fundrise and Rich Uncles are similar real estate platforms. Both options fit the investor trying to get exposure to real estate in a passive, online and user friendly way.
The first key difference between the two platforms is the minimum investment requirement. Fundrise has a $500 minimum and Rich Uncles has a $5 minimum for the Student Housing REIT.
Another main difference is the types of investments they offer. Fundrise offers both debt and equity investments in both commercial and residential real estate. Rich Uncles, on the other hand, invests in commercial real estate only. Those looking for residential real estate investments will be leaning towards Fundrise or another crowdfunded real estate platform.
You do not need to be an accredited investor to invest with either platform. This significantly lowers the barriers to entry and makes this a feasible option for the average retail investor.
We believe Fundrise has a slight edge over Rich Uncles mostly due to the wider variety of investment options and fee transparency. Fundrise gives you more options when choosing your investment. You can invest with the goal of capital appreciation or generating income, for example. Rich Uncles only offers limited commercial real estate investments.
Another reason we like Fundrise is the fee transparency. Investors will pay 1% account fees when investing in Fundrise. Rich Uncles, on the other hand, takes 40% of the profits above 6.5%.
There are countless ways to invest in real estate. Fundrise and Rich Uncles are just two of the many options. These may not be the best fit for you based on what you are looking for out of the investment. Check out our comprehensive guide on real estate investing to learn more and explore other avenues!