I set up my account and invested an initial $1,000 into Fundrise back in 2016. I did it just to try it out and invest a few bucks, but I loved it so much I decided to review it. You can set up your account for free (Fundrise Website) and I highly recommend it as there is no obligation and you really can’t get a good sense of Fundrise until you do set up an account and look at what they have.
There are 80+ crowdfunding websites, and the majority of them aren’t really that good. But, most review sites simply pick the ones with the highest affiliate payout and rank them.
So, we’ve created one of the most stringent sets of grading criteria on the web for crowdfunding platforms and we review as many crowdfunding sites as we can.
This strict and well-documented methodology helps us avoid any potential conflicts of interest, and you can see the methodology with the link above. We have 11 overall categories and rank every company based on the information we have and weight the responses based on what we believe is most important.
So, check out the criteria and read the review below about the company and how it stacks up against its competition.
Jump ahead to any section of this Fundrise Review
- What is Fundrise?
- Accreditation Requirements
- How Does Fundrise Screen Deals?
- Fundrise Fees
- Redeeming your Fundrise eREIT shares
- Fundrise vs The Competition
Fundrise – Intro to the Company
Disclaimer: When I first wrote this article it was because I invested in Fundrise and enjoyed my experience with it. After some time I came to love it so much that I am now an affiliate. If you click on one of the links and sign-up for Fundrise, I may be compensated a small referral fee at absolutely no cost to you.
Why Try Crowdfunding?
I’ve been enamored by the idea of crowdfunding since before 2012. Not only have I thought about ways to crowdfund my own investments (though I haven’t got to that level yet), but I’ve also thought about investing in other’s real estate deals as well.
I have noticed that real estate is so far behind other areas when it comes to crowdfunding. Real estate investing is still amazingly arcane with how developers find investors, syndicate deals, and then move forward on projects. Why can tech startups find hundreds of millions of dollars in funding practically overnight, even for terrible ideas, but real estate is reserved for a very small and elite group, even when the potential projects are amazing?
So, if you are an experienced investor currently and want to diversify or simplify your portfolio, online investing is a great place. On the other hand, new investors might find online investing a great place to start!
Let’s dive in:
Fundrise an investment service that allows you to invest directly in commercial real estate. Fundrise created a marketplace that is fairly transparent and their goal is to “make the process of investing in the highest quality commercial real estate from around the country simple, efficient, and transparent.” Essentially, they bridge the gap between the investor and the developer.
As I complained about above, real estate is traditionally very exclusive, and the only investors were those with direct access to the institutions that fund the deals. Fundrise (along with many others) is cutting out the middle-man and allowing us to directly invest. Also, by cutting out the institutions, it should hopefully reduce the overhead expenses and keep our fees low.
Fundrise currently has roughly 100,000 members and they have invested in nearly $3 billion worth of real estate. They let you invest as little as $1,000 at a time and you get to pick the allocation of the funds into different REITs.
Are you ready to see how they do it?
Continue reading this Fundrise review to find out.
A few years ago Fundrise was for accredited investors only. The SEC released Regulation A which made things available to unaccredited investors, but it was too complicated so most sites used Regulation D instead, which excludes unaccredited investors. The SEC surprised everyone in March 2016 and released Regulation A+ which further simplifies the process for the unaccredited investors to invest.
Fundrise really has been the pioneer in this area and being one of the first (if not the actual first ones) to use Regulation A+ to bring online offerings to the masses….again. I was browsing around their site and found they are actually available to unaccredited investors as well (us unsophisticated masses that can’t make good investment decisions). It was a welcome surprise to see the potential for normal people to get their hands on passive real estate investments.
Fundrise claims to receive over 250 submissions per week with less than 1 percent being approved. According to the Fundrise website, they have a very strict underwriting process that includes the following steps:
1) Sponsor Screening
The first thing they look at is the company and the sponsors. They look only for companies that are well capitalized and have a history of success in top US markets. They claim that only 25% of sponsors move beyond this step.
2) Initial Project Due Diligence
Fundrise is focused on short-term projects that last 1-3 years. Their preferred structure is Senior Secured Debt, Mezzanine Debt, or Preferred Equity. Fundrise investors are senior to the sponsor and “Fundrise investors must get paid back their principal and any owed returns before the company is able to realize any profits.”
3) Detailed Underwriting
If the sponsor and project meet the Fundrise requirements, it moves on to the detailed underwriting. The Fundrise underwriting team completes an extensive analysis and review of all these points. The total underwriting checklist contains more than 350 different data points.
I was originally going to include a list of some of the underwriting criteria, but instead I found a cool video and linked it above. Check it out!
4) Purchase by Fundrise
So Fundrise actually funds the deal before putting it on the platform. By pre-funding the deal, they take on a large amount of risk that this project will be good and investors will want it.
One thing to remember about Fundrise – you are actually investing in a bundle of real estate deals. They’ve created a revolutionary real estate platform that most of you will be comfortable with.
Simply put, you pick you broad investing objectives, and Fundrise helps choose how to allocate your money.
As you can see, it’s generally broken down into high income, balanced, and growth.
Choosing an Investment to Crowdfund with Fundrise
Continuing on with the Fundrise Review… As you can see, there aren’t many choices. So how do you get diversification? Simply, they have several eREITs that have invested throughout the country.
By choosing one of their options, Fundrise will suggest an allocation. You can choose if you’re focused on current income, future potential, or a balance of the two.
A Real Estate Investment Trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. – Wikipedia
a REIT has a lot of requirements in order to qualify and it needs to distribute 95% of its taxable income to the shareholders. There are also different types of REITs, such as a publicly listed REIT, non-listed REITs. These eREITs offered by fundrise are non-traded REITs as they are not listed or traded on the stock exchange.
According to FINRA, there are a number of risks associated with non-traded REITs, the biggest of which is that it can be very difficult to get your principal back. Other issues are potentially high fees, especially on the front-end and a limited secondary market to sell your shares. In fact, you can read a very scathing review of non-traded REITs if you’d like.
So I decided to do a bit of digging on this eREIT. I was able to pull up the offering circular on the SEC website. Wow, what a hard document to read!
The first thing I wanted to investigate was the fees. Here is a quick breakdown of the fees I was able to find:
- Manager – Offering Costs of $1,000,000 or roughly 2% of money raised
- Acquisition/Origination Fee – Manager – 3% of the amount funded. Paid by borrowers and not by the Fundrise Investors
- Reimbursement of Acquisition – Manager – Only if not reimbursed by the Borrower – Amount Unknown
- Asset Management Fee – 1%
- Servicing Fee – 0 – .5% * This is the fee that may be waived if underperforming
- Special Servicing Fee – 1% of non-performing assets
- Other Fees – Unknown
- Commissions – There appear to be no commissions
Here is another complicated one. There are a few variables at play here. First, Fundrise will only redeem a certain amount of shares per quarter. Once they have redeemed those shares, you will get in line for the following quarter, and so on. Additionally, when you redeem the shares, you will incur a penalty of between 3 and 5% of the share price. Thirdly, Fundrise gets to calculate the value of the shares and it’s essentially impossible for us to determine that value on our own.
- Less than 6 months – No Redemption Allowed
- 6 months to 2 years – 95%
- 2 to 3 years – 96%
- 3+ years – 97%
The biggest unknown appears to be the unknown value that Fundrise will place on each share. Upon purchase, each share is worth $10, but that can easily go up or down based upon their valuation. On top of that, you can only get a portion of your money back when you redeem.
Checking the Fundrise Offerings
Fundrise is unique with the fact that you don’t actually choose specific projects to invest in. Instead, you choose an investment style and Fundrise helps choose a portfolio allocation across their investments. Below is the actual allocation of my investment money.
Fundrise vs other crowdfunding platforms is really what it comes down to. How does Fundrise compare in this review against others.
Well, at the time of writing there are 11 categories we rank them by. Here they are:
- Is Fundrise Available in all 50 states? – Yes
- Do they prefund deals? – Yes
- Fees? – Approximately 3%
- Minimum Investment? – $500
- Co-Investing? – Unknown, but most likely not
- Bankruptcy Protection? – Yes
- VC Funding? – Yes
- Non-Accredited Investors Allowed? – Yes
- Diverse Property Types? – Yes
- Equity Investments? – Yes
- Debt Investments? – Yes
A few months ago, Fundrise was tied in first place with 3 other platforms, but now that they have dropped their minimum investment to $500 from $1,000, now they will take first place with an overall score of 5.5 points out of 6.5 points.
Our rule is the top 5% of sites will get a 5-star ranking, so it’s still an overall tie, but Fundrise is definitely #1 now.
My Overall First Impression of Fundrise
- Seemingly lower fees than traditional real estate investing
- I am impressed by the website, layout, and utter simplicity.
- I love how you can reinvest dividends
- I wish there were more offerings to choose from, or that they came along more often.
- Waived management fee if it doesn’t perform makes you feel they are selling something they believe in.