Fundrise Review – Jump on eREIT Bandwagon

Fundrise Review – Jump on eREIT Bandwagon

5 / 5 stars
Last Updated: 06/14/2017

Summary of Fundrise
Crowdfund commercial real estate investments or invest in the first eREIT. Available for both accredited and unaccredited investors. Invest as little as $1,000.

Fundrise Review Ranking

Fundrise is in the top 5% of companies we review.

Check out the NEW Fundrise
Since the JOBS act was passed, back in 2012 if my memory serves me, I’ve been interested in crowdfunding. I really thought it would massively change real estate and do it quickly. It was supposed to make private equity available to the unaccredited investors which is the vast majority of people.

Well, I was sorely disappointed. Years went by and some sites popped up, but almost all cater exclusively to accredited investors.

An accredited investor is a person who has more than a million dollars in assets (excluding personal residence) or who earns 200-300k per year or more. The government doesn’t consider the rest of us to be sophisticated enough to be private investors.

Even if you aren’t ready to start investing directly in real estate, you may be considering adding real estate into your portfolio by investing in other ways.

So, I have decided to test out Fundrise to balance my real estate portfolio and earn some more passive income in the process.

Jump ahead to any section of this eREIT review

  1. What is Fundrise?
  2. Accreditation Requirements
  3. How Does Fundrise Screen Deals?
  4. eREIT Fees
  5. Redeeming your eREIT shares
  6. Conclusion

Fundrise Review – 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.

So, I set up my account to honestly try it out – I only thought about doing a Fundrise review afterward. If you are interested in setting up an account you can get it here on the Fundrise Website. You can always decide against investing but you should set up a free account so you can take a look at the platform and make a final decision to invest or not!

 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:

What is Fundrise?

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.

Fundrise’s Accreditation Requirements

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.

So I was browsing around the internet one day and I came across Fundrise…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.

How Does Fundrise Find and Screen 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.

Check out the NEW Fundrise

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.

Choosing How to Invest with Fundrise

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.

Simple 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:

Breakdown of the eREIT fees

  • 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

Redemption of fundrise eREIT shares

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.

Should you invest with Fundrise?

Well, I obviously cannot answer that for you. The purpose of reviewing Fundrise is not to tell you if you should invest (only you can decide that) but to give you an idea of what they have and if they are easy to work with.

I can say that Fundrise did receive a coveted 5 star review here and they are uniquely positioned to help investors allocate money into real estate without having to be real estate experts themselves.

Fundrise Review – My Overall First Impression of Fundrise and Online Real Estate Crowdfunding in General

  • Seemingly lower fees than traditional real estate investing
  • I am impressed by the website, layout, and utter simplicity.
  • 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.

What Next?

I’ll make sure to publish updates to this Fundrise Reviews throughout the year to keep everyone updated with my experience with them.

Don’t forget to like this article and share it online! If you have experience with Fundrise, please comment.

Check out the NEW Fundrise
By | 2017-06-20T15:22:32+00:00 April 4th, 2016|Categories: Crowdfunding, Investing, Reviews|Tags: , , |17 Comments

About the Author:

An investor that reached financial independence at the age of 30, Eric has been seen on Forbes, Trulia, WiseBread, TheStreet, and other financial publications.

17 Comments

  1. Pat July 19, 2016 at 11:14 pm - Reply

    Eric, what kind of returns have you been getting with eREITs if you don’t mind me asking. Did you investing in the growth eREIR or the income eREIT? I’m thinking about putting in $1k just for fun.

    • Eric Bowlin July 20, 2016 at 10:55 am - Reply

      Hey Pat, I got a 10% annualized return last quarter on the income eREIT. I’ve been impressed with Fundrise so far so I’m thinking about dropping in an additional 4 or 5k into the growth eREIT too.

    • MyFiIntheSky March 1, 2017 at 4:35 pm - Reply

      First of all, great write up to Eric! Pat, I’m also tracking the performance of my investment on my website if you’re interested. I detail a few additional concerns there, but overall I think it’s well worth a small investment to see how the company performs.

      My main concern is that the startup costs could be massive if the company does not raise as much capital as they think they will, so it also might make sense to hold off major investments until the current offerings raise closer to $50 million (the West Coast, East Coast, and Heartland offerings are each at about $10 million right now, which equates to 10% of the current investment going to startup costs – if they raise $50 million, the startup costs are 2%, which is much more reasonable).

      • Eric Bowlin March 1, 2017 at 6:14 pm - Reply

        Absolutely true, Fundrise had some very high startup costs on this offering and the more they go through it, the lower that cost is because it’s divided across all the funds.

        That being said, I commend them on being the first to actually try this offering in the murky regulatory environment surrounding some of the JOBS act.

  2. Joy August 11, 2016 at 5:57 pm - Reply

    Hello Eric and thanks for the review. I would like to make sure I got this right:
    1.The 3 to 5% fee you pay as an investor is only when you redeem your shares correct?
    2. As long as you own shares of the eREIT you pay management fees on theses shares correct?
    3. Does your annualized return take these fees (redemption and management) into account?

  3. Eric Angleton October 18, 2016 at 9:28 pm - Reply

    This is potentially a phenomenal company; but, they don’t offer any (to my knowledge) retirement accounts (IRA, Roth IRA, SEP IRA). I consider that to be their biggest flaw; and, enough of one for me to switch to someone who does have that kind of support. I emailed them about this, and apparently they used to offer this, but were driven out of that market, from the expense required to offer them. It’s disappointing, and honestly counter to the saving they promote; these tax-advantaged accounts are absolutely indispensable, for saving.

    • Eric Bowlin October 18, 2016 at 9:30 pm - Reply

      Thanks for pointing this out Eric.

      Do you know of any top tier companies that offer this?

      • Eric Angleton October 19, 2016 at 12:04 am - Reply

        Wealthfront, or Betterment; heck even Motif, which I honestly think is the future of the equity marketplace (I’m not even affiliated with, or own stock in them). But, in general, consumers should are better protected from downside potential, when buying baskets of diversified stocks (motifs) that align with their interests.

        • Eric Bowlin October 19, 2016 at 12:21 am - Reply

          Unfortunately, none of them are crowdfunding. None are real estate either.

          I actually have no idea how they are related to this topic at all. This article is for people looking to add real estate to their portfolio.

          Everyone already knows that real estate investing is not a replacement to your stocks. But a portfolio that has solid real estate investments outperforms a basket of stocks like the S&P 500.

          That’s just a fact.

          • Eric Angleton October 19, 2016 at 1:22 am

            Fair point yeah; I tend to honestly be a smidge biased towards publicly trade-able equities (stocks). Motif, actually offers REIT Motifs; which, because they have support, for retirement accounts, I would gravitate to them, over Fundrise. This is my only complaint about Fundrise; all they have to do is simply support IRAs, which I believe should be the cheapest to have support for.

  4. Abraham November 11, 2016 at 9:31 pm - Reply

    A quick look makes me think they are taking a 5% commission. The probably make more if the investment is successful.
    You, on the other hand are taking a 100% risk. 10% income is nice, this however only works as long as things go well, i.e. when times are good.

    Also, you have no control on the operation. If you buy/fix/rent/sell, whatever you do have that control. This on the other hand is a passive investment. You will be taxed, federal and state at your tax rate. No depreciation, no leverage.

    Been there, done that as an accredit investor prior to 2007. Did not loose too much money but was not the investment the brochure made you believe it would be.
    Warren Buffet says her reads the annual report in reverse order: first he reads the notes, that’s where the company puts all the nasty stuff they don’t want you to know but are required to report.

    Read the fine print, put yourself in the company’s shoes and understand why this would be a good deal for you.

    Not trying to be a wet towel, just encouraging you to look on the downside as well.

    Good luck to all.

    • Eric Bowlin November 12, 2016 at 8:12 pm - Reply

      Thanks for the great info. I think REITs of any type have many risks but still are amazingly popular investments.

      The eREITs are still young but appear to be some of the most transparent and low fee REITs out there. Of course, that only matters if you are the kind of investor that wants a REIT.

  5. Eric Angleton January 13, 2017 at 5:48 pm - Reply

    Looks like I can’t just append to my long(ish) thread above; but, there’s a HUGE red flag with Fundrise. Your redemption is seemingly reduced by the amount you receive as dividends. I just redeemed my initial investment; and, the amount redeemed was reduced by exactly the amount I received, as dividends. It’s possible this is associated with fees; but, I can’t tell, the documentation on it is sparse; plus, the difference matches the amount received in dividends, exactly. So, essentially, my investment appears to have been an interest-free loan; I redeemed within their 90-day trial period; so, I’m really confused. I emailed them, to try and get this resolved; I’ll post an update, when I get one.

    • Eric Bowlin January 15, 2017 at 8:22 am - Reply

      Thanks for bringing it to my attention, but I don’t see it as a red flag.

      You can find the offering curricula here: https://fundrise.com/oc

      A quick search for “redemption” and you’ll find the following in there:

      “For the first eightynine (89) days following the settlement of the common shares subject to the redemption request (the “Introductory Period”), the per share redemption price will be equal to the purchase price of the shares being redeemed reduced by (i) the aggregate sum of distributions paid with respect to such shares, rounded down to the nearest cent and (ii) the aggregate sum of distributions, if any, declared but unpaid on the shares subject to the redemption request. In other words, a shareholder would receive back their original investment amount, from the redemption price paid, prior distributions received and distributions that have been declared (and that will be received when paid), but would not receive any amounts in excess of their original investment amount.”

      Sounds like they followed the agreement.

  6. Eric Angleton January 15, 2017 at 12:46 pm - Reply

    Thanks for finding the relevant clause; it does indeed appear to be in-line with their agreement. Nevertheless, If redeemed within this introductory period though, it amounts to precisely what I alluded to; viz. “an interest-free, short-term loan.” I’ll stick with Wealthfront & Motif, until this market has more competition; you might not see this as a red flag; but, I see it as a borderline absurd way to essentially force investors to tie their funds up with Fundrise, for a lot longer than 90 days, in order to get their principal, and any dividends received, redeemed.

    • Eric Bowlin June 20, 2017 at 3:14 pm - Reply

      REITs are supposed to be illiquid just like real estate is. I actually find it great that Fundrise offers a 90 day redemption period! If you bought a property and changed your mind after closing, you’re out of luck!

      Anyhow, thanks again for bringing this to our attention. The purpose of the review of Fundrise is to help people make informed decisions. Definitely, if you might need the investment money, you should not make the investment!

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