REtipster provides real estate guidance — not tax or investment advice.
This article should not be interpreted as financial advice. Always seek the help of a licensed financial professional before taking action.
One of the hardest things about being a conventional “real estate investor” is that it takes a lot of work.
Like any business endeavor, there are A TON of moving pieces to keep track of – and if you want your deal flow to continue and the dollars to keep coming in the door, the work never really ends.
And aside from the whole “hard work” aspect of the business, it takes a lot of knowledge and skill to make a real estate investing business work. You need to know how to find deals, analyze deals, identify when you're looking at a good (or bad) deal, manage your money well, deal with endless prospects, clients and customers, and even then… there's still no guarantee of success.
If a person is smart, they'll get into this game expecting plenty of challenges… and I think this is what holds a lot of people back from jumping into the business of real estate investing.
I think there's a GIANT demographic of people who are intrigued by what real estate has to offer – but they're not looking to get their hands dirty. They want a faster, cleaner, less-complicated approach to investing their dollars in real estate.
Does that sound anything like you?
Well, I've got some good news…
It is possible for the almost anyone to jump into real estate investing very quickly, WITHOUT a huge pre-existing net worth, and WITHOUT dealing with the endless headaches that come with entrepreneurship.
It's possible because of the recent advent of real estate crowdfunding – and I'm going to tell you about one particular real estate crowdfunding platform called Fundrise.
What is Fundrise?
Fundrise is an online real estate investment platform that allows the public to invest in private real estate projects throughout the United States. The company was founded in 2012 by brothers Ben and Dan Miller, and they make it possible for aspiring investors enter the real estate investing space with a hands-off approach to the business.
These guys first came across my radar in 2014, but it wasn't until just recently that I finally took some time to research this organization and understand what makes them unique from all the other real estate crowdfunding platforms out there.
What Makes Fundrise Different?
Unlike most of the other real estate crowdfunding platforms out there – Fundrise doesn't require you to be an “accredited investor” (someone with a net worth of $1 million or higher and/or someone with an annual income of $250K or higher) in order to get involved with their investment opportunities. Fundrise doesn't need to require this of their investors because their offering is under Regulation A.
What this means is – rather than investing your money in ONE specific property, Fundrise will let you invest your money in an eREIT (a public, non-traded REIT that invests in small-cap commercial real estate). Ultimately, this serves to spread out each investor's dollars to a more diversified pool of properties. In other words, your returns don't rise and fall based on the success of any single property, but on the overall pool of properties (the eREIT) in which you've invested.
Investors can buy shares in their fund of choice starting at $10 per share, and they are required to buy at least 100 shares (or $1,000 of investment). Because of this setup, investors can invest smaller increments of their money, unlike most of the other real estate crowdfunding platforms today that require a minimum of $5,000 (and oftentimes, upwards of $10,000 to $20,000) to participate in each deal. This opens up the investment opportunities to A LOT of smaller net worth individuals who otherwise wouldn't have the opportunity to get involved with this type of real estate investing activity.
My Experience With Fundrise
When I learned what Fundrise was all about and how their process differs from some of the other real estate crowdfunding platforms on the market today, I decided to give it a shot by creating an account and investing $1,000 of my own money to see how the process worked.
It was one of the easiest things I've ever done. No joke.
If you've got $1K or more that you're looking to invest and you're looking for something other than the stock market, this could be exactly the kind of diversification tool you're looking for.
Check out the video below and I'll show you how easy it is to get started…
Disclaimer: The information contained herein neither constitutes an offer for nor a solicitation of interest in any securities offering; however, if an indication of interest is provided, it may be withdrawn or revoked, without obligation or commitment of any kind prior to being accepted following the qualification or effectiveness of the applicable offering document, and any offer, solicitation or sale of any securities will be made only by means of an offering circular, private placement memorandum, or prospectus. No money or other consideration is hereby being solicited, and will not be accepted without such potential investor having been provided the applicable offering document. Joining the Fundrise Platform neither constitutes an indication of interest in any offering nor involves any obligation or commitment of any kind. The publicly filed offering circulars of the issuers sponsored by Rise Companies Corp., not all of which may be currently qualified by the Securities and Exchange Commission, may be found at www.fundrise.com/oc.
Note: As an affiliate with Fundrise, you should know that REtipster.com will earn a small commission if you decide to sign up for an account through this affiliate link (but seriously, don't do this just because I'm doing it – only invest your money here if you feel it will help you achieve your financial goals).
Property Types and Returns
Most of the properties that Fundrise gets involved with are commercial and multi-family properties – and they are located throughout the United States (so you can pick which region you want your money to be invested in, and you aren't stuck investing ONLY in one city, or on the east coast or west coast).
At the time of this writing, there are a few different funds available to invest in…
- Income eREIT
- Growth eREIT
- West Coast eREIT
- Heartland eREIT
- East Coast eREIT
As the names imply, some of these eREITs are more focused on the objective of generating income for the investors (by investing more in debt than in equity), and some of the other eREITs are intended to create growth of the invested funds (by investing more in equity than in debt).
Likewise, the regional eREITs are designed to create both income and growth – so depending on what type of end result you're looking for (and where you'd like the properties to be located geographically), these factors can help you decide which eREIT fits into your strategy most appropriately.
All of the funds pay a quarterly dividend to their investors until the investment is paid back in full. In terms of the time horizon, all of the eREITs aim to invest in opportunities that will provide liquidity back to the investors after approximately five years (though it could happen slightly sooner or later, depending on a number of factors).
When the funds are paid back, investors simply receive a distribution from Fundrise for the value of their shares at the end of the time horizon (it's NOT like the stock market, where other investors have to purchase the shares).
The liquidation value is based on the Net Asset Value per share multiplied by the number of shares outstanding, so if the NAV is $10 (purchase price), investors would receive back the same amount they invested. If it is higher, they would collect more, if lower, they'd receive back less than their original investment.
It's also worth nothing that…
- Investors can transfer shares to a third-party via the Fundrise transfer agent Computershare.
- Investors can also redeem their shares via the Fundrise quarterly redemption plan. Under the fee schedule for this redemption plan, investors are able to redeem their shares without any fee after 5 years (see below).
As each eREIT overview explains, the investor's funds are ultimately spread out among a number of different property types (multi-family, retail, condominiums, etc.), project types (ground-up construction, value-add renovation, stabilized, etc.) and geographic locations (Los Angeles, New York, Atlanta, Seattle, Washington DC, etc.) – with the funds being positioned as Preferred Equity, JV Equity and Senior Debt – depending on the objective of each eREIT.
The Fundrise platform gives out plenty of information on each investment option, so you can be well-informed before you decide which eREIT you'd like to dive into.
Is Fundrise Right for You?
Investing your money in a real estate crowdfunding platform like Fundrise can be a great way to diversify your dollars into real estate without any of the hands-on drudgery… but that doesn't necessarily mean it's the right choice for everybody.
The great thing about Fundrise is that it's open to virtually anybody who has $1K or more to invest. On the same coin, if you do have what it takes to become an accredited investor with one of the other crowdfunding platforms like RealtyShares or EquityMultiple, it may be in your time to investigate what those other options have to offer (e.g. – if you'd actually prefer to invest your money in one specific building or project, rather than spreading your funds out among several different buildings or projects).
The primary appeal behind a real estate crowdfunding platform is that they can make the process easy. It's also worth noting – when most crowdfunding projects go according to plan, the annual interest/return you can expect to earn in the end is usually somewhere in the neighborhood of 8% – 12%.
On the other hand, if you're willing to roll up your sleeves and do the hands-on work that comes with running a real estate investing business (say, if you're a house flipper or a land investor like me), it's entirely possible that when projects go according to plan, you could see returns of anywhere from 50% – 500%.
Granted, not everybody is equipped to deal with the challenges that inevitably can come up in the real estate investing world, but if you think you've got the stomach and passion for it, you may be better served “getting your hands dirty” so to speak.
As with any business endeavor – there is never any guarantee of a specific outcome, but if you've been looking for an easily accessible, user-friendly way to invest in real estate with a rapidly growing crowdfunding platform, I wanted to make sure you knew about Fundrise – because from what I've seen, they've got a great thing going.