At least not in the traditional sense; I have not had much luck when it comes to investing in real estate. Because of this, I don't speak about investing in real estate nearly as often as I should. On the other hand, I began investing in real estate crowdfunding via Fundrise approximately four years ago, and I'm delighted to report that I've succeeded. I was familiar with Fundrise in the past, and it seemed to be an excellent option to invest in real estate without running the risk of going bankrupt. On the other hand, as has been my custom over the years, I decided to dive in and give it a go. That seems to be the most effective method of education to me. That was four years ago, and just lately, Fundrise sent me a celebratory message on my "anniversary." Because of this, it seems like the right moment to take a look at the past and evaluate how well the investment has worked out. It is not enough to just consider the performance in question. Aside from comparing the investment's results to other real estate deals, I want to evaluate how it performs against those of similar real estate transactions, as well as against those of different types of investments. I really hope that the fact that we will be doing a lot of number crunching here won't bother you. It is the only way to know what is really going on in the market when it comes to investing.
Who is Fundrise?
Fundrise was founded in 2012, and since then, the company has grown to become one of the most successful crowdfunding platforms in the real estate industry. They may be even the best platform. They will have originated over $4 billion in commercial real estate deals across the United States by 2022. As of January 2022, the entire value of real estate assets was estimated to be $7.1 billion. The corporation had distributed an astonishing total of 160 million dollars in dividends to more than 260,000 investors.Private REITs
While working as a financial advisor, I started investing in private real estate investment trusts (REITs). Since they are comparable to Fundrise, I am already acquainted with the general idea. You have a passion for selling investments since you are a financial planner. They paid fees ranging from 7 to 10 percent of the entire investment money. If one of your customers made an investment of one hundred thousand dollars, you would be eligible for a commission of seven thousand dollars or more. When an investor sells their position, they often aren't aware of the commission they paid, which is something that financial planners find to be an additional source of satisfaction. A few private REITs fared pretty well up to the market meltdown in 2008, which occurred in the real estate industry. It was far worse than only the decreases in the value of the trusts. During the depths of the Great Recession, renters were breaking their leases, cash flow came to a grinding halt, and investors demanded their money back. They couldn't pay back investors in their private REITs at that time due to the absence of financial resources of their proprietors. Due to the liquidity issue, it was almost hard to get even a portion of your money back from the investment you made. When it comes to private REITs, such a result is not inconceivable. The language that advises investors that there may be instances in which they may lose part or all of their money is buried deep inside the agreement's small print. However, as you can probably guess, very few people get into any kind of venture with the expectation that they would lose money on their investment, much less lose the whole amount of money they invested. It even happened to one of my friends, or more accurately, it occurred to one of my friend's mothers. She invested either one hundred thousand or two hundred thousand dollars in a private REIT, and then she received the letter alerting her that all of her money had been lost. That is not precisely how Fundrise operates, which is one of why I appreciate using their platform.The Fundrise Approach to the Problem
When it comes to private real estate investment trusts (REITs), you face a high level of risk and a lack of transparency on the costs associated with the investment. That was precisely the problem that Fundrise wanted to solve when it was founded. Fundrise investments feature cheaper costs, and there is complete transparency on the charged fees. You do not need at least $100,000 to invest in something that is much more significant. You just need a little quantity of money to begin participating. If you lose money on this little investment, you won't lose as much money as investors who lost money on private REITs during the last economic collapse. Fundrise does provide information on the potential dangers associated with investing in commercial real estate. This includes the risk that you may not be able to close out your position in the market. In the days leading up to the COVID epidemic, I received a handful of messages from Fundrise that made that point quite obvious. The letters stressed the possibility that Fundrise may be obliged to cease investor redemptions if the market were to suffer a significant nosedive. Because real estate, and commercial real estate, in particular, is not a liquid investment, every investment in commercial real estate has some level of risk. In contrast to a mutual fund, a private REIT is not permitted to sell shares to generate funds to pay investors. There is usually little demand for office buildings or apartment complexes in a poor market, making it very hard to sell either one of these types of properties. It can't be helped, but I give Fundrise credit for keeping their investors informed on a frequent basis about the chance that it may happen anyhow. You won't have to pay any fees upfront when you use Fundrise, and you'll be aware of all that you'll be entering into, including the costs that you'll pay along the road.Other Platforms for Crowdfunding Real Estate Transactions
There are several more platforms than Fundrise that provide real estate crowdfunding. There are a number of others that give chances that are similar to these, and they too offer cheap investments and charge systems that are clear. YieldStreet operates in a manner quite similar to that of Fundrise in that it provides opportunities to invest in commercial real estate. However, they also include non-traditional assets like loans on boats and artwork, as well as lending for private businesses. Those investors who are more experienced and have a greater tolerance for risk would probably benefit the most from this opportunity. Fundrise isn't the only company that invests in commercial real estate; Groundfloor does, too but in a different manner. They engage in finance for commercial projects rather than providing opportunities for long-term development and equity investments. This allows them to concentrate on investing in commercial ventures. You may start investing with as little as ten dollars, and the duration of the investments is often much less than one year. DiversyFund is the name of yet another real estate crowdfunding platform that specializes in commercial property investments. The vast bulk of their efforts, however, are focused on massive apartment buildings, which they believe to be better long-term investments. To begin investing in their REIT, you just need $500. I feel that RealtyMogul is Fundrise's most direct competitor in the real estate business. As little as $1,000 may get you started, but the investments they make are significantly more specialized than those provided by most other financial companies. You might, for example, invest in a number of properties. However, there is a catch: you must be an accredited investor in order to utilize RealtyMogul. As a result, in order to be considered, you must meet a slew of onerous financial conditions. The presence of a number of different platforms that provide crowdfunding for real estate investments is evidence of the robust demand for this particular kind of investment. But what is equally crucial is that the presence of competition compels each platform to provide an improved investment opportunity to their respective consumer bases.Where do I go from here to begin using Fundrise?
The fact that Fundrise not only hosts its product on this website but also makes it accessible through mobile devices is one of the company's most notable selling points. This is not like the private REITs I was discussing previously, where information is difficult to discover and sometimes hidden in the tiny print. This information is easy to access here. You will always be aware of everything that is happening at any given moment because of the transparency that Fundrise provides. You may sign up for an account straight immediately on the Fundrise website. You have complete control over how much money you spend and what kind of strategy works best for you. In order to get started, you don't have to pay anything. Fundrise provides users with a total of four distinct payment options, each of which will be discussed in further depth in the following paragraphs.Fundrise Plans & Portfolios
Fundrise provides users with the option to choose from four different portfolios: Basic, Core, Advanced, and Premium. If, on the other hand, this is your first time investing in commercial real estate, you should probably look into the Starter Plan.Starter Plan
The Starter Portfolio is one of the aspects of Fundrise that I find to be very appealing. I am sure that there are other investors out there who, similar to me, will have at least a modicum of dread around the prospect of investing in commercial real estate. On the other hand, it is the raison d'e?tre of this scheme. You may start a Starter Plan account for free and invest as little as $500 if you want to do so. Although it's a very little outlay of capital, doing so offers a significant degree of portfolio diversity. In addition to investing in commercial properties like office buildings and apartment complexes, they invest in single-family homes as well. Examples of commercial assets that they support include: You also benefit from geographical diversity as a result of the fact that the properties owned in the portfolio are situated all across the United States.Basic
You have the option of purchasing their Basic Plan with an initial commitment of $1,000. You will have access to dividend reinvestment and automatic investment, as well as the flexibility to set and monitor your investment objectives with this plan. In addition, the Basic Plan waives your monthly charge for a period of three months for any person that you refer to Fundrise and who subsequently establishes and funds an account.Core
The following strategy is known as the Core Investment Strategy, and it has a minimum investment requirement of $5,000. This includes all of the features that are included in the Basic Plan, as well as access to Fundrise's private REIT fund and the option to personalize your investing plan. This is the strategy that I am working with right now, and it consists of the following three distinct investing strategies:- Supplemental Income is the strategy that you should go with if you are primarily concerned with the generation of a consistent income for yourself.
- Long-term Growth: This is comparable to making an investment in the stock market, in which case you will be mainly concerned with the accumulation of long-term capital gains.
- Balanced investing is a strategy that gives you the opportunity to earn additional income while still contributing to your wealth over the long run.
Advanced
At least $10,000 is required to participate in the Advanced Plan. This plan gives you access to all of the benefits and features of the previous three tiers. In addition, if you invite a friend to join Fundrise, you won't have to pay any fees for the first nine months. (It's not clear whether the fee waiver is just applied to friends who sign up for the $10,000 plan or if it is applicable to any program Fundrise offers.)Premium
The last option is the Premium Plan, which needs a minimum commitment of one hundred thousand dollars. I'm not going to get into this one since I believe it goes beyond the scope of what the majority of people who read this site are interested in and even beyond what I would take into consideration. My Fundrise Portfolio I invested $1,000 in Fundrise's Basic diversified portfolio plan when I first got started with the platform in February of 2018. A little over a month later, Fundrise announced that they would be conducting an initial public offering (IPO), which is a topic that never fails to pique my interest. But in order to benefit from the IPO, I needed to have a minimum investment of $5,000, and in order to do so, I had to upgrade to the Core plan. Adding an extra $4,000 to my initial investment was all that was required to accomplish that. My account now has a balance of around $11,113.83 dollars. Out of that total, $8,055.99 represents the increase that was achieved on the initial investment of $5,000. My share of the Fundrise IPO is equal to the amount that is still available in the account. My initial investment of $5,000 has grown to a total of $3,055.99 in only four years, thanks to the appreciation of the real estate market.Average annual return: 13.3%
I do not have the whole dollar breakdown for each year, but the following is what I do have, along with the analysis of dividends and appreciation of capital:- In 2018, investors received $274 in dividends and saw capital appreciation of $74, resulting in a total return of $348 after expenses were deducted.
- 2019 saw a total return of $506 after accounting for dividends of $383, capital appreciation of $131, and an advisory fee of $7.97.
- Dividends of $226 and capital appreciation of $234 add up to a total return of $452 in 2020 after deducting all costs.
- In 2021, investors will get $229 in dividends and $1,308.36 in capital appreciation for a total return of $1,528 after expenses.
- Through March of 2022, the total return for the year was $219 after deducting all fees.
- The cumulative total of all four years' net returns is $3,055.86This is the part that appeals to me the most! They detail not just the total amount you make but also the specific sources of your income. They will also inform you when a property has been purchased by another party. The dashboard that Fundrise provides access to contains all of this information.As a point of reference for comparing my returns, the following information may be found on the Fundrise website:
My Exact Fundrise Portfolio Composition and Allocations
Because I was mainly interested in growth over the long run, I decided to make an investment in the Growth REIT. They also provide access to the West Coast, East Coast, and Heartland (Midwest) real estate investment trusts. When I check the distribution on my pie chart, it shows that 36 percent of my money is invested in fixed income, 15 percent in core-plus investments, 33 percent in value-added investments (which are often home improvement projects), and 15 percent in opportunistic investments. Not only am I constantly aware of what it is that I am investing in, but Fundrise also provides me with photographs of the investments that I have made. For instance, one of the holdings is a development project with a price tag of 5.8 million dollars called Mosby University City. They just made the announcement that the apartment complex, which consists of 300 individual units and is located in Charlotte, North Carolina, is now finished. Another recent investment is an example of this, and it was made in a single-family rental complex close to Dallas in Texas. You will get the Opportunistic technique, as well as a total worth of $16.5 million when you purchase this item. There are further developments planned for the cities of Atlanta, Los Angeles, and Austin, Texas. They also reveal certain assets that are situated close to where I now reside. The most significant thing for me is that I know exactly where and how my money is going.How Do the Returns of Fundrise Stack Up Against Those of Other Investments?
Therefore, my investment with Fundrise has provided me with an annual return of 13.3 percent on average over the course of slightly over four years. But do you think that's a reasonable return? Everything revolves around a single fundamental query: "What if I had put my money in something different instead?" This may also involve investments in stocks and cryptocurrency, in addition to other types of real estate. It relies much on the objectives you have for your investment, as well as the benchmarks you use to evaluate its performance.Compared to Other Real Estate Investments, Fundrise Is the Best Option
In summary, the net of all fees, the average return on my investment in Fundrise during its first four years was 13.3 percent. Since I've only made investments via Fundrise, it's impossible for me to provide a fair comparison of the many real estate crowdfunding sites out there. However, we are able to compare the returns offered by Fundrise to those provided by real estate exchange-traded funds (ETFs), which are widely accessible via several market exchanges.Fundrise vs. Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate Exchange-Traded Fund is perhaps the most widely used (VNQ). Due to the fact that I did not begin investing with Fundrise until close to the end of the first quarter of 2018, this comparison cannot be considered to be completely apples-to-apples. Despite this, my overall return on Fundrise for the year 2018 was 7.4 percent. This is in contrast to the VNQ, which decreased by 5.9 percent. The difference between the two investments is more than 13 percent, and if I had to choose between making money and losing money, I'd prefer to earn money. The return I received from Fundrise in 2019 was 9.2 percent. The recovery that VNQ achieved was 28.89 percent. Even though I earned more than 9 percent, the fact that VNQ made approximately 29 percent was a significant blow to my earnings. At the very least, for 2019, it represented a swing of 20 points against Fundrise. What will happen in 2020? Fundrise had a return of 7.6 percent for the year, but the VNQ saw a loss of 4.64 percent. That's a swing in my favor of more than 12 percentage points, which is significant. The results for Fundrise in 2018 and 2020 were resoundingly positive and left no room for debate. However, if I had begun investing in 2019, I would have received a return from Vanguard that was three times bigger than what I received from Fundrise for that year. That is a significant disparity, and if it were to occur on a regular basis, I would not be pleased with Fundrise in any way, shape, or form. Whenever an investment fails to outperform its peers on a regular basis, this is almost certainly the most significant proof that you are not in a suitable investment. But Fundrise displayed a significant edge over VNQ...The Consistency of Fundrise as a Factor
Despite the fact that VNQ made Fundrise seem terrible in 2019, it handily beat Vanguard in two of the three years. When I ran a computation over a three-year period to determine the average yearly returns from Vanguard, I got 6.093 percent as a result. That was a significant drop from Fundrise's average return of 8.1 percent. Having said that, a cursory examination of the year-to-date return on VNQ for 2021 reveals that the index has generated a positive return of 13.54 percent until the end of April. It is conceivable that VNQ has outperformed Fundrise, which has developed a return of 1.9 percent so far this year, or that the returns generated by the two investments are fairly comparable to one another. Even yet, the fact that Fundrise has shown positive returns for three years in a row in a row is an essential factor to consider. Avoiding monetary loss is one of the most significant obstacles that each investor must face. While VNQ had losses in two of those three years, this would be the case with an investment in Fundrise for the last three years. When it comes to investing, consistency is key.Compared to the REET is Fundrise
Take, for instance, the iShares Global REIT Exchange-Traded Fund as another illustration of the real estate market (REET). One more time, this comparison does not quite make apples-to-apples sense. In contrast to VNQ, which is an exchange-traded fund headquartered in the United States, REET invests in real estate all around the globe. In keeping with the VNQ's performance, the REET fell 4.89 percent in 2018. In 2019, it climbed by 23.89 percent, but the following year, it decreased by 10.59 percent. Because REET has consistently underperformed both Vanguard and Fundrise, I'm not going to get into the intricacies of the statistics with this one. Taking into consideration these other two possible real estate purchases, I do not find myself experiencing any buyer's remorse about my choice to invest with Fundrise. Over the course of three years, it outperformed both of the alternatives.Fundrise vs. The Stock Market
The S&P 500 index saw a loss of 6.24 percent for the year 2018. As of 2019, it has increased by 28.88 percent. And in the year 2020, it will be 16.26 percent higher. A phenomenal increase of 57.9 percent is expected to take place from now until April of 2021. However, they are absolutely insane profits, particularly considering the fact that we are in the midst of a worldwide epidemic. And I really doubt that we will ever have returns of that magnitude ever again. When I calculate the returns on the S&P 500 index for the last three years, I get an annualized rate of 12.96 percent after averaging them out. That is an increase of over 5 percent every year above what I received from my investment in Fundrise. Consequently, it is very evident that I would have been in a better financial position if I had placed my $5,000 Fundrise investment in the S&P 500. That is unquestionably a loss of potential return on investment.Fundrise vs. Bitcoin (Cryptocurrency)
Let's look at Fundrise in comparison to a truly alternative investment such as cryptocurrency, which goes beyond traditional investments such as stocks and other types of real estate. This is not a comparison that was made at random either. Since 2018, in addition to my investment in Fundrise, I have been a participant in the cryptocurrency market. This is just for entertainment purposes since comparing real estate crowdfunding to cryptocurrency is about as far as one can go from being able to make an apples-to-apples comparison. But let's go ahead and do it nonetheless! Fundrise will be compared to Bitcoin in this section. In 2018, investors in cryptocurrency had a total return of -72.6 percent. However, this comes after the year 2017, when Bitcoin had a return of 1,318 percent. However, the circumstance will shift in the next two years. Bitcoin prices are expected to increase by 87.2% in 2019 and by 302.82% in 2020. In addition to this, Bitcoin's price maintained its upward trend during the first few months of the year 2021. When looking at the average yearly return on Bitcoin for 2018, 2019, and 2020, it is an amazing 105 percent. I was fortunate enough to have investments in the stock market as well as crypto at the same time that I had investments in Fundrise, so I did not lose out on any opportunities. However, you now have a side-by-side comparison of how Fundrise performs in contrast to the performance of commercial real estate as well as non-real estate assets such as stocks and cryptocurrencies.My Opinions Regarding Fundrise
In this research, we've done a lot of data crunching, but I think it's important to point out that investing isn't only about returns by itself. The question "what are your goals with your money?" is much more essential. Or, to put it another way, what exactly do you plan to do with the money when you have it? Investments that lose over 72% of their value in the first year are not going to help you reach your financial objectives like saving for a down payment on a house or retiring early. The returns on the market over the last several years have been spectacular, but they are not normal. This is something else that I want to bring to your attention, and it's important. At some time in the future, there will be a correction, and when it comes, investments in equities and even cryptocurrencies will suffer a significant loss. In no way am I implying that all of your money should be invested in safe assets, and I'm not trying to be a pessimist. Then then, we need to be prepared for a reversal of fortune. The value of the iShares and Vanguard ETFs will drop, as they did in 2018 and 2020, respectively.Including Fundrise as Part of a Well-Rounded Investment Portfolio
Personally, I'd want to have some exposure to the real estate market, but I lack the knowledge and experience to make individual property investments. Although I have no interest in buying, renting, managing, or selling property, I am very much interested in the diversity that real estate may provide. In my self-directed individual retirement account (IRA), I do have some money invested in a private real estate investment trust; however, this is largely for the purpose of making long-term investments for my retirement. It is a totally hands-off investment, which is precisely what Fundrise offers for me outside of my individual retirement account (IRA). The "barbell investing approach" is the one I employ. That indicates that the majority of my financial resources are held in secure assets, while just a portion of my capital is held in high- risk, high-return investments. However, I do not have a significant amount of money in the middle, which is essentially what Fundrise is. Therefore, regardless of the results it generates for me, I will continue to have Fundrise positions in my portfolio. This not only exposes me to the commercial real estate market but also provides me with regular updates on the status of my portfolio. Having a diverse portfolio of assets, which allows me to keep abreast of developments across a variety of asset classes, is an essential component of my plan to amass wealth. This does not occur until I really have money invested in the relevant asset classes. Fundrise is the platform you should use in your investment strategy if you are interested in commercial real estate. It only needs a minimal initial commitment, gives you a wide variety of investing possibilities, has fees that are both reasonable and clear, and ensures that you are constantly aware of what is happening with your money.