A Fundrise Review After 5 Years Invested

In January of 2018, I made some of my first passive real estate investments, including an allocation to a diversified portfolio of projects with Fundrise. Five years later, I feel more than comfortable sharing this Fundrise review.

Fundrise stands out to me for a few reasons.

One, you do not have to be an accredited investor to invest with them. You can put in as little as $10 and they’ll match it with another $10 in bonus shares. That’s a quick way to earn 100% on your money. Sadly, they won’t match your contribution for a $100,000 investment (but they will give you the ten bucks).

Additionally, there are no individual projects to invest in. Rather than picking from individual deals, you invest in eREITs, which are funds that hold dozens of projects of various types with differing risk and return profiles.

Dividends are issued monthly, and you have the option to reinvest them or take the cash. I generally do the latter with all investments and choose how to manually reinvest the money if I have no need for the cash flow at the moment.

Fundrise is a good option for those looking to break into passive real estate investing without making a major financial commitment.

 

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Fundrise Returns

 

Before we get into the details, let’s start with what everyone really wants to know. Can you expect to make money with Fundrise?

I have.

In five years, my total return has been 59%. Annualized and accounting for timing of cash flows, I’ve seen a 10.8% IRR.

Using the rule of 72, an IRR of 10.8% would double your money in 6 to 7 years. 10.8% is also pretty similar to the long term returns of the stock market when averaged over many decades.

Past results don’t necessarily predict future returns. I’ve been happy with this investment over the last half-decade, but I can’t promise returns will be similar for the next 5 or 15 years.

While double-digit returns are good, the returns I’ve seen with Fundrise are below the average IRR of fully realized deals on the RealtyMogul (see past returns), EquityMultiple (see past returns), and Crowdstreet platforms, which are all in the mid-to-high-teens.

The tempered returns I’ve seen with Fundrise may be at least partially due to a more conservative risk profile.

You can compare the returns seen of Fundrise investments with that of publicly traded REITS and US stocks for the last 6 years on the site. They’ve also got every investor’s actual returns plotted out on a graph. The scatter plot is updated daily.

Note that these fees, including my lifetime 10.8% average, are after accounting for Fundrise’s 0.15% annual advisory fee and 0.85% management fee (1% per year in total).

 

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Fundrise Risk Profiles

 

When you invest in a single project, there is a chance, albeit a small one, that you could lose 100% of that capital.

 

Fundrise doesn’t offer single projects. The risk of losing your shirt when invested in dozens of deals is minimal. Could you lose money? Sure. But if every deal goes kaput, such an economy will give us bigger things to worry about than our Fundrise balance.

My money is invested in four Fundrise funds: East Coast eREIT, Heartland eREIT, West Coast eREIT, and the Flagship Real Estate Fund.

These collectively hold about 100 different projects. Here’s a sampling.

 

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The projects are scattered throughout the United States with most of the activity happening in states where it doesn’t snow much.

 

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Just over a third of them are Value Add deals. Just under a third are in the more conservative Core Plus category. Fixed Income (Debt) also tends to be a safer, more conservative approach, and 22% of my projects are fixed income. Finally, just over 10% are in the Opportunistic category where one accepts more risk for a higher potential reward.

 

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my fundrise allocation

 

Altogether, Fundrise is managing 285 ongoing projects, and 138 have been completed as of January, 2023.

 

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Fundrise Account Levels

 

Want to level up? Bust out your wallet (or ACH routing number and account number).

It’s true that you can open an account with ten dollars, and that gets you a Starter account which can be used to invest in the Flagship Real Estate Fund.

Four more levels are offered, including Basic ($1,000 investment), Core ($5,000 investment), Advanced ($10,000 investment), and Premium ($100,000 investment).

A Core account lets you invest in funds beyond the Flagship Real Estate Fund. An Advanced account gives one access to the more tax-advantaged Fundrise eFund, and a Premium account gives you priority access to support and one-on-one calls with their team. I’ve never had a reason to request either.

 

Fundrise Flexibility

 

One question that should be asked when considering any alternative investment is “What are my liquidity options?”

I’m glad you asked.

With Fundrise, it’s pretty simple. You can withdraw any investments made in the Flagship Real Estate Fund or Income Fund without penalty. To withdraw from the eREITs or eFund, if you’ve held the assets for less than five years, you’ll pay a fee of about 1%. There is no fee after the five year mark.

Ongoing fees add up to 1% annually, which is definitely on the low side for this type of investment.

Liquidation requests are reviewed on a quarterly basis, so it’s not as simple as taking money out of a savings account. There’s always a chance that your request may not be granted; I imagine that would only be the case if an overwhelming number of investors requested their money at the same time.

You also have some flexibility when it comes to automating investments. You can choose to invest a certain amount every week, every other week, or once or two times monthly if you wish. You can also reinvest dividends and distributions if you’d rather not take the cash.

Most people will choose to invest with after-tax money, but you also have the option of opening a Traditional or Roth IRA with Fundrise for a $125 annual fee (which can be waived if criteria are met based on the amount invested). They use Millennial Trust Company as the custodian of assets.

You could also invest in Fundrise funds with your own self-directed IRA, Roth IRA, or 401(k).

 

Fundrise Taxes

 

In the funds available to me at the Core account level (middle of the three), I’m presented each year with a 1099-DIV. The distributions I’ve received are reported as a mix of Box 3 (Nondividend distributions a.k.a. return of capital) and Box 5 (Section 199A dividends).

Both are rather tax-efficient. Return of capital (Box 3) is not taxed (although it may decrease your cost basis, resulting in long-term capital gains when selling the asset. Section 199A dividends qualify for a 20% QBI deduction as long as you as a taxpayer qualify.

Investors in the Fundrise eFund, a purportedly even-more-tax-efficient vehicle, will receive a K-1.

 

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Fundrise Review Summary

 

You cannot expect to hit a home run with Fundrise, but a steady stream of singles and double with the occasional foul ball should get you where you want to go. If you’re good with high single-digit to low-double-digit returns with low volatility in a diversified real estate portfolio, Fundrise can be expected to deliver.

You can start with as little as $10 today and for a limited time, you’ll get $10 worth of bonus shares.

This website may be rewarded with a referral fee if and when you do choose to create an account, and we thank you for supporting our mission.

 

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1 thought on “A Fundrise Review After 5 Years Invested”

  1. Thanks for this post. I have been interested in real estate investment, but I definitely want to be on the passive side of the spectrum. I’m also a little intimidated by the need for due diligence, because I really have no experience at this, and it sounds like Fundrise does most of that for you. This looks like a good place to venture in and test the waters.

    Reply

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