I've always been fascinated by investing in real estate without having own physical properties where I would have to manage tenants, hire property managers, or deal with fixing up and flipping homes.
Why can't investing in real estate just be more convenient?
That's where Fundrise comes in.
They give you an alternative for investing in real estate with a more hands-off approach without having to figure out having to deal with REITs.
Here is what I found out about Fundrise:
What are their average returns?
Fundrise claims to have generated an average annual return of 12% since its inception in 2014.
What do they do?
Fundrise's strategy involves buying properties in up-and-coming areas, developing them, and then selling them for a profit.
They also invest in subdivisions, which is a low-risk way to profit.
Buying in an up-and-coming area is a good strategy that they seem to use.
According to Graham Stephan, a realtor in the area, Fundrise seems to have a good grasp of areas poised for growth in Los Angeles at the time he reviewed them.
Potential problems with Fundrise
Lack of Liquidity:
Investing in Fundrise ties up your money for five years or more.
While they offer a lower redemption rate to buy back shares, there's no guarantee they'll find a buyer for your shares.
This means you might not be able to access your money when you need it.
Fees:
Fundrise charges a 1% annual fee, which is high compared to other REIT options.
There are also potential origination fees (up to 2%) and disposition fees.
In total, fees could range from 1% to 3% annually.
Tax Implications:
Dividends from Fundrise are taxed as ordinary income, which can be higher than the long-term capital gains tax rate.
This is a disadvantage compared to owning physical real estate or other investments.
Performance in a Down Market:
It's unclear how Fundrise would perform in a down market.
Referral Fees:
Fundrise offers referral bonuses, which might influence the quality and authenticity of reviews.
Conclusion
While Fundrise is not a scam and has many positives, the downsides make other investments more attractive, in some cases.
Owning physical real estate or investing in an S&P 500 index fund potentially offers better returns, tax benefits, and liquidity.
BUT, if you want to diversify your portfolio by investing in real estate without the headache of owning physical property yourself, this can be a convenient way to do so.
Plus, buying a real property for investment purposes is expensive and can be high-risk.
I think it really comes down to something like Fundrise or REITs if you want a more convenient way to invest in real estate.
This is not financial advise. Please do your own research before investing.