Both Fundrise and REITs or real estate investment trusts enable small investors to capture the income and capital gains of investing in real property. Each of these investment choices are suitable for small investors, but are quite distinct.
Historically, real estate investments have been private and inaccessible to the ordinary investor. In 1960, congress established REITs so that the average individual could invest in real estate, indirectly. Publicly-traded REITs trade on major stock exchanges and enable investors to capture the income and capital appreciation of real estate investing across the U.S. and internationally.
Wondering if “Fundrise is a good investment?” Read on to understand the similarities and differences between publicly traded REITs and privately traded Fundrise real estate investments. While, privately-traded REITs are typically available for accredited or wealthy investors and require locking up large amounts of capital for several years, to avoid investors pulling out capital before the project completes. The Fundrise minimum of $10 makes this asset class accessible to all.
Contents
- What is Fundrise?
- Top Features – REITs vs Fundrise
- Quick REIT vs Fundrise Overview
- What is a REIT?
- Fundrise vs REIT – Who Benefits?
- Fundrise vs REITs – Fees, Minimums and Risks, Returns
- Fees – REITs vs Fundrise
- Minimum Required Investment
- Risks
- REITs vs Fundrise Investments
- Fundrise
- Fundrise Investment Plans
- Fundrise Strategies
- Fundrise Performance
- REITs
- How to Invest in REITs
- Fundrise
- Fundrise vs REITs – Which has Better Performance?
- Fundrise vs REITs – Which is Best? The Takeaway
- REIT Pros
- REIT Cons
- Fundrise Pros
- Fundrise Cons
- FAQ
- What is Fundrise eREIT?
- Does Warren Buffett recommend REITs?
- Is Fundrise.com legitimate?
- Is Fundrise better than a REIT?
- Is Fundrise a REIT?
- Is Fundrise publicly traded?
- What is a Fundrise account?
- Is Fundrise worth it?
- Fundrise Alternatives
- Related
- Sources
This article may contain affiliate links whichmeansthat – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.
In between publicly traded and private REITs are the publicly-traded, non-listed REITs, typically available on crowdfunding platforms like Fundrise, Diversyfund and Groundfloor. These real estate offers include features of both public and private REITs.
Non-accredited investors, can trade listed REITs on the public traded stock exchanges and also access many of the crowdfunded REITs like Fundrise and Groundfloor.
What is Fundrise?
The Fundrise real estate platform was founded in 2012 in Washington, DC. Fundrise assets under management today surpass $2.87 billion. The company currently has 385,000 individual investors and provides individual investors access to private REIT investing. Your Fundrise account opens the door to a wealth of private real estate deals. When contrasting Fundrise vs REITs, the private real estate platform is less liquid and ties up your money for longer periods of time.
Investors in Fundrise can access real estate debt, equity, commercial, residential and more through various Fundrise Strategies. The investments are parceled into Fundrise’s proprietary stable of:
- Fundrise eREIT funds – Parcels of various real estate projects
- Private credit – Loans to real estate investors
- Venture start-up investments – Investment in small start-up businesses
Fundrise is a value driven investment firm and buys real estate assets for less than their intrinsic value and replacement cost. The team implements repairs, maintenance, and management improvements to the properties to increase their value.
The Fundrise minimum investment is $10. This opens the door to private real estate investing for small investors. Broader offerings and account types are available to larger investors.
Fundrise charges an annual fee of 1% to 1.85% of your investment or AUM. In contrast, fee-conscious investors might consider REITs like the Vanguard Real Estate ETF (VNQ) REIT which charges 0.12% AUM or other low fee REITs.
Top Features – REITs vs Fundrise
| Fundrise | REITs | |
|---|---|---|
| Overview | Offers private real estate investments spanning various property types though private eREITs and start-up business funding | Publicly traded real estate funds that own various types of real estate and are traded on major financial exchanges |
| Minimum Investment | $10 | Either the cost of one share, or a fraction of a share, depending upon brokerage firm |
| Fees | 1% to 1.85% of assets managed (AUM), annually. Fee depends upon the offer. | Average management fee is 0.41% and ranges from 0.07% to roughly .70% AUM |
| LIquidity | Illiquid | Liquid |
| Account types | Individual, joint brokerage, IRA, trust, business entity | Any account type available at your brokerage firm |
Quick REIT vs Fundrise Overview
- Fundrise is appropriate for long-term investors due to its limited liquidity relative to publicly-traded REITs.
- REITs are available through your investment account and are bought and sold on the financial markets.
- Non-accredited investors can directly invest in private real estate with Fundrise and publicly-traded REITs.
- Investors are subject to a minimum 60-day waiting period to withdraw cash from Fundrise, while REIT investors can liquidate their holdings at any time.
- Fundrise offers various investment strategies and the opportunity to choose which properties to invest in.
- The dividends distributed by Fundrise and most publicly traded REITs are non-qualified and taxed at ordinary income rates instead of the qualified dividend tax rate.
What is a REIT?
A real estate investment trust or REIT is a company that owns income-producing real estate equity or debt. A REIT can be either a private company or a publicly traded company on a major stock exchange. REITs come in multiple strategies from a broad-all-in-one REIT that owns shares in many real estate companies across sectors to sector REITs that focus on various real estate categories like commercial, industrial, storage, student housing, nursing homes, data centers, mortgages and more.
When you buy a publicly traded REIT, you are buying shares from another investor, through your online brokerage account. When you buy a privately traded REIT, you are skipping the intermediary and investing directly in the primary issuance of the real estate asset. In both cases, you are entitled to a portion of the income and capital gains that the real estate properties produce.
A publicly-traded REIT must meet the following requirements:
- Invest at least 75% of total assets in real estate.
- Earn at least 75% of its gross income from rents from real property, interest on mortgages financing real property, or from real estate sales.
- Distribute at least 90% of taxable income as shareholder dividends each year.
- Be a taxable corporation.
- Be managed by a board of directors or trustees with a minimum of 100 shareholders.
- Have no more than 50% of its shares held by five or fewer individuals.
Fundrise vs REIT – Who Benefits?
As we cannot predict the future returns of Fundrise or the REIT market, we can only judge these two platforms by their standing merits. Fundrise charges a higher management fee than most REITs and is less liquid. However, the Fundrise fee of 1%+ can still be cheaper than other private real estate equity alternatives, and thus Fundrise might make sense for an accredited investor looking to cut down on the costs of investing in private real estate.
Investors who need liquidity will choose REITs over Fundrise. You can buy and sell REITs quickly and easily through your investment account. With Fundrise, liquidation is not guaranteed. The platform will consider requests to liquidate shares quarterly and monthly, after a 60-day waiting period for the Fundrise eFund.
Those who want greater transparency to their real estate investments might opt for Fundrise. Investors who want easy access to private real estate deals and a platform that is value-oriented will prefer Fundrise. We like that they seek out undervalued properties and strive to improve their worth.
Those seeking greater exposure to the broad real estate market will prefer REITs over Fundrise. The publicly traded REIT market is huge, offering a wide variety of choices. Fundrise has less variety.
Fundrise vs REITs – Fees, Minimums and Risks, Returns
Fees – REITs vs Fundrise
For Fundrise, the average annual management fee ranges from 1% to 1.85% AUM annually. REIT management expense ratios range from a low of 0.07% for Schwab U.S. Real Estate ETF (SCHH) to a high of 0.95% for the actively managed ETRACS Monthly Pay 1.5X Leveraged Mortgage REIT ETN (MVRL).
Fundrise Fees are higher than those of publicly traded REITs.
Minimum Required Investment
You can begin investing with $10 for Fundrise. A Fundrise Pro membership enables investors to create their own custom portfolio and offers extensive additional tools and resources. Fundrise Pro costs $10 per month or $99 per year.
The minimum REIT investment is the price of a single share, or less, for fractional share investing. Many platforms like SoFi, M1 Finance and Schwab enable fractional share investing.
Risks
A major risk at Fundrise is the lack of liquidity – the inability to cash out when you want. The lack of easy liquidity is a characteristic of private real estate and other private company investments. The value of REITs are listed daily on public stock market exchanges, while it’s difficult to determine the daily value of your fundrise properties.
If you’re asking, “Is Fundrise a scam?” The answer is no. But many of the platforms online complaints surround the users’ difficulty withdrawing their funds. Many Fundrise investors don’t realize that Fundrise and other real estate crowdfunding platforms require lock up periods, where the investment cash is inaccessible. This is clearly stated, despite many investors missing that key information.
REIT and Fundrise dividends are typically taxed as ordinary income, and thus more appropriate to own in tax advantaged retirement accounts.
REIT pricing can be impacted by many factors, not necessarily related to the underlying value of the asset.
REITs vs Fundrise Investments
Fundrise
The company packages their projects for investment through Fundrise REITs or Fundrise eReits. Investors can choose an investment plan or choose a Fundrise strategy. Other customization options are available through Fundrise Pro.
The Fundrise Investment Plans are allocated according to your long-term goals. Each plan allocates a portion of your investment dollars invested in a variety of eReits and projects categorized by strategy. First we’ll cover the fundrise Plans, and next, the Fundrise Strategies.
Fundrise Investment Plans
- Supplemental Income Plan – Designed to provide quarterly cash flow, predominantly by investing in real estate debt. The Fundrise Supplemental Income Plan allocates roughly 80% to Fixed income real estate loans and 8% each to the Core Plus and Value add strategies, and the rest to Opportunistic projects.
- Long-term Growth Plan – The Fundrise Growth Plan invests predominantly in real estate equity with the goal of growing your capital through appreciation. Your funds are split between the Core plus and Value add strategies, with approximately 15% in the Opportunistic.
- Balanced Investing Plan – The Balanced plan is designed for investors seeking capital appreciation and cash flow from dividends. The Balanced investments are similar to the long-term growth plan allocation, but with 10% allotted to Fixed Income investments.
- Venture Capital Plan – The Fundrise Venture Capital plan currently owns equity in roughly 19 start-up companies. Investors in this plan own shares in the Fundrise Innovation Fund. This is the riskiest plan, and investors should realize that all profits will come from appreciation and growth of the small companies.
Following are the various Fundrise Strategies. Each strategy includes various Fundrise eReits that own specific properties which meet the requirements of the strategy. You’ll find distinct risk, income, and total return levels for each of the strategies: Fixed Income. Core Plus, Value Add and Opportunistic.
Fundrise Strategies
Within your strategy, your money will be diversified across various investment funds. Your strategies are driven by your return goals and comfort with risk. Each strategy will evolve as new properties are added and sold.
Fundrise Performance
According to the website, the annualized Fundrise performance from 2018 through March 2024 was 4.81%, You can view quarterly returns and comparison data for public REITs and the stock market on the website. This does not include the data from the Opportunistic Fund.
REITs
REITs come in many flavors. You can divide REITs up in a number of ways, actually. For example, some investors choose REITs based on the property type, such as hotels, residential, office buildings, data center or commercial real estate. Another way is to focus on the purpose of the REIT’s business model. A few examples follow.
- Growth: The goal is to buy investment properties that appreciate in value.
- Regional: Some investors believe that certain regions will be the best for real estate investing due to phenomena such as increasing populations or burgeoning industry. Regional REITs meet this need by investing in specific areas.
- Income: Some investors just want reliably income. Income REITs accommodate them by finding properties that produce stable, reliable rental income. Mortgage REITsprovide steady cash flow.
REITs ultimately offer the real estate investor a variety of options. For those that prefer an all-in-one diversified fund might choose a broadly diversified REIT ETF like Schwab U.S. REIT ETF™(SCHH) or Vanguard’s Real Estate ETF (VNQ) which each own a variety of property types. Or if you believe that international real estate is undervalued, choose Vanguard International ex-US Real Estate Index Fund (VNQI) which invests in real estate across the globe.
How to Invest in REITs
You’ll need an investment brokerage account to invest in REITs. You might prefer an individual or joint taxable account or retirement IRA. After the account is open and funded, select the REIT you’re interested in purchasing, and create a buy order. If you don’t have an investment brokerage account both M1 Finance and SoFi Active Invest each offer REIT access, along with ETF and stock investing.
Some of our favorite investment brokerage accounts are M1 Finance, SoFi Active Investing, and of course the typical large financial firms like Schwab and Fidelity.
Free Investment Management at M1
Fundrise vs REITs – Which has Better Performance?
Investors frequently pick investments based upon historical returns. While historical performance doesn’t equal future performance, investors still like to know how an investment has performed in the past, both for comparative purposes and to view returns under various economic and financial market scenarios like stock market crashes.
Both REITs and Fundrise offer potential cash flow and capital appreciation. It is difficult to compare performance because there are multiple types of publicly traded REITs as well as a variety of Fundrise investment strategies.
Fundrise vs REITs – Which is Best? The Takeaway
Whether Fundrise or REITs are best for you depends upon when you will need the money, your investment goals and time horizon, along with your desire for access to private real estate. Those who desire access to private real estate investments with a transparent, value-oriented platform will appreciate Fundrise. Small investors who want to dip their toes into private real estate investing will also prefer Fundrise. For aggressive investors, Fundrise also provides an opportunity at potentially high returns, albeit with greater possible risk. When investing in private real estate like Fundrise, be prepared to tie up your money for up to several years.
If you require liquidity and the opportunity to sell your shares immediately, then stick to publicly traded REITs. You can buy and sell your investments at any time. If you want exposure to most of the publicly available real estate in the U.S. or abroad, you’ll prefer REITs.
REIT Pros
- Flexibiliy and liquidity
- Variety of investment choices
- Information, both in transparency and in written information about the company from analysts
- Regulated by the SEC or Securities and Exchange Commission
REIT Cons
- Less ability to view details of underlying assets
- No access to start-up venture businesses
Fundrise Pros
- Private real estate investment assets without the accredited investor requirements
- Access to venture, start up investing
- Private real estate access for a small amount of money
Fundrise Cons
- Illiquid, money tied up for months through several years
- Less oversight by government agencies
- Fewer investment choices and types of real estate projects
Check Out Fundrise
FAQ
What is Fundrise eREIT?
Electronic real estate investment trusts, or eREITs for short, are Fundrise’s own real estate investment offerings, each with a distinct theme and comprised of a group of individual real estate projects. There are currently 11 eREITs with names such as Growth, East Coast and Heartland eREIT. The real estate assets in the eREITs are either originated from Fundrise or joint ventures with other companies.
Does Warren Buffett recommend REITs?
Similar to most investors, Warren Buffett’s REIT holdings comprise a small percent of his total portfolio. Warren Buffett has owned several REITs over the years. REITs give easy access to real estate. That said, few individuals can invest like Warren Buffett, who analyzes and buys whole companies or large percentages of publicly traded stocks.
Is Fundrise.com legitimate?
Fundrise has been around since 2012 and has managed over $7B in real estate investment transactions. The company has a strong track record, and we consider Fundrise a legitimate company. Fundrise also offer bankruptcy protection to its investors. As with all investing, your Fundrise investment return is not guaranteed, although the company has proven its worth over the past decade.
Is Fundrise better than a REIT?
This depends on what you need as an investor. It i a personal choice to determine which investment is best for you, Fundrise or REITs. If you want liquidity and ready access to your funds, then REITs are better. If you’re more of a risk taker and want to access to private real estate deals and start-up companies, then consider Fundrise.
Is Fundrise a REIT?
Fundrise is not a REIT. But, the Fundrise real estate investing platform, provides investors access to privately owned eReits. The Fundrise eReits are similar to publicly traded baskets of real estate projects divided up into shares for investors. The difference between Fundrise eReits and publicly traded REITs, which trade on the stock exchanges, is that REITs can be traded any time the investment markets are open, while the Fundrise eREITs are not as liquid and require waiting periods before selling. Publicly traded REITs must comply with strict SEC regulations.
Is Fundrise publicly traded?
The answer to whether Fundrise is publicly traded is yes, and no. The Fundrise IPO refers to “Internet Public Offering,” not an “Initial Public Offering,” which refers to a private company going public and selling shares on public stock market exchanges. The Fundrise IPO enables investors to buy shares in Rise Companies Corp., the parent company of Fundrise. The The Fundrise stock shares are sold directly to investors and are not listed or publicly traded on the typical stock exchanges.
What is a Fundrise account?
Fundrise account levels or types span a wide range:
- Individual and joint invetment accounts
- Roth and Traditional IRAs
- Business entities like LLC, corporation, or partnership
Is Fundrise worth it?
Fundrise offers a wide range of private real estate along with access to small startup companies. They’ve been around for more than 10 years. It’s well known that a diversified portfolio of stocks, bonds, cash, real estate can ward off extreme value downturns in returns. Whether Fundrise is worth it for you depends first on whether you have cash that you can afford to leave invested for long periods of time. If you need ready liquidity to your investment dollars then you are better off investing in a publicly traded REIT, than in Fundrise. But, if you’re seeking access to a range of private real estate and start up deals, and you have cash that can be tied up for up to several years, then Funrise might be good for you.
Check Out Fundrise
New to investing? Consider our suggested brokerage accounts for free ETF investing:
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Fundrise Alternatives
- Groundfloor – Access to high yield, private real estate debt investments. Available to non-accredited and accredited investors.
- EquityMultiple – Invest in individual private real estate equity. Available to accredited investors.
- Realty Mogul – Access to both private REIT funds and shares in individual private real estate deals. Debt and equity investments. Available to non-acredited and accredited investors.
If you need help with your investments, we’ve partnered with WiserAdvisor toprovide you with access to three vetted Financial Advisors– in your area. Click the image below to sign up.(no obligation when signing up)
Related
- Groundfloor Review
- EquityMultiple Real Estate Review
- 10 Best Alternative Investments Right Now
- Learning About Real Estate Crowdfunding And Investing
- How To Invest A Million Dollars For Income
- How To Become A Millionaire BY 40
Sources
- Client Returns (fundrise.com)
- https://fundrise.com/real-estate-strategies
- What types of investment accounts does Fundrise support?
- Real Estate Strategies (fundrise.com)
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