Fundrise Review: What You Need to Know

This Fundrise review will examine how the platform works and review its pros and cons.

Fundrise allows non-accredited investors to invest in private real estate funds with initial investments as low as $10. The company has recently expanded to include private equity and private credit investments.

How It Works

Fundrise made its reputation by offering real estate funds to smaller investors who aren’t eligible for funds restricted to accredited investors.

The company has introduced new offerings and now offers funds in four strategy categories.

• Real estate funds offer multiple packages combining a range of real estate asset classes, serving several investment strategies.
• Private credit is an investment strategy pooling funds to lend to companies, capitalizing on the high interest rate environment to deliver strong fixed-income returns.
• Venture capital is a new investment strategy for Fundrise, offering investors exposure to a range of pre-IPO companies without the restrictions that often apply to private investors.
• Retirement accounts include both conventional and Roth IRAs.

Fundrise is building from its base in real estate to develop a fully integrated platform for investing in alternative assets. The company currently manages over 20 different funds, and investors can choose among them.

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Funds are accessible to private investors who previously had little access to these asset classes, with minimum investments as low as $10.

Fundrise currently has over 393,000 active investors. The total portfolio holdings are over $7 billion, and Fundrise has paid out over $344 million in dividends to investors.

Investor communication is a priority, and investors can expect real time performance reporting, frequent analyses of economic trends affecting Fundrise portfolios, updates on portfolio changes, and other materials designed to enhance transparency.

Fundrise offers several investment tiers with different minimum investments and different features.

Each of these contains one or more of the Fundrise fund offerings. The difference is in the minimum investment and in the investor’s ability to tailor the portfolio to meet personal preferences and requirements.

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How to Invest

Fundrise offers an extremely simple investment process. You open an account, fund it, and select your investment strategy, investment goal, and tier.

From there, Fundrise will manage your portfolio for you, offering suggestions and updates, or you will design your own portfolio if you have selected one of the more customizable tiers.

The Fundrise site gets generally high marks for being informative and easy to navigate.

Let’s take a closer look at what Fundrise offers in its various asset classes.

Real Estate

Fundrise offers several real estate investment plans, differentiated by the mix of income-focused and growth-focused assets in each fund.

• Supplemental income funds are designed to produce consistent dividends over the life of the fund but may have lower long-term appreciation.
• Balanced investing funds are highly diversified and place an equal weight on income and growth.
• Long-term growth funds will generate dividends but place a higher priority on growth-focused assets.

Fundrise calls their real estate funds eReits, and they are structured as Real Estate Investment Trusts (REITs). The main difference between Fundrise eREITS and public REITs is that public REITs are liquid: they trade on public exchanges and can be sold at any time.

The funds managed by Fundrise do not trade on an exchange and are considered illiquid. You can’t just sell any time you want to. There may be a waiting period for redemption – redemptions typically occur at the end of each quarter – and some funds may have early withdrawal penalties.

Fundrise advises that its real estate funds should be considered long-term investments. Investors should not commit funds that they are not willing to tie up for five years or more.

Fundrise offers an exceptional range of real estate assets, including the following:

• 8,962 multifamily apartments in 10 US markets.
• 2,310,800 square feet of leased industrial space.
• 3,471 single-family apartments in 30 US markets.

Fundrise also has 296 active real estate projects and 147 completed projects. These projects are divided into four categories with increasing risk levels.

• Fixed income investments generate immediate cash flow with an expected 6% to 8% annual return.
• Core Plus investments take 6-12 months to deliver yield, but expect to deliver 8% to 10% annualized yield, with a slightly higher risk profile.
• Value Add is a strategy of acquiring undervalued assets and investing additional capital to increase their value. Time to cash flow is 12-18 months, and projected returns are 10% to 12%.
• Opportunistic investments carry the highest risk. They may take 2-3 years to first cash flow but are expected to generate 12% to 15% returns on an annualized basis.

All figures for expected return are projections, not commitments.

A Fundrise portfolio can contain a mix of these assets tailored to fit the user’s risk tolerance and investment strategy.

The number of different strategies and asset types can be confusing, but that variety also offers a very high level of diversification for the size of the investments involved and offers the ability to construct many different portfolio types.

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Private Credit

Fundrise has introduced a private credit fund, which the company describes as “an opportunistic strategy for income-focused investors. The strategy is based on the fact that short term loans currently carry higher interest rates than long-term loans.

The fund is designed to capitalize on the current high interest rate environment by pooling investor funds and lending them to companies. Fundrise is leveraging its real estate experience by lending specifically for real estate projects.

The fund currently has $516 million in capital deployed in 90 debt deals covering real estate projects with 20,194 units at an average interest rate of 10.8%. It delivered a 13% annualized return in its first quarter^[1].

This strategy is designed to be temporary and will only be viable while interest rates remain high. Fundrise does not expect this situation to last beyond 2024.

Venture Capital

Investment in privately held technology companies has traditionally been restricted to venture capital firms and well-heeled angel investors. Fundrise aims to upset that status quo with a venture capital fund that is accessible to any investor.

Called the innovation fund, this investment vehicle focuses on high-growth private companies, primarily in the tech sector. The fund primarily invests in four categories.

• Modern data infrastructure
• Artificial intelligence and machine learning
• Development operations
• Financial technology

The fund currently has over 35,000 investors, with over $100 million invested in 19 private companies.

As with any venture capital fund, profits are only gained when the companies held go public or are acquired. Investors should be prepared to hold the fund for a medium-term to long-term time frame.

Past Performance

Fundrise provides detailed information on investor returns. As you can see, average returns are solid, but some accounts deliver returns well below the average.

Fundrise also provides data on returns vs public REIT and the S&P 500. Again, these are averages and not all portfolios will deliver the same performance.

It’s clear from these figures that Fundrise can deliver very competitive returns. It’s also clear that these returns are not guaranteed.

You will need to pay close attention to the composition of your Fundrise portfolio, especially if you are using one of the more customizable plans. Evaluating these portfolios will require significant research and expertise.

Costs

Fundrise offers a generally low-cost investing model. There is an annual advisory fee of 0.15% or $1.50 for every $1000 you have invested. This fee does not cover actual fund management expenses.

There is also a management fee of 0.85%, which replaces the per-fund management fees charged by many fund managers.

This amounts to a total of 1%/year in management costs.

You may be required to pay a 1% early redemption fee if you choose to redeem your fund shares after a holding period of less than five years.

The Flagship Fund and the Income Fund do not charge any penalty for quarterly redemptions, but Fundrise can freeze redemptions during periods of economic stress.

There may be additional fees associated with specific projects. These will only be stated in the offering documents for the project, so you’ll need to read these carefully.

Risks

Any investment involves risks, and Fundrise is no exception. Be sure to consider these factors.

• Low liquidity. Fundrise offers private funds designed to be held for a minimum of five years. Redemptions are available quarterly, but you may pay a fee if you redeem before five years have passed.
• Possible redemption freeze. Fundrise reserves the right to suspend redemptions during periods of economic stress. You may not be able to withdraw your money.
• Complex investment vehicles. Fundrise offers a huge range of options, particularly in their higher tiers. Accurately assessing these options may require time and expertise that many investors don’t have.
• Fees may be higher than expected. The basic fee structure is reasonable and accessible, but individual projects may carry fees and restrictions of their own, which may not be as easy to find.
• No assurance of performance. As with all investments, there is no assurance that a Fundrise portfolio will deliver the expected returns. While average returns are competitive, past results do not assure future performance, and some accounts have delivered below-average returns.
• Tax issues. Income from your Fundrise portfolio will be taxed as regular income, not as capital gains or dividend income. You should remember this when comparing potential returns to those of other investments.

Unlike some competing platforms, Fundrise has not invested in projects in which the property developer failed to deliver the expected property and the money effectively disappeared. That doesn’t mean that it can’t happen in the future, but based on its track record to date, Fundrise has generally done a good job vetting and managing its projects.

User Reviews

Fundrise has an A+ rating from the Better Business Bureau (BBB), indicating a high degree of responsiveness to complaints. The site has only 8 reviews and 30 complaints, all resolved over the last three years. It’s not possible to draw a relevant conclusion from such a small sample.

Reading the reviews, there’s a clear division between those who were happy with their returns and those who were not. This may stem in part from a failure to fully understand the nature of the investment from the start.

Some investors were clearly unhappy.

Others had more favorable experiences.

If you do choose to invest in Fundrise, it’s important to recognize that these funds are complex and they are actively managed: fund composition may change rapidly. There is no assurance that a given level of return – or any return – will be achieved.

Is Fundrise Right For You?

Fundrise offers accessible exposure to alternative asset classes such as real estate, private credit, and private equity. You can diversify into these asset classes with investments as low as $10.

That is a substantial advantage over platforms that are only available to accredited investors.

Just because you can, of course, doesn’t mean that you should. A Fundrise investment will tie up your funds for a substantial amount of time, and you may pay a penalty if you need to withdraw early.

If you’re considering a Fundrise investment, be sure that you are assessing not only the potential returns you could get from Fundrise but also the possible returns you could get from other uses of the same funds.

Fundrise has achieved a solid record in its 13 years of operation. Not all portfolios have been profitable and not all years have been positive returns, but the company has avoided scandal and major issues and is a viable option if you want to diversify into alternative asset classes without a major commitment.

If you’re considering a new investment in any asset class, it’s always a good idea to consult a professional investment advisor.

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