Does Fundrise Real Estate Investing Work? – Fundrise Review

Does Fundrise Real Estate Investing Work? – Fundrise Review


– In the video that I made on the five ways to invest in real estate, I mentioned Fundrise as a
potential way to invest. So in this video, I’m
gonna take a deeper dive and give you my honest review on the Fundrise real
estate investing platform. Full disclosure, I do have some money invested through Fundrise but I promise you it’s not that much money and that is not gonna stop me from giving you my honest
thoughts on this platform. If you feel like I’m
being biased in any way, then please, by all means, call me out down in the comments
below because I deserve it. Also, after you finish
watching this video, let me know down in the
comments your thoughts on the Fundrise investing
platform in general. I’m kind of curious to
get your point of view to see what you think about it. Hey, I’m Jarrad. On this channel, we like to talk about all things personal finance and investing. As always, please Hulk
smash that thumbs up button. It helps support myself and this channel and I greatly appreciate you for it. Fundrise is a crowd-funded
real estate investing platform that allows you to invest
in million-dollar deals without the actual millions of dollars that you would need to invest
in projects just like that. Hence, where the crowdfund
word comes into play. This is a way for you to invest in private market real estate that in the past was only available to very, very high net worth individuals. Think of Fundrise like the new
hip, techy millennial version of a REIT is the best way to explain it. They have a nice little
interactive website that is very appealing to us younger folks because we love those pictures and graphs and showing big numbers of
how much money we can earn. The difference between
Fundrise and a traditional REIT is that Fundrise is not publicly
traded on the stock market. There’s two different ways
that your money could grow if you invest through Fundrise. The first is through dividend payouts. Now, the cash return is paid
out on a quarterly basis so keep that in mind and it usually comes from
one of three sources. The first one is by making money from the sale of an investment, a return from lending
money on an investment through interest on the debt, and third is by collecting rent payments. The second way that your money can grow is through the appreciation of a property that Fundrise will invest in for you. This could rise for
many different reasons. One of the reasons is
there could be an increase in the real estate market overall in the particular city that
you have projects going on. It could also be from
doing different renovations to increase the overall value of the property that you are investing it. Fundrise is really transparent on what your money is
actually invested in. Once you choose the plan, they’ll kinda show you the details of each property within your portfolio. This will, of course, depend
on the type of investment plan that you choose. The first option is with the
goal of supplemental income. Now, with this option, you’re more focused on getting
a consistent dividend payout every single quarter and
not getting too concerned with getting most of your
value from appreciation. The second option is their
longterm growth strategy. Now, this plan focuses more
on squeezing the returns from the appreciation of your real estate and less from those
quarterly dividend payouts. If I had to guess before
seeing these numbers, then I would assume that the third option is where most people
choose to put their money and my guess is actually correct because they say that
43% invest in this plan. That is, of course, the
Balanced Investing portfolio. It’s kinda like the buffet of Fundrise. You want a little bit of dividends, you want a little bit of appreciation, and you wanna feel full
at the end of the meal. Each one of these investing plans boasts their own special return. For example, the supplemental income plan projects an 8.3 to 9.8% return. 8.3 to 9.8? Are you serious? If you’re like me, then you’re
like, that’s really high, and yes, you heard me
right in those numbers because that’s what they’re
saying on their website and that’s just the first plan. Wait until you hear the
rest of these numbers. The longterm growth plan says you can expect a 9.1 to 10.6 return. Holy smokes! That’s way better than that measly seven to 8% that we should
expect from the stock market. So this means, of course, that we should move all of
our money to Fundrise, right? Hold on, hold on, hold on. Don’t do anything with your money yet. We’re gonna dive a little
bit deeper into these numbers because I think this
is a little deceiving. And finally, the balanced investing plan is calling for an 8.7
to 10% projected return. So that means that a $10,000 investment would be worth $60,000 in 20 years. Something seems really
fishy but either way, these numbers are getting
me all hot and bothered so I need to stop for a minute. Just hearing those numbers
makes me start to question what is really going on. My grandpa always told me that
if it smells like a chicken but it looks like a fish, then you need to ask more questions because that’s probably a
fish dressed up as a chicken. I don’t necessarily wanna say that Fundrise is trying
to pull one over on us but to understand why they’re
projecting these returns, we need to take a closer look. I’m guessing that they’re
basing these numbers on the returns they’ve seen
since the company started. Fundrise was founded in 2010. Now, what do we know about a
couple of years following 2010? That’s around the year
that the real estate market had completely bottomed out, 2011 and 2012, if you wanna
be a little bit more accurate. Since then, the vast majority of people who have invested in real
estate have cleaned house and have seen huge,
absolutely huge returns as a result of growth
in the overall economy and the housing market. We have to take this into account that this has helped them get those amazing average annual
returns of 12% in 2014, 12% in 2015, 8% in 2016, and
11 and 9% in 2017 and 2018. I gotta give ’em props. Good job, Fundrise. Respect for knocking it out
of the park in this area. I get that they wanna
project these future returns, and who knows, they might
actually be accurate. It’s absolutely possible because we can’t technically
predict the future but one thing Fundrise has
that’s going against it, when they state these returns is that they haven’t gone through a downturn in the market yet. I’m just curious what the returns would be after a mini or major real
estate market correction. This is the main reason
you should only expect about a seven to 8%
return in the stock market because the stock market
has been around long enough for us to know that even though
your portfolio might be up, we’ll say 300% over the past 10 years, once the market corrects itself multiple times over the
next 30 to 40 years, you should only expect an
average return of seven to 8%. Let’s give Fundrise credit and show a comparison
over the past five years. Since 2014, they’ve had
an annual average return of almost 10.78% which the Vanguard total of stock market has yielded 7.92% and the Vanguard real
estate ETF has yielded 7.4%. That almost 11% is of
course before the fees that Fundrise will charge you. More about that in a minute though. Fundrise is fairly cheap
to start investing. Their minimum is $500 which is pretty reasonable in my eyes. Now, it’s not as cheap
as the Vanguard REIT VNQ which the minimum is
whatever the share price is at that point in time but I
would consider $5 pretty good. But speaking of fees, let’s
dive into this fun topic to figure out how much Fundrise
is actually costing you. Keep in mind that the fees involved in anything you invest in
are extremely important, especially when you’re investing. Fundrise charges a 1% overall total fee. Of that .15% is to pay
for an investment advisor to manage your portfolio on their platform and .85% is to manage your assets so the properties that you
were actually invested in. Now, when you compare
that 1% to the .12% fee of the Vanguard REIT VNQ, that’s pretty high by anyone’s standards. You could also be charged by Fundrise an additional fee between zero and 2% for something they call Asset
Origination and Acquisitions. That’s at the 3% fee on your money that Fundrise could potentially charge you which is absolutely insane
and I would normally recommend for everyone to run away
as quickly as possible. But one thing to note is
that that up to 2% fee is more of an exception than it is a rule. I wouldn’t expect to be charged this additional amount on a regular basis but it is good to keep in mind
that they do have the ability to charge you that much
under certain circumstances. Worst case scenario, that
average 10.79% return over the past five years
goes down to a 7.79% return which would still be a higher return compared to the 7.4 of Vanguard’s VNQ. Another thing you need to know about is that there’s more
potential fees involved, but only under certain circumstances. Real estate investing should be looked at as a long-term play no matter what. If you don’t understand that, then forget investing in
real estate to begin with. When you buy into one of Fundrise’s plans, you’re giving them your money
so they can go out and use it to make deals that will
ultimately make you more money. Real estate in general isn’t very liquid so it’s not always quick
and easy to sell a property to have cash in your
bank account tomorrow. Because of this, Fundrise
put some safeguards in place to help prevent you from
investing your money with them than try and take it back out
within a short period of time. You have 90 days to withdraw
your initial investment at a charge of 0%. If you try to sell within
the first three years, then you’ll be charged a 3% fee. If you try to sell between
the three and four-year mark, then you’ll be charged a 2% fee. And if you try to sell between
the four and five-year mark, then you’ll be charged a 1% fee. Since Fundrise shares aren’t publicly traded
on the stock market, they can’t guarantee to
have someone sitting around waiting to buy your
shares that you wanna sell at whatever point in time you wanna sell. I actually don’t see a problem with them charging these
penalties because I get it, real estate is a longterm investment. Keep that in mind. So if you want something more liquid, then invest in a publicly-traded REIT. You can use my favorite
investing platform, M1 Finance, to invest in REITs. I’ve got a link in the description to open an account with M1 Finance. Let’s talk about everyone’s
favorite topic, taxes, specifically taxes on the dividends that you receive through Fundrise. These dividend distributions
are taxed as ordinary income. They are not taxed the
same way as capital gains. In the case of capital gains tax, your rate could be zero, 15, or 20% depending on your taxable income and how long you’ve held the
investment before selling it. When you receive a dividend though, you basically add your dividend payout to your total income for
that particular year. So if you’re a single
person who makes $82,500 from your full-time job,
then your tax rate is 22%. Now, if you’re someone who
invests through Fundrise and your dividend payout
for that year totals $1,000, then we’ll need to add that
$1,000 to your total income. The total of your income
for that year is now $83,500 because 82,500 plus 1,000 equals $83,500. That $1,000 dividend now puts
you into a new tax bracket which is 24% since the Fundrise dividends are taxed as ordinary income. I’m not saying that this is a bad thing, and there are ways to lower yourself back into that 22% tax bracket which we won’t talk about
in this video right now but this is just something to be aware of. Also, keep in mind that in this example, only the $1,000 would be taxed at 24%. So let me give you my final thoughts. Overall, I like what
Fundrise is doing here. They’re making larger real
estate investing deals available to the average
person like you and I. They do allow you to invest in Fundrise
plans through an IRA. Now, I’m not a huge fan of doing this. The platform and idea of
crowd-funded real estate hasn’t been around long
enough for me, personally, to trust making it a part
of my retirement portfolio. I think we need to see what happens once it’s been through
a correction or a crash or a mini downturn in
the real estate market. We need a bigger sample size
of at least 10 to 15 years before even thinking about putting this into a retirement account. I like Fundrise if you’re
looking for an alternative way to invest some side cash
that you have lying around that you don’t mind tying
up for at least five years. The cash that I have
invested through Fundrise is an extremely small
portion of my total net worth and total money that I have invested. I actually plan on using my Fundrise money to buy the next car that I need in the next six to seven years. Let me know in the comments what you think about Fundrise overall. Does it seem like it’s
worth your time and money? I’d love to hear your opinions. Please Hulk smash that thumbs up button. Check out these videos around my head and I have all kinds of links to more personal finance
and investing videos in the description to help you out. And of course, subscribe if
you want more personal finance and investing videos just like this one. I’ll see you in the next one, friends. Adios!

7 thoughts on “Does Fundrise Real Estate Investing Work? – Fundrise Review

  1. -Invest In Partial Shares With M1 Finance For Free (where I invest my money) https://www.debtfreeblueprint.com/M1Finance
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  2. I’d say it’s great for diversification! I think I’d want to get an actual property tho, we’ll have to look into it more. Thanks 😁👍

  3. I won’t use or suggest others use it unless they want their money locked up 5+ years and not very liquid, they issue out K1's, don't get the full benefits of true real estate. My preference for newer investors interested in RE, is by using a REIT. You can get capital appreciation, can invest within a Roth IRA to collect the cap gains/divs tax-free, and don't have to pay extra just for having to do a K1 on taxes.

  4. Man you're crushing these videos! Great work and dedication to YouTube.

    I would personally rather invest in real estate directly than use Fundrise!

  5. Nice video. I personally love fundrise but only if it's a nice balance within your total portfolio and be diversified.

  6. Fundrise seems like a good option for somebody who does not want to get involved with physical real estate but the lack of history worries me. I would put some money in but only a bit to see how it worked out after a few years.

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