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Fundrise is an investment platform which offers investors the opportunity to invest in private assets traditionally reserved for accredited and institutional investors. In this article, you’ll learn how Fundrise works, which investment opportunities are available through the platform, and the pros and cons of this investment application. From REITs to venture capital, you’ll learn how Fundrise is unlocking more access to alternative assets and diversification for retail investors.
What Is Fundrise?
Fundrise is an alternative investment platform that enables users to invest in private assets like real estate, private credit and venture capital. Fundrise was founded in 2012 by brothers, Ben and Dan Miller, and became one of the first platforms to offer crowdfunded real estate investing after the passing of the JOBS Act, which enabled this investing opportunity.
The mission of Fundrise began with the goal of expanding real estate investment opportunities to retail investors and has since expanded to building a better financial system by empowering the individual. Beyond investments in residential and commercial real estate, Fundrise now offers private lending and venture capital opportunities to investors. In total, Fundrise manages $2.87 billion of equity for almost 400,000 investors.
How Fundrise Works
Fundrise works by enabling investors to make crowdfunded investments into real estate, private credit and venture capital funds.For real estate, users can invest in a variety of eREITs (electronic real estate investment trusts) and funds, which invest towards outcomes like long-term growth or in specific geographies like the East Coast. With Fundrise, investors can cater their strategy with eREITs or allow Fundrise to select funds on their behalf based on their investment objectives.
Investors can also choose to invest in private credit, or private lending, through the Income Fund that aims to deliver income yield through financing to residential real estate projects. Finally, Fundrise offers venture capital investing through the Innovation Fund, which invests in private companies like Anthropic and Anduril and is designed for long-term growth.
Fundrise offers a simple investing experience through its app and desktop experience through which investors can select and make investments, track performance and project progress, and learn more about the alternative investment opportunities at their disposal.
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Understanding REITs And eREITs
A real estate investment trust (REIT) is a trust that owns real estate assets, including residential and commercial real estate, and produces income as well as capital appreciation. By law, REITs must give out 90% of its taxable income to shareholders each year in the form of dividends. REITs can be both publicly traded or privately held but in both instances allow individuals to invest in real estate portfolios without holding the properties directly. Investing in REITs is a popular way for retail investors to gain exposure to real estate markets whether they wish to invest in specific types of real estate like single-family homes. warehouses or cell towers or in specific geographies.
Fundrise offers eREITs as investment vehicles to their users that are private and not publicly traded but are only available through their platform. Fundrise manages the assets of eREITs themselves and through them they charge lower fees as well as a more streamlined direct investment process. Like with other private REITs, eREITs are subject to less price fluctuation as compared with public REITs.
The Technology Behind Fundrise
Fundrise makes use of advanced technology to enable a seamless real estate and alternate investing experience for retail investors. Through the mobile and desktop application, investors can directly invest in eREITs, real estate funds and venture capital funds without a third-party application or other middlemen. Fundrise’s proprietary internal systems like Cornice and Basis streamline account management, reporting and asset management for hundreds of thousands of users.
Fundrise Investment Options
Fundrise offers a diversified selection of investment options, including real estate, private credit and venture capital funds for investors seeking to access investment opportunities traditionally inaccessible to non-accredited investors. The investment platform’s real estate funds and eREITs offer capital appreciation and income by building single-family homes, multifamily apartments and commercial properties, especially in areas like the Sunbelt.
Fundrise’s private credit fund delivers real estate income through the Income Fund, which provides gap financing, in particular, to multifamily housing. The Innovation Fund, a venture capital fund, allows investors to access long-term returns through investments in private companies like Databricks and Canva.
Understanding Fundrise Fees and Costs
Fundrise’s charges a 0.15% annual advisory fee that covers reporting, dividend distribution, customer support and other services. Real estate funds like the Flagship Fund and eREITs charge a 0.85% management fee for portfolio management and expansion. Private REITs often charge 9% to 10% of invested funds making Fundrise’s 1% annual fees reasonable in comparison.
The Innovation Fund charges an annual management fee of 1.85% if investors choose to make venture capital investments through Fundrise.
Benefits Of Using Fundrise
Fundrise offers a number of benefits that help to make real estate and venture capital investing more accessible, cost effective and efficient for retail investors. Through a user-friendly app experience and investment process, Fundrise makes it easy to get started with alternative investing.
Accessibility For All Investors
Fundrise has been a key driver of investing accessibility since 2012. Private real estate investing traditionally has only been accessible to accredited investors or investors creating their own real estate details that is time and cost prohibitive to the average investor. In addition to access to investing opportunities, Fundrise bridges the gap in accessibility for investing information through their podcast, articles, and memos on the state of real estate and venture capital.
Fundrise’s innovation in accessibility has been followed by other innovators in the investing space like the Autopilot app, which makes it easy for investors to track and invest in the portfolios of politicians and hedge fund investors.
Low Minimum Investment Requirement
With Fundrise, investors can get started with as little as $10 for real estate investing and $1,000 for venture capital investing. Traditionally, private real estate and venture capital investments require far higher initial investments. These low minimums allow investors to access alternative investment exposure without significant investment, whether they’re just getting started with investing or testing the returns of Fundrise before further, greater investment.
Diversification Across Properties And Markets
Another benefit of Fundrise is the broad diversification investors can make to their portfolio, whether they wish to invest in private credit, venture capital, or real estate, including specific real estate market targeting. If investors wish to invest in venture capital they can do so through the Innovation Fund, if they want more income for their portfolio they can invest in the Income Real Estate Fund, and if they want broad real estate diversification they can invest in the Flagship Real Estate Fund.
For more targeted real estate investing, investors can select specific eREITs to invest in, including East Coast, Heartland, or West Coast eREITs.
Ease Of Use Through The Mobile App And Online Platforms
Fundrise’s mobile and desktop applications are exceptionally easy to use and well designed. Through these applications, users can manage and make investments, track performance, and review the progress of the projects they invest in. Fundrise makes it simple to review financial breakdowns of performance and fees, and access tax documents.
Through the app, users can also automate contributions, calculate potential returns based on contribution decisions, and access useful education about real estate and venture capital investing.
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Risks Of Using Fundrise
Fundrise boasts many advantages for retail investors but as with any investment opportunity, there are risks that potential users should be aware of. Real estate is inherently volatile and can be subject to downturns from the economic and interest rate environment. There is also platform risk if Fundrise’s managers make mistakes in portfolio management and use of funds.
Market Risks And Economic Factors
As mentioned, Fundrise’s real estate investments are subject to economic and real estate risks that can affect the value of investments and distributed income. The economy experiencing a downturn, a high interest rate environment, or decreased demand for a type of real estate in a given area, can all negatively affect real estate investments. Investors should assess their tolerance for risk before investing in Fundrise and investing in real estate in general.
Liquidity Risk For Investors
A risk posed by Fundrise, as opposed to publicly traded investments through the Acorns app, for example, is liquidity. Fundrise reserves the right to restrict or delay withdrawals during certain periods such as an economic downturn. Investors should consider this when determining the amount they’d like to invest through Fundrise. Funds which might be needed within five years should not be invested as Fundrise’s real estate and venture capital investments are fundamentally long term.
This potentially reduced liquidity can be a benefit for account values as private REITs are known to fluctuate less in price than publicly traded REITs.
Potential For Loss And Understanding Real Estate Volatility
When considering investment in Fundrise, investors should understand that there is a potential for loss, like with any investment. While Fundrise aims to deliver high returns, there is a risk that real estate or venture capital investments through the platform can result in partial or total loss of invested funds. Before investing in Fundrise or in general, investors should assess their risk tolerance, their investment horizon and understand the volatility of the real estate market.
Fundrise Versus Other Real Estate Investment Platforms
Two of Fundrise’s biggest competitors in the real estate investment platform market are CrowdStreet and RealtyMogul. These platforms are similar to Fundrise in that they focus on real estate investments and offer user-friendly platforms designed to expand access to retail investors. They differ in that Fundrise has a low minimum investment of $10 while RealtyMogul’s minimum investment is $5,000 and CrowdStreet’s minimum investment is $25,000.
CrowdStreet serves accredited investors while RealtyMogul offers non-accredited opportunities for real estate investment like Fundrise. Fundrise offers eREITs and eFunds while CrowdStreet offers direct investment into individual commercial real estate opportunities and RealtyMogul offers both REITs and individual investment opportunities. Fundrise is best for non-accredited, more entry-level investors, RealtyMogul offers a middle ground with opportunities for higher-net-worth investors whether they’re accredited or not, and CrowdStreet is best for accredited investors seeking to invest in individual projects.
Is Fundrise Worth It For You?
Fundrise can be worth it for you if you’re a non-accredited investor seeking exposure to real estate, private credit or venture capital investing with low investment minimums, a user-friendly interface and the opportunity to customize your real estate investments through eREITs. Through Fundrise, investors can diversify their portfolio holdings to achieve higher diversification to their overall portfolio with alternative investments traditionally unavailable to non-accredited investors.
Fundrise could be unideal for your investment strategy if you’re concerned with reduced liquidity during economic downturns, have a shorter time horizon for your investments, or are uncomfortable with the volatility of the real estate market.
Bottom Line
Fundrise is a platform which democratizes investor access to private real estate, private credit and venture capital offerings. Through the offering of traditionally accredited investments with low fees, Fundrise makes it easy for retail investors to diversify their portfolios while making use of simple-to-use mobile and desktop applications.
When considering Fundrise as an option for alternative investments, retail investors should consider their comfort level with market fluctuations and liquidity restrictions. For long-term-oriented investors, Fundrise offers a streamlined and effective platform for investing in private assets.
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