Fundrise Reviews


Fundrise
Average Rating: 5 reviews

Summary

Since opening its doors in 2012, Fundrise raised over $170 million in capital from accredited and nonaccredited investors including individuals, institutions, and family offices as of November 2016. Of that, about $32.4 million is currently deployed on projects. Among its bigger deals as of late 2015 are projects raising $70 million for their eREITs.

The platform launched its first deal in 2012 and by mid-2015 has facilitated over 70 transactions with an average deal size of $1 million. The average investment on the platform has been about $5,000 with annual returns ranging from 10% to 16%, according to Fundrise’s president in early 2015, though its website lists average returns of 12% to 14%.

You can view Fundrise's list of current deals by requesting access to their platform here.

Quick Facts

Minimum Investment
$1,000
Assets Under Management
$55 Billion
Year Founded
2012
Number of Users

Fundrise Fees

0.3% to 0.5% for investors, deducted from distributions as they are paid

Expert Walkthrough

PROS

  • Pre-funds all deals with their own capital – this is huge!
  • Low minimum investment (only $1,000)
  • Longest track record in the industry
  • Well capitalized
  • High quality deal flow (they only approve about 2% of deals)
  • Backing from major industry players (examples include Renren, a major social networking company based in China)

CONS

  • Shares potential drawbacks of other crowdfunded real estate investments including lack of liquidity and risk
  • Taxes - You’ll be taxed on your distributions as regular income versus the 15% on qualified dividends

Background

Fundrise is headquartered in Washington, D.C. and the platform allows individuals to invest as little as $1,000 in real estate development projects.

The average investment on Fundrise is less than $10,000 compared to $60,000 on Realty Mogul, another major crowdfunding site.

The inspiration for founders (and brothers) Ben and Dan Miller was to open up real estate investing to ordinary people and to give them a chance to own a piece of property in their communities. Their thinking was that locals would have knowledge of the area and a personal stake in the success of projects.

The company’s CEO predicts that by 2017 it will handle more than $1 billion in crowd-funded brokering annually.

SPECIALTY

Fundrise launched its first project in Washington, D.C. and all subsequent projects are located in the United States. It historically has had the bulk of its projects in the Washington-New York corridor. Fundrise plans to expand its reach but most properties remain weighted toward the East Coast with Washington and New York representing about half its business. Currently, their eREIT has expanded their geographic reach with properties on the west coast and the heartland (e.g. Chicago and Dallas).

The platform targets urban infill, construction, rehab and development projects in the top 25 metropolitan markets. The company’s average deals are for assets valued under $50 million and Fundrise generally invests directly up to $5 million. For larger deals, such as recent ones in 2015 for commercial properties in Brooklyn and Atlanta valued at $10.5 million and $15.5 million, half to two-thirds is sold to institutions.

Perusing deals on the site turns up single and multi family homes, mixed use properties, condominiums, industrial and retail developments.Most of these locations are on the East Coast but they’ve since expanded to the West Coast and the Heartland in locations such as Arizona, Chicago, Dallas, Denver, Los Angeles and Seattle. The projects are typically located in emerging areas of major markets.

Fundrise says its companies have developed 1.24 billion square feet of property or 1.8 times the size of Manhattan.

You can view Fundrise's list of current deals by requesting access to their platform here.

TYPICAL PROJECTS

Fundrise is expanding nationally beyond its traditional base in Washington D.C. and New York to bring big developers onto the platform. It includes more than 800 real estate companies who use Fundrise to raise capital for their projects as of November 2016.

In March 2015, they opened the first ever crowdfunded real estate project in the United States called Maketto, a food and retail market on H Street Northeast in Washington, D.C. It was the first offering on the platform in 2012 and the first real estate project in the country to allow investment from individuals online. Maketto raised $325,000 from 175 unaccredited individual investors in amounts as small as $100.

Success for Fundrise has led to bigger deals including 3 World Trade Center, the biggest real estate development in the country. Fundrise provided $5 million in construction financing for the 80-story trophy tower in Manhattan due to open in 2018.

You can view Fundrise's list of current deals by requesting access to their platform here.

Fundrise eREIT

With their first eREIT product in December 2015, Fundrise has given non-accredited investors an opportunity to invest in REITs directly from the issuer. Properties include multifamily units and other types of commercial property.

As of November 2016, they’ve introduced four more, the Growth eREIT, the Heartland eREIT, the West Coast Opportunistic eREIT and the East Coast Opportunistic eREIT, the with last three mentioned being the latest offerings.

How their eREITs differ from a typical REIT is that they give investors a chance to purchase directly from the issuer, versus a broker that is typical of regular REIT transactions. They’re similar to non-traded in REITs in that they’re subject to the same SEC requirements, but aren’t affected by stock market fluctuations.

The difference is that the fees are much lower. Instead of up to 15% in fees, Fundrise only charges 1%. And if you’re an early on-boarder, Fundrise is currently not charging its investors asset management fees until they reach 15% in annualized returns until December 2017.

Here’s a quick breakdown of each eREIT:

Growth eREIT - It focuses on equity ownership and is riskier but you can anticipate higher rewards. Returns differ and you get them back at the end of the investment term. So far, they’ve had an annualized return of 8%.

Income eREIT - This one primarily focuses on debt investments on properties primarily for cash flow. Quarterly dividends are paid for the duration of the investment (they’re predicting around 5 years or so). As of November 2016, they have an annualized return of 10%, or $10 per share price.

East coast eREIT - This eREIT sets is sights on east coast properties with the purpose of both debt and equity ownership of commercial properties. It’s still relatively new so no estimates of returns are out yet.

West Coast eREIT - This eREIT sets is sights on west coast properties (so far in WA and CA) with the purpose of both debt and equity ownership of commercial properties. It’s still relatively new so no estimates of returns are out yet.

Heartland eREIT - This is the same as the West Coast and East Coast eREITs except their focus is on properties located in the Austin, Chicago, Dallas, Denver and Houston metropolitan areas.

eREITs require a minimum investment of $1,000 depending on which one you choose, and all investors are welcome. Investors purchase shares online and members will then receive notifications if new properties are acquired.

With their strict screening process, as of November 2016 about 2% of deals are approved for the eREITs.

TARGET DEMOGRAPHIC

Fundrise’s typical investor clients are in their mid-30s to 40s and invest about $15,000 each. As of late-2016 the site is only open to U.S. residents though international investors have the ability to invest in U.S. properties by contacting Fundrise directly.

The minimum investment is $1,000 which is an advantage for those with less to invest or waiting to proceed cautiously.

With the introduction of eREITs, Fundrise has taken advantage of Regulation A+ to offer a chance for non-accredited investors to cash in on real estate crowdfunding. As of late 2015, they’ve been able to raise over $70 million for their eREIT products.

Regulation A+ was put in place in June 2015 by the U.S. Securities and Exchange Commission that makes it easier for smaller investors to participate in real estate crowdfunding. So far Fundrise has had success with raising capital, but the SEC is expected to exercise close scrutiny on deals. It plans to study the segment and may determine there is a higher degree of protection required for smaller investors.

LEADERSHIP TEAM

Fundrise’s leadership team gets high marks from industry insiders. The founding brothers, Benjamin and Daniel Miller, are sons of noted Washington D.C. real estate developer Herb Miller.

Benjamin Miller Fundrise CEO
Benjamin Miller, who acts as CEO, has 15 years of experience in real estate and finance. He worked on $500 million of property as a managing partner of WestMill Capital Partners.
Brandon Jenkins Fundrise COO
Brandon Jenkins, Chief Operating Officer - Brandon helps to run the design and tech teams to ensure the Fundrise software platform is running smoothly. He was previously an investment advisor and broker for Marcus & Millichap, the largest real estate investment brokerage firm in the U.S.
Kenny Shin Fundrise CTO
Kenny Shin, Chief Technical Officer - Kenny has been the CTO since Janary 2011 and has previously consulted for Fortune 500 companies in the finance and technology space, including Fannie Mae, Oracle, Department of Defense and NATO.

DEAL STRUCTURE

Most of the deals on Fundrise are for “preferred equity” which is an equity investment in the property-owning entity. It is not secured by the property but by an interest in the entity investing in or owning the property. Preferred equity provides a coupon return similar to debt, and sometimes it may offer upside potential in the form a kicker of remaining equity.

Typically the cash flow or profits are paid back to the preferred investors after debt has been repaid and when they receive the stated return.

Investors who want a higher yielding but steady return may invest in preferred equity over common equity. They give up a larger potential overall return for consistent cash flow and less relative risk. Returns come from both rent streams and other income on the property as well as the appreciation of the property itself.

Each deal has its own terms that are specified in the listing.

In the capital stack of a deal, preferred equity fills the same portion as mezzanine debt between senior debt and common equity. It’s important to note that preferred equity is not secured, so you have no call on the asset (the underlying property) if a deal falls apart.

For Fundrise’s eREIT, you will typically get paid quarterly dividends and the potential for additional income at the end of the investment cycle.

You can, however, redeem some of your shares, but are limited to about 5% of the total outstanding shares in a given year. These deals range from debt to growth equity and are added whenever deals are finalized. These assets are then introduced to investors.

Massolution found that in 2014, about three-quarters of real estate crowdfunding was debt, which gets repaid first, while equity-linked securities – like those that make up most of Fundrise’s deals – accounted for 18.5%. So it stands to reason that if you prefer a debt offering, another platform might be a better match for you.

FEES

Fundrise says its servicing fees are 30 basis points (a basis point is 0.01%) a year, which ranks quite favorably among real estate crowdfunding platforms. In the fine print, it says this can go up to 0.5% of invested capital per year.

Each deal’s annual returns are quoted gross, not net, of annual servicing fees. The platform has historically not taken a spread between income from the asset and payments. Fundrise also charges real estate companies a one-time 1% to 2% origination fee and $5,000 closing cost.

Currently, for all Fundrise eREITs, investors will not have to pay anything in asset management fees until they earn a 15% annualized return until December 2017. After this (or if you earn over 15%), asset management fees range from 1-1.5%, depending on the eREIT you have.

Fundrise, like other platform counterparts, touts the cost-saving advantages of crowdfunding over traditional investing models. Fundrise wants users to know that their advantages can boost returns on a theoretical project with a 14% gross annual return on a $100,000 investment. On Fundrise, the investor would get a net return of 13.7% or $68,500 versus a 7.7% net return, or $38,500 on a non-traded REIT.

DUE DILIGENCE

The risks we just noted highlight why it’s so important that a real estate crowdfunding platform exercise sound underwriting policies.

Fundrise says that of the hundreds of projects it reviews every month, fewer than 5% are approved. It performs due diligence and pre-funds all its investments from its own balance sheet before offering them to investors. Fundrise wants to align its interests with all of its investors.

The company has pioneered the practice of pre-funding deals which guarantees developers its own money upfront and then spreading the deal out to the “crowd.”

This practice is attractive to developers because helps ensure the quality of its deal flow and it’s a sign of the company’s confidence it will be able to raise money to back the investments it selects.

The following diagram shows the approval process for a project at Fundrise.


Disclaimer

The information contained herein neither constitutes an offer for nor a solicitation of interest in any securities offering; however, if an indication of interest is provided, it may be withdrawn or revoked, without obligation or commitment of any kind prior to being accepted following the qualification or effectiveness of the applicable offering document, and any offer, solicitation or sale of any securities will be made only by means of an offering circular, private placement memorandum, or prospectus. No money or other consideration is hereby being solicited, and will not be accepted without such potential investor having been provided the applicable offering document. Joining the Fundrise Platform neither constitutes an indication of interest in any offering nor involves any obligation or commitment of any kind.



Fundrise Reviews

InvestorJunkie 2016-03-09

Invest in commercial real estate via crowdsourced investments. Gain access to real estate deals without the high dollar commitment typically needed, though you need to be an accredited investor.

My Money Blog 2016-04-28

Well, investing in a single property is definitely different than investing in a fund of properties. After the eREIT got past 10 properties, I pretty much stopped paying close attention when they tell me about new acquisitions. I like that the eREIT has a lot more commercial properties, which can be expensive and tend to have higher minimum investments when done individually (often $25k minimum for a single deal). I give up control in exchange for diversification. For residential properties, I think individual properties offer you at least the illusion of control in picking a good situation.

Investopedia 2015-12-31

REITs and property crowdfunding platforms have made it extremely easy for the average investor to include real estate investments in his or her portfolio. Just this month, Fundrise, a crowdfunding website, launched the world’s first Internet REIT. Like traditional REITs, Fundrise’s eREIT will give its unitholders the opportunity to benefit from income-producing property. While eREits are similar to traditional REITs in that respect, there are a number of differences between the two. For instance, shares in Fundrise’s eREIT can only be redeemed at the end of each quarter, and as such may not be a suitable investment for many retail investors. Additionally, the eREIT might be tax-inefficient for young investors who could benefit much more by realizing capital gains rather than investment income. Conservatives investors should also note that Fundrise is a new player in the REIT business, and as such may be riskier than other REITs because of its unproven track record.

Eric Bowlin 2016-07-19

Fundrise is an investment service that allows you to invest directly into commercial real estate. They've achieved this by creating a B2C marketplace that lists commercial real estate properties for individual investors to choose from. Their goal is to "make the process of investing in the highest quality commercial real estate from around the country simple, efficient, and transparent." Essentially, they bridge the gap between the investor and the developer.

ListenMoneyMatters 2016-06-14

Since Fundrise crowd funds capital ahead of acquiring an asset they are able to move quickly providing a large amount of cash to invest in a short time window. This allows them to focus entirely on senior debt and ownership positions that dramatically reduce the investments' risk.