One way to diversify your investments beyond stocks and bonds is to buy real estate.
Traditionally, you had to have a lot of cash on hand to buy property, but crowdfunding has changed that.
The crowdfunded real estate company Fundrise enables you to add real estate to your portfolio without a large amount of capital. In fact, you can invest in real estate through Fundrise with as little as $500.
“Crowdfunded real estate, like Fundrise, could be a good way for small investors to participate in real estate markets previously available only to big investors,” says Stacy Johnson, the founder of Money Talks News.
Here’s what you should know about Fundrise.
What is Fundrise?
Fundrise was founded in 2010 as one of the early crowdfunded real estate websites. The idea behind it is to enable regular investors to gain exposure to real estate assets, even if they only have a few hundred dollars to get started.
Today, Fundrise primarily offers electronic real estate investment trusts (eREITs) and electronic funds (eFunds) to investors. Both are types of alternative investments available exclusively and directly through Fundrise, without brokers or selling commissions, according to the company.
An eREIT, as Fundrise describes it, “is a professionally managed, diversified portfolio of commercial real estate assets.” Such assets can include apartments, hotels, shopping centers and office buildings across the country.
An eFund, on the other hand, “is a professionally managed, diversified portfolio of residential real estate assets.” These assets can include single-family homes and condominiums, for example.
How much do you need to invest through Fundrise?
You need $500 to start investing in Fundrise’s Starter Portfolio. It has the lowest required minimum investment of Fundrise’s offerings and is the most popular choice among new investors.
If you have $1,000 to invest — or once your portfolio balance reaches $1,000 in value — you can upgrade to what Fundrise calls a “Core Plan.” These investment options offer greater diversification and the ability to tailor your portfolio to your investment goals, according to Fundrise.
The Core Plans are:
- Supplemental Income: This plan’s portfolio is designed to provide a steady income stream. It aims to offer returns primarily through dividends.
- Long-Term Growth: This plan’s portfolio is designed for long-term growth. So, it aims to offer returns primarily through appreciation.
- Balanced Investing: This plan’s portfolio is designed to provide a mix of income and growth, offering returns through both dividends and appreciation.
Whichever option you choose, your portfolio grows over time with the help of dividends, which are distributed quarterly, and the appreciation of the real estate assets.
There are costs associated with your portfolio. They generally include a 0.85 percent annual asset management fee and a 0.15 percent annual investment advisory fee — for a total cost of 1 percent.
Features of Fundrise
Fundrise offers investors some attractive features, including:
- Goal-based investing: Rather than designing a portfolio based on the types or locations of real estate property, you can base your portfolio allocation on your investing goals.
- An easy-to-use platform: It’s easy to sign up and invest with Fundrise through its website, where you can see what’s in your portfolio and read about each property.
Is Fundrise safe?
As with any investment, you run the risk of losing your principal when investing in real estate.
However, Fundrise’s offerings are regulated by the U.S. Securities and Exchange Commission (SEC). So, Fundrise is required to report certain financial information, including annual audits, to the SEC.
One thing to understand about the eREITs and eFunds offered by Fundrise, though, is that they are not traded on an exchange. This means they aren’t publicly available. As a result, they are less liquid than some other investments.
To redeem shares from Fundrise, there is a 60-day minimum waiting period, and there might be other limitations as well as a penalty.
For the most part, Stacy points out, Fundrise is designed for long-term investors.
“As long as you do your research and don’t invest more than 25 percent of your long-term savings, it can be a solid idea,” Stacy says.
Is Fundrise right for you?
Before you use any financial product, it’s important to research your options and perform due diligence.
If you’re looking for an easy way to add real estate exposure to your portfolio, Fundrise can potentially provide you with an option.
However, you do need to realize that investing through Fundrise will tie up your money. You also need to understand how your gains will be taxed.
There are publicly traded REITs available through most online brokers, so if you’re more interested in REITs that are liquid and trade more like stocks, it might make sense to look elsewhere.
But as long as you understand the implications and it fits your portfolio, investing through Fundrise can help you diversify your portfolio and reach your long-term wealth-building goals.
Would you consider using a platform like Fundrise to invest? Have you tried investing in real estate? What did you think? Share in the comments below, or on our Facebook page.
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