Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about investing in real estate: specifically, whether a new breed of real estate investment — crowdfunded real estate — is worth a look.
Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
For more information, check out “How to Start Investing in Real Estate With as Little as $500” and “2-Minute Money Manager: Should I Invest in Real Estate Investment Trusts?” You can also go to the search at the top of this page, put in the words “real estate” and find plenty of information on just about everything relating to this topic.
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Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to the “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, bringing you the best in personal finance news and advice since 1991.
Let’s get to today’s question. It comes to us from Desiree:
What’s the best way to invest in real estate as a group? I’ve been looking into the site Fundrise. What are your thoughts on this type of an arrangement?
Desiree, I’ve been considering this type of investment myself, although I haven’t pulled the trigger yet. From what I’ve read, however, I think these things are pretty cool.
Let’s take a look at what they are, along with advantages and disadvantages.
What is crowdfunded real estate?
Hopefully by now you’re familiar with crowdfunding.
Crowdfunding is when a bunch of people get together and throw some money at somebody. Maybe we help them develop a product; maybe we help them pay their bills. The money we contribute could go to just about any purpose.
Crowdfunded real estate, as the name implies, is people getting together and buying property. It’s not unlike a real estate investment trust, also known as a REIT: You’re getting a bunch of money from individual investors, pooling it all and hiring somebody to buy, manage and/or finance real estate.
Fundrise is one of the more popular companies with this business model. It’s been around a few years. They raise money from individuals in increments as small as $500, then use it to buy portfolios of properties.
As is true with most real estate investments, if you invest with Fundrise, you should plan on holding onto your investment for at least five years. Real estate takes time to buy and sell.
Is it a good idea? I think it can be.
I like real estate
I’ve invested in real estate my entire adult life and have been happy with the results.
Of course, they didn’t have things like Fundrise when I started investing in real estate 40 years ago. I simply went out and bought property. But there’s nothing wrong with investments like Fundrise. I wouldn’t put 100 percent of my investment money into real estate, but nothing wrong with putting 10 or 20 percent into it. And there’s nothing wrong with using Fundrise or similar vehicles to do it.
(Note: This is not investment advice. Everyone’s situation is different, and only someone familiar with your personal situation can know if this or any other investment advice is right for you.)
As should come as no surprise, crowdfunded real estate comes with fees.
Fundrise, for example, charges 1 percent per year to manage your real estate investment, as well as upfront costs ranging from zero to 2 percent, depending on the project and portfolio.
As I mentioned, you want to keep your investment for at least five years. You can get out early, but they charge a penalty of 1 to 3 percent.
Bottom line? If you’ve got some long-term money, like the idea of investing in real estate, and think the real estate market is looking good, check out Fundrise.
As with any investment, however, never rely simply on articles like this one. Do your own research and make sure an investment fits your specific needs.
For example, one thing to consider when looking at Fundrise is the type of real estate they’re buying and managing. When I researched this report, they had several potential portfolios you could choose based on your priorities: current income, future growth potential or a combo of the two. Read all about the risks as well as potential rewards before investing. (We also have another, more complete post about Fundrise here.)
One last thing: My company has a relationship with Fundrise, so if you sign up, we get a small fee. But I’d chop off my foot with a dull ax before suggesting something simply for a buck or two. The advice I offer is always objective.
Desiree, I hope that answers your question, and I hope all of you guys will meet me right here next time. Have a great day!
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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