- 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
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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.
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Adios!