Fundrise: Crowd-Funded Real Estate

The stock market is historically a great place to invest money and see a return. The vast majority of my investments are in stock. Even though that part of my portfolio performs well, I like to keep my eyes peeled for “alternative investments” or investments outside of the stock market. Though I enjoy owning tiny pieces of gargantuan companies on the market and I’m sure that stock will be the majority of my retirement income, alternative investments are more interesting to me and have the possibility of being more lucrative at the cost of higher risk.

The newest alternative investment in my portfolio is crowd-funded real estate through a company called Fundrise. I’m excited for this investment as I have wanted to get into real estate with lower risk and a more passive role than directly owning and renting property. Fundrise appears to be giving me that opportunity.

Crowd Funding

Fundrise at its surface is fairly simple. Thousands of people invest money into the company. The company takes that money and purchases large, often commercial properties with the combined power of the group’s money. People rent space on these properties which pays the company and in turn pays the investors. Simple.

This isn’t a new idea. On the stock market today you can trade investments that operate on the same premise and they are called a Real Estate Investment Trusts or REITs. They trade exactly like stock, on the same markets, and are affected by the same things that make the stock market surge or slump. There are even REIT funds that bundle REITs together for further diversification.

Fundrise currently offers geographically based investments that they are calling an “eREIT”. In essence it is a REIT based on a part of the US. The important distinction between a REIT and Fundrise is that the Fundrise’s shares are not publicly traded. That is what makes all of the difference to me and is why I selected Fundrise instead of purchasing shares in a traditional REIT.

Alternative to the Market

The market is fickle over short amounts of time. Politics, economics, weather, everything plays a part in the stock market going up or down. A more direct investment in real estate however should only change if the value of the property changes. Investors in Fundrise are slightly locked-in to the investment. The company pays quarterly dividends and expects opportunities to fully cash out once every 5 years. That keeps the investment stable. Being outside of the stock market cuts out major institutional investors from hogging all of the “good spots” so to speak. That makes the regular investors more money. It gets more complicated when you drill farther down but at the end of the day the idea is that it is direct investing outside of the stock market and it’s major players will offer investors better stability and higher returns.

But it is risky….

This is a newer idea with a new company so nothing is for certain. When choosing alternative investments there tends to be a higher degree of risk than in my typical investments in the stock market. The whole thing could fold and I could lose my entire investment. I’m willing to take that risk for exposure in real estate and for what I think will be higher returns than what a traditional REIT would capture for me. It also gives me something new and interesting to track and write about which is a type of return in and of itself.

I haven’t been able to find any hard numbers for anyone invested in Fundrise. This excites me because I will be able to put that out there for potential investors to see, but it also makes me a bit more cautious as there aren’t any good available case studies. Until I have my own track record I won’t know anything for certain whereas buying stocks of companies with 30+ year histories offers plenty of insight as to what to expect from their performance.

Crowd-Funded Real Estate for Non-Accredited Investors

One last thing about crowd-funded real estate and Fundrise. There are other companies out there doing this but the majority of them I have found require anyone who wants to invest to be an Accredited Investor. That means that you have to either make over $200,000 a year or have a million dollars to your name. I am neither of those things but luckily Fundrise accepts regular investors. This makes Fundrise my one and only source for crowd-funded real estate at this time. Some of the other companies used systems that I liked more as they allow a hands on approach to which properties you invest in. Without being an Accredited Investor I am sadly locked out of those options. Though it isn’t my preferred model I still believe that Fundrise has the capability to become a great part of my portfolio.

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