You may have heard of Fundrise if you are looking to do real estate investment. But you may ask, “Is Fundrise a scam?”
Thanks to the technology, crowdfunded real estate investing has been a popular real estate investing method over the last decade.
But many people don’t understand the risks of using the investing platforms like Fundrise to make investments in real estates. And there are many scam-like platforms out there that you have to be careful of.
To be transparent, I am not an affiliate of Fundrise, so you can rest assured that my opinions are honest and unbiased.
In this review of Fundrise, I will cover the following to help decide if you should invest with Fundrise:
What is Fundrise?
Fundrise is one of the most popular crowdfunded real estate platforms in the United States. It was founded in 2010 by Ben Miller. It caters to small investors instead of institutional investors.
If you don’t know what a crowdfunded real estate platform is, it is just another word for “real estate partnership”. It means instead of investing a large sum of money by yourself, crowded funded investment allows a group of people to contribute a smaller amount of money into an investment and share the returns. With Fundrise, you can invest as little as $500 to get started.
Crowded real estate platforms provide the technology to allow you to stay updated on individual projects and track your real estate investments.
What is the Fundrise Pricing?
To use a platform like Fundrise, you have to pay a flat annual fee of 1%. This 1% fee includes 0.15% of investment management fee and 0.85% of asset management fee. You also have to pay an asset origination fee, which is one time fee running from 0-2% of the initial investment. There is also an early redemption fee if you withdraw your funds before the 5 years period.
Here’s an overview of the Fundrise Pricing:
- Asset Management Fee: 0.85%
- Investment Management Fee: 0.15%
- Asset Origination/Acquisition Fee: 0% – 2% (Depending on your investment)
What Products Does Fundrise Offer?
Fundrise offer two main products, which are eREIT (electronic Real Estate Investment trusts) and eFunds
For eREIT, Fundrise uses crowdfunding to acquire, manage and sell properties.They are less liquid than the traditional REITs as they are not publicly traded like stocks and bonds.
As for eFunds, this kind of electronic fund is a managed and diversified portfolio of residential real estate assets.
Pros and Cons of Fundrise
Pros of Fundrise
- Low Entry Barrier: you can start investing with Fundrise with $500
- No Accreditation: any investor in the united states, regardless of net worth can invest with Fundrise
- 90-Day Guarantee: Fundrise will buy back your investment if you are not satisfied with your investment in the first 90 days (there are conditions to meet)
- Commercial Real Estate Access: you can invest in Commercial real estate with little money, which is generally an expensive investment.
Cons of Fundrise
- Low Investment Liquidity: Fundrise eREITs are not publicly traded. There is no secondary market to sell your investment to others.
- Unknown future performance and returns
- Tax liability: you have to pay regular income tax on your earnings
- Lack of fees transparency
- Complex investment, which requires a lot of due diligence
Is Fundrise a Scam? Why don’t I recommend Fundrise?
There is no evidence to show that Fundrise is a scam so far. It regularly files reports with the Securities and Exchange Commission (SEC). The reports show that it has a strong balance sheet.
But many people who encourage you to make money on crowdfunded real estate platforms like Fundrise will not tell you the hidden risk involved.
Firstly, most crowdfunded real estates platforms are illiquid. What it means it that you cannot sell your investment and get your cash back whenever you want.There are lockout periods or redemption fees if you want to sell your investment. This risk is especially high during economic downturn when there is a lack of demand. Fundrise can suspend redemptions as they see fit.
Secondly, most crowdfunded real estate platforms like Fundrise have a lot of hidden fees such as front end load and early redemption fees. You have to be careful about that to avoid losing money.
Thirdly, there is no long track record available because crowdfunded real estate investing is relatively new. So there is not so much data you can see and estimate how much you can earn in reality. It is not clear how this kind of non-traded REIT will perform in recession like 2008.
Fourthly, Fundrise makes most of its money from origination and acquisition fees. That actually creates a conflict of interest because Fundris’s revenue is linked with the volume instead of quality of projects or investment on its platform. And during an economic downturn, the pace of originations will slow down, which will create financial issues for Fundrise.
Therefore, I would not recommend investing with Fundrise to make passive income.
Although real estate investing is one of the most popular ways to grow your wealth, it is unpredictable that it doesn’t guarantee a positive return. And you may be able to make some money in a few attempts, but lose it all in the other attempts.
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