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2020 fundraising review: Collective real estate financing platform

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If you are currently in a position where you want to save some money each month, or simply have a lump sum that you want to invest, then you will know firsthand that if you leave it in a basic savings account you will earn virtually nothing. In fact, you will be lucky enough to earn more than 1% per year, which means that when you consider inflation, you are actually losing money in real terms.

That said, one of the most sought after investment vehicles for everyday investors is that of safe and solid real estate markets. The key problem in this regard is that buying and owning a house directly is not an option for many of us. Even if it were, it would be pigeonholed into a single asset, rather than diversified into multiple properties.

The good news for you is that funds like Fundrise now allow everyday consumers to invest in real estate projects for an amount you can afford. With a minimum initial investment of only $ 500, this gives you a very real opportunity to invest in the property area without breaking the bank.

If you would like more information on how the platform works, be sure to read our comprehensive review of Fundrise. Within it, we will cover everything from how Fundrise works, what you can invest in, how much you will need to start, how much you are likely to earn, and, of course, how risky the investment is.

Let's start by getting an overview of what Fundrise really is.

Visit Fundrise

What is fundraising?

Launched in 2012, Fundrise is an online crowdfunding platform that allows everyday consumers to invest in real estate projects throughout the United States. The general concept of the platform is that the requested real estate industry is no longer reserved alone for institutional investors.

On the contrary, and as we will see later, Fundrise offers a range of investment plans that start with an initial lump sum of only $ 500. As such, even if you only have a small amount of money but still want to expose yourself to US properties, Fundrise should be able to help you.

In terms of the underlying product itself, Fundrise is behind what is known as a Real Estate Investment Trust (REIT). This is where multiple investors have a stake in a group of real estate companies, though, in a percentage of ownership proportional to their investment. REITs are very popular in the institutional investment space, with a number of suppliers that are publicly listed on the main stock exchanges.

Fundraising website

This is usually a beneficial situation for all institutional investors, since it means that the underlying asset is somewhat liquid. However, in the case of Fundrise, your REITs cannot always be charged on demand, so your investment will not be liquid. Don't worry, we will cover accessibility to your investment later in our review.

Continuing, Fundrise investors can generally choose one of four investment plans. This covers their initial plans, supplementary income, balanced investment and long-term growth, all of which come with their own levels of risk and, therefore, their possible benefits.

When investing in a particular plan, Fundrise does not really allow you to choose a specific investment on a DIY basis. This is different from other real estate crowdfunding platforms that operate in the market, which generally allow you to deposit your money in specific properties or real estate companies.

To illustrate how popular the platform is now among American consumers, Fundrise claims to have acquired more than 500,000 members since its creation in 2012. In addition, this covers about $ 2 billion in real estate investments throughout the United States. Finally, Fundrise is authorized by the Securities and Exchange Commission (SEC), subsequently ensuring that the platform monitors its investment deals.

So, now that you have a general idea of ​​what Fundrise really is, in the next section of our review we will explore what a REIT is.

What is a Real Estate Investment Trust (REIT)?

In its most basic form, a Real Estate Investment Trust, or simply a REIT, is a financial instrument that allows investors to inject capital into a company that invests in real estate companies. The company will not only invest in conventional homes, but also in commercial properties such as office blocks, shopping centers, hospitals and more.

As these investments generate income in the form of income, REITs produce gains from both assessments. Y Fixed monthly / annual rent.

The appeal of REITs to investors is that they are backed by solid assets. In other words, if the REIT provider is investing in secure markets nationwide, then the risks are low.

In addition, many REITs in the USA. UU. They are now publicly traded. This allows investors to withdraw their investments in the same way they would with a portfolio of traditional stocks and shares.

What are the REIT?

Read: our complete REIT guide

However, in the case of Fundrise, it is crucial to keep in mind that you would be investing in an unnegotiated REIT. In simple terms, this means that your portfolio is highly illiquid, to the extent that you will not be able to withdraw your investment on demand.

That's why Fundrise labels its products as eREIT, which actually operates in the same way as a REIT not negotiated.

That said, and as we will cover in more detail later, the platform offers a redemption program. This is where you have the option to sell some, or all, or your shares to Fundrise. However, this has a cost if you plan to sell your shares after 90 days of manufacturing an investment, or before 5 years of participation the investment.

As such, if you are looking for an investment vehicle that allows you to withdraw money at any given time, then it could be the most suitable for a highly liquid asset such as stocks and shares.

How does Fundrise work?

As noted earlier, Fundrise does not operate like other crowdfunding real estate platforms in the market, especially since it will not choose individual properties or projects. On the contrary, it is simply injecting capital into Fundrise, which will then join its funds with other members of the platform, in order to invest in real estate projects that it believes represent a viable investment in the medium and long term.

Crucially, the specific investments Fundrise makes on behalf of its members can vary considerably. This could be anything from:

  • Stable homes, family housing units or commercial properties that generate constant long-term rental income.
  • Buy larger properties and real estate ventures that you think are undervalued, with the aim of renovating. Then, Fundrise will consider selling the property at a higher market value or renting the property.
  • Focus on properties or family housing units that are based on markets with high appreciation growth
  • Buy mortgages in the open market and collect interest on investments

For those who do not know, each of the above investment strategies will have its own risks and rewards for you as an investor. Although you will not be able to comment on the specific properties in which Fundrise decides to invest, the platform allows you to choose a specific investment plan. The plan you choose will have to reflect your long-term investment objectives, as well as your risk tolerance.

We have outlined how each plan works below.

Fundraising properties

Plans available in Fundrise

Before unraveling the four plans available at Fundrise, there are two key points of consideration that must be made.

First, Fundrise offers a Standard and Plus option in each of its plans. The Plus option will provide you with greater diversification, with more than 80 real estate projects active at any given time. The specific differences between Standard and Plus options will vary depending on the investment plan you choose, so keep this in mind.

Second, and as we will explain in more detail later, some of the plans are combined with both eREITs Y Electronic funds Simply put, an eFund will see Fundrise use a percentage of investor funds to buy land, develop land properties and then sell the properties in the open market. Although the performance of electronic funds may be much higher than that of a conventional eREIT, the underlying risks are also greater.

This is because real estate development projects are much more susceptible to a recession in the United States economy. If the developer in question had financial difficulties before the project was completed, then Fundrise has a very real chance of losing part or all of it, or its investment in that particular company.

However, let's explore the four plans available at Fundrise.

The startup wallet

When you open an account for the first time with Fundrise, it will automatically be assigned to your Startup Portfolio. You can start with just $ 500 in this particular plan, although your diversity capacity is somewhat limited.

In fact, the Home Portfolio will allocate 50% of its funds to properties that generate income, and 50% to electronic funds projects. The whole focus will be on commercial properties in the USA. UU., Which generally comes with a somewhat lower risk exposure.

Starting motor

Outside the Startup Portfolio, the three remaining plans are known as "main" plans, as they give you much more flexibility in the way you decide to address your potential earnings. You can upgrade to a Core plan at any time, although you must invest a minimum of $ 1,000.

Supplemental Revenue Portfolio

The Supplemental Revenue Portfolio is best suited to those of you who wish to concentrate on real estate companies that generate fixed income. By investing in real estate that generates cash flow, you have the possibility of receiving regular dividend payments, which means that the focus will be on consistent income, rather than appreciation gains.

This is similar to investing in highly established frontline stocks that no longer have the potential to experience high growth in the form of higher share value, therefore, focus on rewarding investors through stable dividend payments. .

Supplementary Fact

However, although the platform points out that the Supplemental Revenue Plan may consist of up to 65 individual projects in a single portfolio, at the time of writing this amounts to only 20. 83% of this figure is based on debt instruments, while the remaining 17% is oriented to equity.

When it comes to the projected annual returns provided by Fundrise, the platform indicates that investors should expect dividend income of between 7.4% and 8.1% annually, while the appreciation is estimated at only 1.5% and 2 , 7%.

However, and as is the case with any of the investment projections listed by Fundrise, there is never any guarantee that these figures will be made.

In terms of portfolio division, 40% of this will be allocated to your Heartland eREIT, and 60% to your revenue-generating eREIT. This division could include anything from stabilized apartments that have a high occupancy rate, or apartments that require renovation before reaching the rental market.

Others include new apartment development projects, so, in general, the portfolio comes with a good combination of income generating companies.

Balanced investment

If you are looking to adopt a more balanced approach to your real estate investments by maintaining a portfolio that contains income-generating properties and properties located in high-growth markets, it may be worth going with the Balanced Investment Plan. This particular plan is actually the most popular among Fundrise members, with 43% of investors choosing it among the other three.

Much of the asset appreciation strategy used by Fundrise is based on emerging housing markets in the United States. In particular, the company will seek to buy properties in less developed areas at a discounted price, with the aim of obtaining higher than average growth. In addition, the Balance Investment Portfolio will also see that Fundrise buys slightly spent properties, in order to renew them, before selling the property with an improved profit.

Balanced

Of the housing projects currently in the Balanced Investment Portfolio, 72% of this represents debt instruments, with 28% as equity. In addition, there is a large division when it comes to specific eREITs. For example, 40% is allocated to the Heartland eREIT, 40% to its growth eREIT and the remaining 20% ​​to its revenue eREIT. When it comes to the projected annual returns according to Fundrise, the team estimates annual dividends of between 3.8% and 4.3%, and an appreciation growth of 5.2% and 6.2%. As such, this particular portfolio will be slightly more susceptible to a turn in the broader real estate market in the United States compared to the Supplemental Revenue Portfolio.

Long term growth portfolio

The final investment plan available at Fundrise is that of its Long-term Growth Portfolio. As the name implies, the vast majority of the portfolio will be invested in high-growth properties. This will likely cause the team to focus on specific housing markets that have recently surpassed, or are expected to exceed, the broader real estate market in the US. UU.

In addition, the investment team will also place a much stronger emphasis on properties that are undervalued because they need improvements. Once the property has been renovated, Fundrise may decide to turn it over directly or, depending on the specific real estate market, allow the property to enjoy greater appreciation. Although 75% of the portfolio is allocated to high-growth REIT, the remaining 25% will be allocated to cash flow generating properties.

Long-term

As a result, Fundrise estimates that investors will seek annual returns in the region from only 1.3% to 1.4% in dividends. However, appreciation gains are projected to be between 8.1% and 8.6%. This equates to a collective annual gain of between 9.4% and 10%. This particular portfolio option presents, by far, the greatest risk for you as an investor.

The key reason for this is that high-growth markets are at the greatest risk if the US real estate market in general worsens. In addition, since much of the focus will be on emerging or underdeveloped markets, there is less certainty that Fundrise will be able to find the necessary buyers when it comes to selling the properties.

Now that you have a good idea of ​​what each of the four investment plans offers, in the next section we will explore how much Fundrise costs.

Example
Example of a long-term investment property

Fundraising fees: How much does it cost to invest?

According to the historical annual returns that the platform has generated for its investors, as well as the projected returns associated with each investment portfolio, Fundrise is really very competitive in its prices.

Here is a breakdown of what you will have to pay.

  • Advice rate – 0.15% per year: The advisory fee charged by Fundrise is used to pay for facilitating day-to-day functions on its platform. This could include anything from facilitating deposits and withdrawals, to paying for your customer service team. You will pay only 0.15% per year for this, which is equivalent to $ 15 per year for every $ 10,000 invested.
  • Maintenance fee – 0.85% per year: Be it a mutual fund, an ETF or an index fund, any financial vehicle that requires a managed strategy will always have an annual maintenance fee. In the case of Fundrise, this covers the costs associated with the election and management of real estate investments on behalf of its members. You will pay 0.85% in maintenance fees, which amounts to $ 85 per year for every $ 10,000.

In general, you will pay an annual fee of 1%, which is based on the current market value of your investment in Fundrise.

How and when do I earn money at Fundrise?

If you have read our fundraising review up to this point, then you should know that your income opportunities will consist of dividends, appreciation or a combination of both.

Again, the exact division will depend on the investment portfolio chosen. The moment of when Receiving your earnings will also depend on whether it is in the form of income or appreciation.

We have broken down the two-income avenues in more detail below.

Dividend Payments

Simply put, cash flow generating properties will generally see you receive your respective share of rental income or interest every three months. For example, this could be a condominium complex that is rented to everyday tenants condominium by condominium, or a large mall that receives income from rental of individual stores. Either way, the amount you will receive will be proportional to your investment in that particular project and will be based on the previous quarter.

Although exact rental payments are likely to be set for a specific period of time, it is important to remember that you may receive less than what the investment is projected to pay. This could be for several reasons. For example, if your portfolio has invested in a large housing unit, but several tenants have fallen behind in their rent payments, this will have a direct impact on the payment of dividends you receive.

What we really like about the dividend policy at Fundrise is that your earnings can be sent directly to your bank account when they are distributed. However, you also have the option to enroll in the Reinvestment Plan. In fact, we strongly recommend this, as it will allow you to enjoy the benefits of compound interest. This has the much desired effect of seeing you earn "interest on interest," which allows you to grow your money faster.

If you opt for the reinvestment strategy, your dividends will be assigned to your chosen investment portfolio plan. In addition, you will not have to pay any fees when you reinvest your dividend payments in Fundrise, although the earnings will still be responsible for taxes.

Performance

Appreciation

At the other end of the spectrum, any gain you make when the underlying property is valued will not be realized until the property is sold. In simple terms, this means that you are not paid until Fundrise is paid. This is likely to be the case when the platform finally decides to sell the real estate investment. For example, this could be anything from a housing development project that has been completed and, therefore, has now found a buyer or a property renovation project that has since been overturned.

The key point to keep in mind here is that there is no single answer for all the time this could take. For example, if the Fundrise team believes that a property is located in a high-growth market and, as such, is likely to continue to enjoy high appreciation gains, then it is unlikely that it will be motivated to sell it in the short term.

This means that you should see your appreciation earnings as a long-term investment. This is especially true if you are investing in the Long-term Growth Portfolio, which allocates 75% of your projects to growth properties. Again, if you are looking for an investment plan that allows you to earn your profits at the click of a button, you better consider other options.

On the other hand, Fundrise offers you the opportunity to withdraw your investment in advance through its Exchange Program. As we will discover in the next section, this will cost.

Fundraising reception program: Can I withdraw my investment early?

First of all, it is important to keep in mind that Fundrise makes it unclear as to the exact rules surrounding early redemption. As such, we have decided to break down the fundamentals into simple terms.

90 day warranty

Before delving into the costs of redeeming your investment early, we like the fact that Fundrise offers a 90-day money back guarantee. In a nutshell, if you decide that you no longer want to keep your funds with Fundrise and make the request within 90 days of opening your account, the platform will return your original investment, without asking questions.

Take note, the specific amount will reflect the amount you originally invested, which means that you will not benefit from any of the growth income or earnings that your investment could have produced. However, the key point is that you will not be charged any fees for doing so. However, and as we will cover shortly, you will be charged a fee if the redemption request is made then The 90 day period.

Redemption Rates

If you decide that you want to withdraw your investment and the request is made after the 90-day period, or before the 5-year period without charge, you will be charged a fee.

This is what you will pay if you made the request between:

  • 90 days and 3 years: 3%
  • 3 years and 4 years: 2%
  • 4 years and 5 years: 1%
  • 5 years +: 0%

The respective rate you pay for your investment will be based on the current value of your shares.

Notice period

Before you can begin the official process of redeeming your funds, you must initially skip a notification period. While this was previously established in just 15 days, Fundrise now requires that you wait 60 days before you can make a withdrawal request.

For the ball to roll, you can start the notification period through your account settings page.

No guarantees

This segment of the Fundrise early repayment clause is undoubtedly the most important. Simply put, your redemption request will be executed on a case-by-case basis, which means there is no guarantee that you can redeem your money on demand. This is due to the characteristics of a real estate investment, to the extent that the properties are an illiquid asset. For example, Fundrise is not going to sell a property just because a single investor wants to exchange his money.

On the contrary, Fundrise will have a predefined reserve boat that it uses to honor early withdrawals. However, whether or not they have the necessary funds to do this at any given time will depend on a number of factors. In particular, if waves of investors request early withdrawal at the same time, this will make it difficult for Fundrise to facilitate redemption.

Ultimately, although you are expected to redeem your investment when you need it, there is no such guarantee to realize this. As such, you should think carefully about whether REIT is right for you, especially when it comes to accessing your funds. Actually, you should only invest with Fundrise if you are happy to keep your investment for at least five years.

How do I start with Fundrise? Quickfire step by step guide

Do you like the sound of what Fundrise offers for your long-term investment goals and want to start today? Check our step-by-step guide below to find out what you should do to make the ball roll.

  • Step 1: open an account with Fundrise – Go to the Fundrise homepage and click on the START button.
  • Step 2: enter your personal and financial information – Fundrise needs to know who you are as an investor, so you must enter your personal information. This will include your full name, address, date of birth, state of residence, social security number and contact details. You should also provide Fundrise with certain information about your previous investment experience, and in particular, with REIT.
  • Step 3: choose your investment plan – Now you must choose which of the four available investment plans you want to go with.
  • Step 4: deposit some funds – Once you have selected your preferred investment plan, you will now be prompted to deposit some funds. If you opt for the Startup Portfolio, this requires a minimum investment of $ 500, while the other three plans will require a minimum of $ 1,000.
  • Step 5: choose how you want your dividends to be paid: To complete the process, you must now decide if you want your dividends to be paid into your bank account when they are distributed, or if you want to reinvest them in your chosen portfolio. Don't worry, you can change this at any time through your account settings.
Fundraising Record
Fundrise has a simple registration process

Conclusion: is fundraising safe? What are the risks?

On the one hand, injecting money into a Fundrise portfolio is a relatively safe investment. The main reason for this is that your investment is backed by tangible assets: real estate.

The general consensus within the investment space is that the real estate sector is one of the safest asset vehicles available to investors. While property prices will always rise and fall in the short term, the US real estate market. UU. It has grown considerably throughout history.

However, and as is the case with any investment vehicle, there is never any guarantee that you will earn money. In fact, depending on the type of investment portfolio you choose in Fundrise, the underlying asset could be greatly affected by a sudden recession in the United States real estate market.

One of those areas, in particular, that is considered a major risk is the area of ​​property development. Fundrise will allocate some of its investment funds to new real estate projects, which, if the underlying developer encounters financial difficulties, could result in a substantial loss for its investors.

However, the platform is backed by a team of experienced real estate stakeholders who use a highly strict risk aversion approach when choosing projects. In addition, the platform is registered with the SEC, and the website itself carries a series of guarantees to keep your personal and financial information secure.

Visit Fundrise

Fundraising

Fundraising Review

Pros

  • ROI high
  • Start with just $ 500
  • Low rates
  • Passive investment
  • You don't have to be an accredited investor

Cons

  • Distributions are taxed as income
  • Limited liquidity

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Disclaimer: The opinions expressed herein are only those of the author, not those of any bank or credit card issuer and have not been reviewed, approved or endorsed by any of these entities.

Disclaimer: The answers below are not provided or commissioned by the bank advertiser. The responses have not been reviewed, approved or supported by the bank advertiser. It is not the responsibility of the bank advertiser to ensure that all publications and / or questions are answered.

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