Two important things to note before I dive into this article:
- I’m barely qualified to manage my own finances and investing so please don’t take this as financial advice. Do your own research and consult with people you trust and hopefully do the things that are right for you.
- I’m not selling anything. This article is just about my experience with one company. I’m sure there are competing options and alternatives that are just as good.
Alright, on with the show…
Last October I started poking around the web looking for ways to invest in real estate despite not really having any money to spend. (Two kids in college would ensure of that for a while.)
Anyway, I was fascinated by the “passive income” concept. I just knew that I didn’t have the skills to buy-and-flip houses, I didn’t have the cash on-hand for a big down-payment of any kind; and I definitely didn’t want to be a day-to-day landlord.
I came across a company called Fundrise.
What is Fundrise?
I think it was Nerdwallet that recommended it as a solid company that was delivering decent returns for its investors. Fundrise is essentially a company that buys and sells real estate and puts those investments into funds that random people like me can buy. 100% passive on the investor’s part. It’s like a mutual fund.
And I know there are REITs (real estate investment trusts) out there that are similar in concept, but I didn’t know one from another. And finally after reading more and more about Fundrise I just decided to pull the trigger. What the heck. Take my $50. (Literally, you can start with $50.) Hopefully when I retire it’ll be worth $55 or more. But I’m now officially “diversified” with some real estate holdings.
Fundrise defines themselves as “the first online investment platform to create a simple way for anyone to unlock the previously exclusive world of private real estate. We use technology to lower costs and create unprecedented transparency for over 100,000 active investors.” I think they’re now at 300,000 investors. Maybe the down stock market has driven that demand.
Again, to reiterate, it’s 100% passive. I give them money, they invest and manage it. They give me even MORE money back than what I originally gave them. Simple. That’s all I wanted.
Anyway, here’s where it gets fun…
I’ve had an absolute blast being an “owner” with Fundrise.
Investment Strategies
They have a few investment strategies that they stick to and a number of “funds” you can invest in from the Starter fund with the lowest risk to more complex ones with higher risk/reward. As a newbie with just a little bit of money in your account you are automatically limited to the general “flagship” Fundrise fund. No frills.
The company is excellent in their communication regarding new acquisitions they’ve made, quarterly dividend payments (41 CENTS, BABY!), and other news and information such as investing resources, a podcast, a newsletter, etc.
One key strategy is that Fundrise looks to acquire “affordably-priced rental housing across the Sunbelt”. Their explanations of the new acquisitions almost always reiterate the following: “From millennials to retirees, a broad group of Americans has been taking part in a migration from northern to southern states over the past decade, driving continued demand for well-priced, well-located real estate, and supporting steady returns for disciplined investors.”
The announcements of new acquisitions always come with a bit of the strategy and business plan behind them, such as the following:
We acquired this property from a major, nationally renowned homebuilder, who wrapped up construction at the community in December 2021. At the time of our acquisition, approximately 90% of the homes were occupied. The community consists of spacious three-, four-, and five-bedroom homes, each with its own attached garage and pet-friendly, fenced yard.
Given how recently construction of the community was completed, we anticipate that the homes will remain competitive, attract tenants, and support rent growth for the foreseeable future without significant capital needs for renovations. We expect to work with a professional property manager, and to be a long-term owner over the next several years to a decade.
Our intent with this and other investments in single-family rental home communities is to be a long-term investor, building a scaled portfolio that generates consistent rental income, while at the same time being positioned to capture what we believe will be outsized price appreciation thanks to a confluence of demographic factors driving demand across the Sunbelt.
I read this and think (a) it’s a quality asset from a well-known builder, (b) it’s 90% occupied already so it’s generating income today, (c) it’s new so it’s not going to cost a lot in maintenance or repairs, and (d) we’re going be in for the long-term so it’s generating revenue AND appreciating in value. Wins across the board.
I also think they’re onto something when they describe their acquisitions as “fully detached and individual homes will be particularly attractive to renters seeking an additional level of social distancing, or who simply need more living space as norms around work and school shift.” They also invest in large apartment communities where the opportunity is right, but they definitely seem to be looking for the larger and more spacious houses lately. The work-from-home era is requiring people to turn extra bedrooms into offices, especially in the south where most homes don’t have basements.
Geographic Advantage
If you look at where their portfolio is located, it makes perfect sense. This is where people are moving to now that they aren’t tied to large economic hubs in the north. They don’t have to commute to work every day. They aren’t specifically buying retirement communities but many people moving south are either retirees or those looking to retire soon and they don’t want the hassle of the poor weather and high costs of living up north.
The numbers don’t lie. Well, the numbers in the map don’t lie. It’s clear that they are following through on their strategy to focus in the south, from Virginia across to Arizona.
Diversification
Rental homes is not the only strategy for Fundrise, however. They also acquire some industrial and retail facilities, also in the south but not exclusively. They have purchased several buildings that are used as “last-mile” distribution facilities. If you use Amazon or Amazon Prime as often as my family does, you recognize the value in last-mile distribution. It’s essentially what enables them to deliver your stuff in one or two days.
Below is the description of a recent acquisition in Atlanta:
We’ve acquired a 202,000 square foot distribution center in Atlanta, Georgia, for a purchase price of roughly $30.4 million. The property is located about 20 minutes from downtown Atlanta and within five minutes of both I-75 and I-285, while the Atlanta International Airport is less than ten minutes away.
As demand for more and faster delivery continues to grow, we believe that “last-mile” distribution facilities located close to major population centers will become increasingly important for retailers.
Completed in 2020, the building is well-suited for a variety of industrial applications, including as a last-mile distribution facility. Like much of the rest of the Sunbelt, Atlanta has expanded at an exceptional pace over the last decade, with population growth roughly three times the national average. As the city grows, the businesses based there require efficient distribution systems, which are serviced by properties like this one.
A last-mile distribution center, also referred to as a terminal building or sorting center, acts as a handoff point to connect 18-wheeler trucks, which typically carry goods in bulk across longer distances, with the smaller vehicles that make the final leg of the journey to drop off packages at individual homes and businesses.
We plan to hold and manage the property over the long term, re-leasing the space as necessary when the current lease expires, with the goal of earning regular rental income and then eventually selling the property at a profit.
Every time one of these NEW ACQUISITION notices comes through my email — or I get a new notification on my Fundrise app — I immediately tell my wife “My real estate empire grew today!”
I’m having fun being a part of the Fundrise community as they continue to build and grow and execute on their plan. I feel like I own the individual house or warehouse or retail space and can just waltz right on in there. Of course I won’t. (Won’t I?) But I really do feel a connection to these properties because of the way Fundrise explains them and shows the details and the buying strategies.
I think this is where I need to insert the following notices about Fundrise funds: (1) They are not intended to be liquid assets, meaning you can’t just freely buy them in the morning and sell in the afternoon. In fact, most of their funds have a five-year commitment to them where pulling out money before the maturation of the five years will incur an additional fee. But if you’re looking to put the money away for a while and hope it appreciates in value (and pays regular dividends) this could be a good avenue for you. (2) There are management fees associated with the account. In all I believe it’s 1% management fee that’s collected from your account. That’s less than many mutual funds and 401K fees, and they’re very transparent with that 1% fee line item in your “performance dashboard” on the site.
Even More Diversification
Since I joined in October, Fundrise has expanded their offerings to also include an IRA if you’re into that, and I’m curious about the Tiered levels of investment funds, but I haven’t reached the threshold where I’ve put enough money into the account to access them. Maybe some day.
They have also recently announced two new programs:
- An “IPO” which they’ve called an “Internet Public Offering” as opposed to an initial public offering. The Fundrise iPO is basically a way for investors to invest in Fundrise as a company and share in their profits/success rather than just investing in individual real estate funds. The only people who are initially eligible to invest are those who already have Fundrise accounts with minimum investments enough to reach the Tiered levels. (Again, not me.) I suppose if you believe in the company and believe in their strategies and believe in their leadership it could be a worthwhile investment. You can’t argue with their growth over the last 5+ years.
- The second interesting addition that was just announced last week is an “Innovation” fund. It sounds like they’re going to mimic what they’ve done in real estate and focus on technology/innovation companies. Their announcement states: “We are extremely excited to announce that we will soon be taking yet another major step on that journey, making our first significant expansion outside of private real estate, with the launch of the Fundrise Innovation Fund — a first-of-its-kind, $1B growth equity fund aimed at democratizing access to investments in top private technology companies.”
Definitely some exciting things on the horizon.
Like most things, I often look back a few months or a year down the line and wonder how I ever got involved with this stuff. Horse racing, anyone??? But then at the same time I wonder what did I ever do before I had it? I’d been missing out for years! I have so much to catch up on!
The bottom line
I will share that Fundrise has not only been an exciting journey so far, packed with entertainment and education, it has also been rewarding — especially during a period when other investments (I’m looking at you, Wall Street) have not been so kind. My Fundrise portfolio has actually gone up even more than I expected it would. And this is just the Basic account with near-minimum investment.
So there you have it — my non-advisory explanation of a pretty cool investment company that I’m glad I found. Nerdwallet has even more information about personal finances if you’re looking for that. I really don’t know anything about Finance and I’m sure I land on the more conservative side of things. But if you want to learn more about finances and investing, Nerdwallet is a great place to start.
I’d be curious to hear from people on their experiences with real estate investing. What has worked, what hasn’t worked. How much time is involved (I’ve already got one job; don’t want/need another)? Have you invested in REITs or eREITs? Have you looked into a similar program as Fundrise (a competitor)?
Add your comments to the post and teach me a thing or two. I’m eager to learn and hoping to retire before 85 years old.
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TL::DR — I started investing in Fundrise. It’s been good.