If you’re wondering what Fundrise is, check out my in-depth review here. If you just want the short answer, it’s an online platform which allows you to invest in large commercial real estate properties. The minimum investment is only $1,000, so I decided to invest $1,000 in two of the three available offerings: the “West Coast” eREIT, and the “East Coast” eREIT. Together, these investments give me exposure to major markets on both coasts, and allow me to diversify my investment across several large debt and equity deals.
For example, one of the projects held by the West Coast eREIT is a $1.25 million land loan in Echo Park (in Los Angeles) to a developer who is planning on building seven small homes. One of the East Coast eREIT holdings is a $5 million equity interest in a 350-unit multifamily residential property in Atlanta, Georgia. The property is 96% occupied, and the developer plans to invest an additional $700,000 to improve the units and increase future rents. This is just a sampling of Fundrise’s current investments. The properties will probably change over time as the managers acquire new investments, or cash out and move on to other projects.
February 2017 Update
So far, there have been no dividends on my investments, but I have only held them for a few weeks at this point. Fundrise is still in the “ramp up” phase in both eREITs, so I don’t expect the quarterly dividends to reach their full potential until more capital is deployed. I’m hoping that these investments pay around a 6-8% dividend in 2017, and an 8-10% dividend in following years. We’ll see if they hit those goals!
Fundrise is a risky investment. Besides the risks inherent in real estate investing, there are a lot of moving pieces with Fundrise’s investments. Although the company offers a long “circular” document with details of their general investment strategy and fees, etc., the circular is fairly generic when it comes to the investment strategy. The company does offer periodic updates of their new investments, which is nice.
My biggest pet peeve with Fundrise at this point is that they may not raise the entire $50 million offering amount for each eREIT, causing the fixed $1 million start up costs to significantly cut into any returns. Fundrise’s two prior offerings each raised about $44 and $47 million respectively, but they are both closed to new investors. I’m currently reaching out to the company to confirm that they closed these investments for a valid business reason and not to eke out a few extra basis points in fees ($1 million is 2% of $50 million, but 2.27% of $44 million). Regardless, the company is now offering an “iPO” investment on their website, which could potentially take away from future investments into the three open eREITs. (The eREITs each have under $10 million invested so far, but the iPO raised about $15 million.)
Keep in mind that private REITs have traditionally had astronomical fees (both up-front and ongoing), so I believe Fundrise has made significant progress in this area. Like I said previously, I don’t think these risks are deal breakers, but they are risks nonetheless. With all that said, I’m optimistic, because if Fundrise performs to their potential, those concerns will likely be for nothing.
April 2017 Update
This will be a short, but relatively exciting update—I received my first dividend from Fundrise! At the beginning of the month, Fundrise paid about an 8% annualized dividend on my West Coast eREIT, and about an 8.75% dividend on my East Coast eREIT.
It’s definitely nice to see some income from these investments, and I’m very happy with an 8-9% annualized return, especially during the acquisition phase. My gripe is that the company does not explain where this income came from, and if you’ve read my review, you know that the managers have the option of using money from new investors to pay out dividends to prior investors, potentially resulting in share dilution. I’m just not sure where the money for these dividends came from. The company has made some new acquisitions, and now have several investment properties in each eREIT, so it’s certainly possible that this 8% is actual earned income.
Finally, as of the end of March, Fundrise had only raised about $11.7 million for the West Coast eREIT, and $10.6 million for the East Coast eREIT. You may recall that the startup costs for these investments are fixed at $1 million, so if the company does not raise the full $50 million for each eREIT, those costs could eat up a substantial portion of any returns that are made. (Right now, the company has to make nearly 10% just to break even.)
Check out Fundrise for yourself, and stay tuned for future updates!