Let’s face it – with eye-popping year-over-year gains in property values, lots of young people have serious real estate FOMO (fear of missing out).
There are plenty of tools to invest in real estate projects with platforms like M1 Finance and SoFi Invest, but many just don’t sleep well knowing how far out of reach real estate is moving each day.
If you want exposure to real estate but cannot plunk down a big down payment, you may have considered investing with Fundrise.
There’s good news – you can be assured it’s definitely not a scam or a fraudulent scheme. The bigger question is whether their service fits your individual needs.
Keep reading to learn the answer to the question, “is Fundrise legit?” and determine if this is the best option available for your money in the real estate sector.
What is Fundrise?
If you’ve yet to read our full Fundrise review, here’s a brief breakdown of what you need to know about the platform.
Fundrise has been operating since 2012 and has processed more than $5 billion in real estate transactions. This is the oldest and largest of all the real estate crowdfunding platforms available now.
Create an account with Fundrise and you can invest in eREITs for as little as a $500 minimum investment, with annual asset management fees of just 1%. While not traditional REIT investing, Fundrise has created the eREIT and eFunds, which are diversified REITs rolled into one.
What’s more, you don’t need to be an accredited investor to get started, like on other real estate investment platforms.
What Is A Real Estate Investment Trust (REIT)?
A real estate investment trust (REIT) is a publicly traded corporation that invests in income-producing real estate projects. REITs offer exposure to both the residential and commercial real estate market while offering many of the same benefits as stocks such as quarterly dividends and share buybacks.
Investing in a REIT offers tax advantages via dividend payments and capital gains distributions. Dividends are taxed at lower rates than ordinary income, and capital gains are taxed at a maximum rate of 15% instead of higher rates applicable to regular income.
REITs are required to distribute 90% of their taxable income each year, so they typically pay out more than 80% of earnings annually. This means that REITs tend to outperform most other types of mutual funds.
Why We’re Sure It’s Legit
Asking if an unfamiliar platform is legit before plunking down a minimum investment of $500 is just common sense. Fortunately, when it comes to Fundrise, the answer is clear.
The company was founded by two former Morgan Stanley mortgage bankers who saw a gap in the market for real estate investors looking to gain access without having to make a large upfront deposit.
They also wanted to provide those same real estate investors with transparency around the process and ensure that all investments were vetted by third-party professionals.
In addition to being regulated by the Securities and Exchange Commission, Fundrise operates under the Investment Company Act of 1940.
How Does Fundrise Work?
Fundrise works similarly to Kickstarter. You create a project page where you pitch your idea and seek funding from others.
You’ll then receive funds based on the amount of support you receive. If you fail to meet your goal, you won’t receive any funds.
Once you do raise enough capital, you’ll use the funds to purchase properties. These will be managed by Fundrise and sold at a profit once they appreciate in value.
Fundrise uses its own software to track all real estate projects and manage them throughout the entire process.
Is Fundrise Safe?
Yes! Fundrise is fully compliant with the SEC’s Regulation D and Rule 506(c) exemptions.
This means that Fundrise does not require registration with the SEC and is not subject to the same restrictions as mutual funds.
Additionally, Fundrise is registered with FINRA and is a member of the Financial Industry Regulatory Authority (FINRA), the American Stock Exchange, and the National Association of Real Estate Investment Trusts (NAREIT).
The internet is dotted with positive reviews showing good results and most importantly a real service behind Fundrise. Lots of individual investors have shared their success stories, and it has a stellar 4.8 out of 5 rating on the App Store with more than 15,000 reviews.
The very credible Better Business Bureau (BBB) offers a solid A rating. If you read through the comments and reviews, even negative ones are not alleging fraud/illegitimacy, but rather offering views on the substance of how the program works.
Can You Make Legit Returns with Fundrise?
Fundrise is a legit platform where you can make money. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the average annualized returns of private commercial real estate properties, such as office buildings, was 10.3%.
On the other hand, through the end of 2020 Fundrise has reported a 10.11% average annual return since 2014. The difference is with Fundrise you don’t need to spend your time managing your real estate deals. With an eREIT, the platform handles everything for you.
How Strong is a Fundrise Investment?
There’s little doubt about the authenticity of this crowdfunding real estate platform. Fundrise has a solid track record when it comes to long-term growth. It regularly files reports with the Securities and Exchange Commission (SEC) for all of its REITs.
The latest figures from June 2019 say it originated $816 million in debt and equity investments in real estate deals since it was founded.
Why does this matter?
Other similar platforms tend to be private companies with little to no filing requirements. It’s Fundrise’s transparency that gives it credibility unrivaled by its competitors.
It’s important to fully understand what you are signing up for in order to make sure it’s the right place to invest your money. The most common criticism or problem identified is liquidity. We know for sure your money isn’t going to go anywhere, and we know there’s a good chance it will appreciate, but you need to very carefully read the fine print on when and how you can withdraw cash from your Fundrise investment. Make sure you’re investing money you won’t need as cash tomorrow – and preferably not for several years’ time.
Is Your Money Safe with Fundrise?
Rise Companies is the organization responsible for managing Fundrise investments. There are some risks associated with the business model because the biggest revenue stream is not asset management but originating developer funding.
One day the real estate market will take a downturn, and this could pose some risk for Rise Companies, including:
Reduced access to investor capitalLess capital demand from developersIncreased redemption requests
Does this pose a problem for individual investors?
It’s unlikely because this is a short-term issue and would not impact the REITs held by investors. Plus, as we can see from the balance sheets and the management experience inherent within Rise Companies, they have all the tools needed to navigate a market downturn.
Plus, if the worst-case scenario did occur, your REITs are separate from the rest of Rise Companies. Even if creditors went after Rise Companies, they wouldn’t be able to touch investor holdings, such as real estate assets, except for the Fundrise IPO.
In other words, your money is extremely safe when you decide to invest in a Fundrise REIT.
Why Should I Consider Using Fundrise?
There are many reasons why you should consider using Fundrise instead of purchasing individual properties.
First, you get exposure to multiple types of real estate projects. This means that you could potentially profit from both commercial and residential properties.
Second, you don’t need to deal with tenants or manage repairs yourself. The Fundrise team handles everything for you.
Third, you can have a diversified portfolio without having to spend too much time researching individual properties.
Finally, you can use Fundrise to invest as little as $500. This makes it possible for anyone to start earning passive income.
The Bottom Line: Is Fundrise Legit?
In our review on Fundrise, we praised it for eliminating the high barriers to traditional real estate investing. Just about anyone can open an account and invest with Fundrise.
The safety and security of the platform are guaranteed, and its long track record of success shows it to be an investment option that can make you money. Its management team has also displayed an astute approach to real estate management, which should give investors peace of mind.
Like anything at Modest Money, we preach diversification. If you want to invest in real estate through Fundrise REITs, make sure you maintain a diversified portfolio to help you negotiate tricky market cycles.
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