Investing

Becoming a Real Estate Mogul with $500 (updated)


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You want to invest in real estate, but it’s such an expensive endeavor. Real estate investing requires six figures in the bank and thousands of dollars in initial investment, right?


ALSO READ: Stockpile Review – Is it the best fractional brokerage?


In 2018, that assumption is…

…completely outdated and NOT TRUE.

However, some online real estate companies insist that their only investors be “accredited” investors.

As defined by the Security & Exchange Commission, accredited investors must meet one of the following qualifications:

  1. Net worth of over $1 million (not including home value)
  2. Annual income of at least $200,000 for individuals or $300,000 for a couple

You have got to be kidding me! How many people can meet those standards?

Real estate has been a historically exclusive investment that requires access to institutions that fund real estate deals.

If only there were a company that did not require you to be a wealthy business mogul to invest in real estate.

Furthermore, that company should cut out the middle-man (i.e., the institutions) and allow people to invest directly in real estate.

Actually, such a company does exist…

…and Fundrise is that company!

Are you ready to see how they operate?

Fundrise Overview

Founded in 2012, Fundrise is an investment service that purchases real estate debt and equity investments. The company boasts over 100,000 investors and over $1 billion in assets managed.

But, the best part about Fundrise is that…

…it is for non-accredited investors!

Since they are open to non-accredited investors, that means “normal people” like you or I can own passive real estate investments.

But how is this possible?

In 2015, the SEC released Regulation A+ which allows private companies to sell up to $50 million of securities, in a 12-month period, to non-accredited investors.

Individuals can invest as little as $1,000 to contribute to larger loans and equity investments in real estate.

Instead of a few very wealthy investors coming together…

…thousands of average investors can come together to invest in commercial and residential properties.

Millions of dollars or a six-figure income is not required.

Fundrise is best for…

  • New real estate investors
  • Long-term investors
  • Investors seeking diversification
  • Investors on a budget

Fundrise has five portfolio options that you can invest in based on your own goals.

Fundrise’s core products are real estate investment trusts (otherwise known as REITs) and eFunds.

Each portfolio invests in a combination of eREITs and eFunds.

Fundrise Review – from the press

fundrise reviews press

Your portfolio options are as follows…

1- Starter Portfolio

Minimum investment: $500

Investment breakdown: Income eREIT (50%), Growth eREIT (50%)

2- Supplemental Income Plan

Minimum investment: $1,000

Investment breakdown: East Coast eREIT (25%), Heartland eREIT (25%), West Coast eREIT (25%), Income eREIT (25%)

3- Balanced Investing Plan

Minimum investment: $1,000

Investment breakdown: Income eREIT (20%), East Coast eREIT (18.3%), Heartland eREIT (18.3%), West Coast eREIT (18.3%), Los Angeles eFund (15%), Growth eREIT (10%)

4- Long-Term Growth Plan

Minimum investment: $1,000

Investment breakdown: Growth eREIT (20%), Los Angeles eFund (20%), East Coast eREIT (16.67%), Heartland eREIT (16.67%), West Coast eREIT (16.67%), Washington D.C. eFund (10%)

5- Self-Directed IRA

Minimum investment: $1,000

You can open an IRA with Millennium Trust Company and invest in any of the REITs for a $75 annual fee, per eREIT, capped at $200 annually.

We have provided the details for each investment below so that you can determine which portfolio would be best for you.

What is an eREIT?

General background

A Real Estate Investment Trust (REIT) is a company that owns income-producing real estate.

REITs allow individual investors to buy shares of commercial real estate portfolios that earn income from different types of properties.

These properties can include things like…

  • Apartment complexes
  • Office buildings
  • Retail centers
  • Warehouses
  • Hotels

REITs generally make money by managing properties or by holding mortgages.

But enough on REITs…

…have you ever heard of an eREIT?

How it works

An eREIT is a real estate investment trust that is sponsored by Rise Companies Corporation (parent company of Fundrise).

Each eREIT is available to investors directly online and invests in a mix of real estate assets.

The primary difference between a REIT and an eREIT is that you do not go through a broker. Instead, you purchase directly from Fundrise, and there are no commissions to pay.

I know what you are thinking…

…that is great, but how do I make money?

How you make money

You make money based on the investments in your eREIT (you can invest in multiple).

The process can be broken down into two simple steps…

  1. You purchase ownership shares of a limited liability company (LLC)
  2. The LLC (i.e., your eREIT) combines your money along with other investor money to purchase real estate assets

Based on these investments, you will receive your share of income distributed by the eREIT. These distributions typically happen quarterly.

To qualify as a REIT, a company must distribute at least 90 percent of its taxable income to shareholders. However, like any investment, you will be subject to risk, and there are no guarantees that you will make money on your investment.

Fees

The breakout of fees is as follows…

  • Organizational fee: 2%
  • Marketing and distribution fee: 1%
  • Asset management fee: 1-1.5%

However, each eREIT comes with its own set of fees that you can view under the “Management Compensation” section of the Offering Circular.

fundrise dashboard

Types of eREITs

There are five different eREITs that you can invest in…

  1. Income eREIT

Focuses on debt investments in commercial real estate assets (usually debt investments) that generate steady cash flow.

This option focuses on supplying consistent cash distributions to investors each quarter.

  1. Growth eREIT

Focuses on acquiring and owning commercial real estate assets that have the potential to appreciate over time.

This option aims to provide investors with moderate dividends each quarter while giving a higher return on the final sale as a result of appreciation.

  1. East Coast eREIT

Focuses on a balanced approach of acquiring both debt and equity investments in commercial real estate assets located on the East Coast, which includes New York, New Jersey, Massachusetts, North Carolina, South Carolina, etc.

  1. Heartland eREIT

Focuses on a balanced approach of acquiring both debt and equity investments located in the metro areas like Houston, Dallas, Austin, Chicago, Denver, etc.

  1. West Coast eREIT

Focuses on a balanced approach of acquiring both debt and equity investments located in metro areas like San Francisco, Los Angeles, San Diego, Seattle, Portland, etc.

What is an eFund?

General background

To save for a home, you have two options…

  1. Save up for a 20% down payment on a house

If you are old fashioned, maybe this could work for you. But the problem is…

…home prices tend to appreciate while your savings account does not!

Putting your money away to purchase land or a home could take a very long time.

  1. Invest your savings in the stock market

Since home prices tend to appreciate, maybe you would consider investing the stock market to keep up. Stocks usually generally appreciate, right?

While that has proved to be right over the long run, the market is less kind to short-term investors. The problem with savings via the stock market is…

…stocks can lose value at any moment, and it is impossible to time the market!

How it works

An eFund is a new type of investment, exclusive to Fundrise that gives investors’ access to a diversified portfolio that…

  • Buys land
  • Develops housing

…and sells the finished product to the next generation of American homebuyers (where are my millennials at!?).

The housing will be for sale in the future, and the investments are generally in homes, townhomes, and condominiums.

Fundrise’s eFunds aim to profit on millennial demand for housing in major U.S. cities where there will likely be a shortage of such housing.

This type of investing means you can contribute directly to the construction of a home in Los Angeles. In the future, if you want to move to Los Angeles, you can exercise your right to buy.

Alternatively, you can sell your investment or continue to hold it.

For example, if you think cities like San Francisco, Los Angeles, and New York are going to BOOM in the future, you can start investing as soon as possible.

You don’t need tons of money to get started!

How you make money

You make money based on the investments in your eFund (you can invest in multiple funds).

The process can be broken down into two simple steps…

  1. You invest in the market(s) of your choice.
  2. You can purchase property in the project or sell the house to other buyers.

Your investment of $1,000 or more can save your spot to purchase in one of the hottest housing markets in America.

Conversely, you can sell your investment in one of the hottest housing markets in America.

Fees

The breakout of fees is as follows…

  • Organizational fee: 2%
  • Marketing and distribution fee: 1%
  • Asset management fee: 1-1.5%

Types of eFunds

There are two types (markets) of eFunds that you can invest in…

  1. Washington, D.C.
  2. Los Angeles

If these two funds perform well, there will be more eFunds in the future in different up-and-coming markets.

eDirect Real Estate Platform

If you are not particularly real estate savvy or want to simplify this process…

…there is an option for you!

The eDirect platform offers a fully automated investment solution to make real estate investing even easier.

There are three options…

Balance Investing

This portfolio is for people that want maximum diversification in their investments. This option allocates each of the five eREITs and two eFund investments equally.

Supplemental Income

This portfolio is for people that are looking for passive income. This option favors eREITs that produce income (rather than appreciate over time).

Long-Term Growth

This portfolio is for people that want to maximize their total return over the long haul. This allocation favors the growth eREIT over the income eREIT.

Underwriting and Evaluating Deals

Fundrise originates, underwrites, negotiates, and closes on debt and equity investments.

The company has the task of finding real estate properties at low-prices and increasing the value through renovations, partnerships, and strategic positioning.

From there, Fundrise generates money through interest payments, rental income, and sale proceeds.

But they can’t just pick any property to invest in…

…and each property must meet strict underwriting standards.

Here are the main four areas…

Loan Sponsor Analysis

Each loan applicant must pass a credit and background check and provide details on prior loans, historical information, and experience.

Economic Analysis

Each potential project goes through various testing (stress tests, etc.) to determine its viability as an investment.

Property Analysis

To evaluate each property, Fundrise reviews the budget, schedule, appraisal, cost basis, and expected performance.

Market Analysis

Properties that make it through to this point go through supply-and-demand analysis, on-site reviews, and comparison to other local properties.

Fundrise reviews over 2,500 real estate deals every year and accepts just 1% of all applicants.

This type of due diligence positions Fundrise to make the best moves for investors.

Most people forget, but the evaluation of each property is something that you would need to do on your own if you were to invest directly in real estate.

Would you be willing to go through 2,500 properties each year?!

With Fundrise eREITs and eFunds, the work is done for you by industry experts.

But that is all talk…

…are you ready to see how these guys have performed?

Fundrise Performance

Here are the average annualized returns of Fundrise…

  • Annualized return of 12.25% in 2014.
  • Annualized return of 12.42% in 2015.
  • Annualized return of 8.76% in 2016.
  • Annualized return of 11.44% in 2017.

Fundrise Performance Chart

These returns are pretty good!

However, we are not here to suggest that Fundrise has some magical formula for earning high returns. While Fundrise does boast great returns, we have yet to see any crowdfunded real estate face an economic downturn.

Just keep in mind – these investments are subject to the same level of risk as other similar investments.

What I love about Fundrise

90-Day Guarantee

  • Fundrise will buy back your investment at the original amount if you are dissatisfied within the first 90 days.
  • Restrictions may apply.

You can test out Fundrise risk-free with their 90-Day Guarantee.

Low minimum investment

  • The minimum amount to start investing with Fundrise ranges from $500 – $1,000.
  • Fundrise is open to both accredited and non-accredited investors.

Fundrise is open to anyone that has $500 or more which makes it a viable option for most people.

Diversification

  • An affordable way to add real estate to traditional stock and bond investments.

Even if you don’t invest much, everyone can benefit from more diversification.

Passive income

  • You can invest in real estate with minimal work or expertise involved.
  • Easy-to-use website (sign-up takes about 10 minutes).

Fundrise is a true passive income option and is very easy to use.

What I don’t love about Fundrise

Investment Liquidity

  • You are committed to your investment for its full term.
  • There are quarterly redemption programs where investors can redeem their shares. There is no guarantee that there will be buyers for your shares in the company.
  • Lack of buyers could be a positive if you would like to buy-and-hold but don’t always have the discipline to follow through.

Tax Consequences

  • Distributions are non-qualified and taxed as ordinary income.
  • Qualified dividends from other investments taxed at a rate of 15 percent.

Is Fundrise right for you?

Generally, real estate is a long-term investment. For that reason, investing in REITs (public or non-public) is never a way to make a quick buck. If you have money to invest, you may want to consider giving Fundrise a shot. Click here to get Started

The low investment minimum makes this investment particularly alluring to at least test out.

However, you should consider maxing out your low fee, tax-advantaged accounts beforehand. Tax-advantaged accounts provide benefits that other investment vehicles cannot, such as lowering your marginal tax rate and earnings on pre-tax dollars.

If you want to invest in REITs, you can still open a self-directed IRA with Millennium Trust Company (as noted above).

After that, if you have some extra cash, we recommend that you consider Fundrise because of its 90-day guarantee, low minimum cost, and diversification.

Signing up for Fundrise takes approximately 10 minutes. Upon signing up, you will need to provide your…

  • Name
  • Address
  • Phone number
  • Social Security number

After submitting your information, you will receive investor disclosures. We encourage you to read these disclosures before funding you decide whether to fund your account.

From there, you can link your checking account or set up a wire transfer to fund your account!

Fundrise is a way to invest in real estate without a significant amount of money or the headaches involved in investing in real estate directly.

If you don’t like it, you can get your money back within 90 days!

Bottom line: These guys are new, innovative, and certainly worthy of a second look.

What are some new investment concepts that you have come across? What do you think about Fundrise?

Let us know by posting a comment below!

Fundrise

Pros

  • 90-day Guaranty
  • Low minimums
  • Diversification
  • True passive income
  • Easy to use

Cons

  • Investment liquitity
  • Tax consequences


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