There are many different ways for the modern person to begin their real estate investing journey. From real estate-specific investment services and REITs to personal property management and acquisition, the options can seem nearly endless. However, the most convenient opportunities may not also offer the best ROI, and the most inconvenient investments can turn out to be worth the hassle.
It’s vital to consider all available options before deciding how to build your portfolio, reducing risk while maximizing potential profits. In this article, we’ll be taking a closer look at the popular online investment platform, Fundrise, and seeing how it stacks up against a more traditional option: the real estate investment trust.
What Is Fundrise?
Fundrise is an online investing platform that enables investors from all financial backgrounds to begin investing in real estate. It uses crowdfunding and fractional shares to lower the bar to entry, making it possible to begin investing with as little as $10. While real estate is often considered one of the best investments to add to one’s portfolio, many options are limited to accredited investors only. Fortunately, Fundrise doesn’t require one to be an accredited investor before using its platform.
Performance
When comparing Fundrise vs REIT options, you may feel like limiting yourself to a single platform will severely restrict your options. Thankfully, Fundrise offers a small variety of investment opportunities and plans, giving users an adequate selection to choose from. With Fundrise, you also get peace of mind knowing that you’re using a legitimate service that’s proven itself over the years, unlike choosing to invest in a random REIT.
The portfolio you choose will affect your returns, as individual assets will perform differently over time. However, Fundrise—as a platform—has proven historically offered consistent returns since its inception in 2010. The company appears to prioritize consistency over large returns. This approach can appear to perform worse than the market over the short term but easily outperforms the market over time. Fundrise has had zero negative quarters so far.
| Fundrise | S&P 500 | Public REITs | |
| Average ROI | 5.42% | 2.17% | 4.34% |
| H1 RIO (2022) | 5.52% | -19.96% | -19.31% |
Fundrise Investment Opportunities
Your available investment opportunities are largely dependent on the amount of capital you can invest initially. Fundrise currently offers an IPO, as well as five different plans that offer varying levels of opportunity. The “Starter” plan requires a $10 minimum deposit and is open to anyone, whereas their “Premium” plan is only open to accredited investors who can deposit a minimum of $100,000. The higher tier of plan you choose, the more additional benefits—such as access to non-registered funds or IRA investing—you’ll have access to.
What is a REIT?
A “Real Estate Investment Trust” (or REIT) is a company that purchases, manages, and profits from a selection of income-generating real estate properties. Using funds from investors, the company continues to expand and optimize its real estate portfolio, guided by the financial expertise of experts within the company. The initial investment required will vary by individual REITs, but many require $1,000 (or more) to get started.
By this point, you may have realized that Fundrise itself offers REITs to its clientele, which may have you wondering: what’s the benefit of using Fundrise vs REIT investing? Simply put, Fundrise only has a limited selection of investment options. While the opportunities they do have will be sufficient for most investors, you won’t have as many options as the general REIT market.
Each REIT chooses different properties to invest in. While some may invest in both commercial and residential properties, others may choose to invest by niche or industry specifically. Different portfolios will yield different returns over time, making research an essential step of the REIT selection process.
Why Individual REIT Research Matters
Fundrise has a predictable return (shown in the table above). While past performance doesn’t necessarily indicate future performance, the company has nonetheless never had a negative quarter! This statement certainly can’t be applied to REITs in general, and some may see consistent losses (rather than the gains you were hoping for). If you invest blindly without conducting any research, you could be setting yourself up for unnecessary failure.
In addition to performance, you must also take management fees—and any other fees—into consideration. A lower-performing REIT could be more profitable than a higher-performing REIT if the fees are more favorable. While most REITs are liquid, some are easier to liquidate than others, which is another point of consideration. As you can see, it’s not enough to simply base your decision on statistics alone: you must also factor in fees, liquidity, individual assets, and other details into account if you want to maximize your returns.
Summary
Making a decision about Fundrise vs REIT competitor options isn’t always easy, but it’s a worthwhile decision nonetheless. While investing in specific REITs may be beneficial to some investors, the average or newer investor will be more than satisfied with Fundrise. Although yearly performance can be lackluster at times, Fundrise has proven to provide consistent returns over the years, making it an excellent option for those with a long-term investing strategy. Moreover, it’s also important to remember that you can invest in both Fundrise and additional REITs. Our opinion? Click here to enjoy the stability provided by Fundrise, then—if you’d like—you can expand your options from there.
