Fundraising is marketed as one of the easiest ways to enter the real estate market, but are returns worth it? The platform looks great on the surface with a minimal and easy to understand process, but there has to be a catch, right?
Most of us have a laid back attitude when it comes to painting a picture about ourselves.
Collect funds at a glance
Real estate investing has become synonymous with wealth (and wealth expansion). This is no longer true because the goal of platforms like Fundrise is to eliminate the high barriers to entry that prevent the average person from getting a piece of the pie.
The main products of Fundraisers are real estate investment trusts (platforms such as REITs, or eREITs). You will buy a fundraiser plan, which is: Starter, Supplemental Income, Balanced Investment and Long Term Growth. The title of each plan speaks for itself.
You can also choose from 2 Account Levels (Advanced and Premium), which will help you gain access to more real estate investment opportunities.
Advantages and disadvantages of fundraising
This sounds amazing, because now the average middle-income earner (or less) will have an entry point for every average Joe’s real estate investment, but is there a downside to opening these doors, in other words, what are the pros and cons?
- You do not have to be a recognized investor to use it
- The minimum investment is very low
- Investment selection
- Easy to use platform
- Redemption option
- Decent return
- There are some fees involved, which are complicated
Fundraising average return
Fundrise’s average income will change over time. All we can do is look at last year’s fundraiser performance to find an average. Let’s take a look at the annual return statistics year by year.
The real-time return chart (which is updated daily) shows that the 10% return after each year is quite standard. After two years, an account sees an impressive return of 19.4%, then 32% after 3 years, 45.7% after 4 years, 57.9% after 5 years and an impressive 74.7% after 6 years.
The increase we see in charges is considered to be gradual but indicative. While this is a very encouraging view of what your fundraising account can do for you, it is important for us to remind investors that past performance is not indicative of the future.
That being said, there is always a strong market for investing in real estate because there will always be demand and some cities have seen rapid growth (including more space) over the past decade or two. Imagine if you had invested in real estate in these cities before the market boom, your net worth could have increased by millions (we see you in Sydney, Tokyo and Vancouver).
You can also view annual returns of client accounts split across all clients of Fundrais, Public US REIT and Public Stock. This is an overview from 2017 to 2021, with returns of 10.63%, 8.81%, 9.16%, 7.31% and an amazing 22.99%, respectively.
Fundraise VS REITs
What is the real difference between Fundrise REITs and Standard REITs? Well, one of the biggest factors is that fundraised REITs are not universally traded, which means they are extremely scarce. However, the advantage of not doing too much yourself is that Fundrise has a profile that can meet your needs which can exceed liquidity.
Fundraising offers a lower minimum investment than regular REITs, which makes entry barriers more realistic for many. We mentioned that there could be a catch, and unfortunately, there is. Fundraising charge fee which is higher than regular REIT. You will be charged with 1% of your total annual fee, which includes a 0.85% asset management fee and the remaining 1% for advisory services.
Compared to regular REIT, which charges 0.50%, the fee difference can be huge depending on the quality of your assets. In terms of returns, Fundraise private eREITs may not see the same high returns as the public standard REIT, which can sometimes surpass the S&P 500!
Is there a correct answer for Fundrise VS REITs? If you have the funds, the answer is quite clear. However, many do not have enough resources to be recognized, which makes Fundrise the best and only choice.
The latest thought
From the data we collected for Fundraiser between 2017 and 2021, our confidence in the annual return platform has grown. Even if past performance does not indicate the future, it can be used as a measure and a rather positive one for Fundrise. If you don’t have the funds and want to add real estate investments to your portfolio for diversification, Fundrise is a great choice.