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Review of Fundrise Disadvantages
A Fundrise review wouldn’t ring true without a clear-eyed look at its risks and downsides.
Make sure you understand the following disadvantages before investing through Fundrise.
Limited Liquidity
When you buy a stock, or a share of a publicly-traded REIT, you can sleep easy knowing that you can sell it at a moment’s notice with no transaction cost.
With shares in a crowdfunding platform like Fundrise, you can’t sell instantly. You have to submit a redemption request to sell your shares, which Fundrise can opt to honor when it chooses.
They do let you redeem your shares of their Interval Fund penalty-free once a quarter. But you still pay a penalty for selling shares of their eREITs within five years of buying.
Unpredictable Returns
When you buy a rental property, you can predict the annual cash flow with a rental property calculator.
Fundrise used to publish average expected returns for their various investment plans, but no longer do so. To be fair, all markets are unpredictable, and no one can predict the future. But it still felt reassuring nonetheless.
Still, you can confidently expect 2-5% per year in dividends, depending on your plan, and anywhere from no appreciation up to double-digit growth.
Historical Returns Trail Stocks
The S&P 500 has generated a higher ROI than Fundrise over the last six years.
That said, stocks have exceeded their long-term average of around 10%. Fundrise has delivered a similar long-term average return as stocks, around 10%.
People ask me all the time about real estate versus stocks, and which they should invest in. The simple fact is that you should invest in both. Stocks offer strong long-term growth, liquidity, and diversification across industries and countries. Real estate offers higher income yields, more stable returns, and diversification away from volatile stock markets.
I personally aim for around 60-65% of my asset allocation in stocks, and 35-40% in real estate. You choose what makes the most sense for your personal finances and long-term goals.
How Fundrise Compares
First, not many real estate crowdfunding platforms let you invest with just $10. The only others that I know of are Groundfloor, Stairs by Groundfloor, and Concreit. Other real estate crowdfunding websites that let you invest with relatively small amounts include Lofty ($50) and Arrived ($100).
Fundrise owns a mix of properties and debts secured by properties. In contrast, Groundfloor only owns property-secured loans, and Concreit mostly owns secured loans (although they also own a fractional share in a real estate syndication). As such, Groundfloor and Concreit pay more moderate but stable returns, with Groundfloor averaging around 10% per year for the last decade or so and Concreit paying a steady 5.5% dividend yield.
Lofty and Arrived each let you buy fractional ownership in properties. Specifically, you can buy shares in individual properties, including single-family rentals, multifamily properties, and mixed-use properties. You earn rental income proportional to your ownership share, and likewise get paid out once it sells after a few years. The business model lets you pick and choose properties to invest in, for a pleasant feeling of control.
But Fundrise gives you instant diversification across dozens of properties and hundreds of secured loans. And the more you invest with them, the better you can fine tune your investments. Accredited investors get even more access to specific property deals.
Overall, Fundrise compares well to all its competitors, regardless of your investment goals.
Fundrise Review FAQ
Still have questions about adding Fundrise for a more diversified portfolio? We’ve got you covered.
Is Fundrise Legit?
Yes Fundrise is legit, it’s one of the oldest and most established real estate crowdfunding websites. I have thousands of my own dollars invested with them, in a balanced portfolio including equity and debt secured by real estate properties.
Is Fundrise Safe?
In many ways, Fundrise’s real estate platform is safer than buying REITs — look no further than the volatility in REIT returns compared to the range in Fundrise returns above.
But every investment comes with risk, and Fundrise is no different. They suffered losses for the first time ever in the fourth quarter of 2022, as housing markets cooled quickly. Any investment can lose money, but I like Fundrise’s track record and prospects for long-term returns.
Can You Lose Money on Fundrise?
Yes, although they’ve only delivered negative returns as a real estate investing platform in one quarter (see the answer above).
Does Fundrise Pay Dividends?
Yes, even their Starter Plan and Long-Term Growth investment plan pays dividends. You can receive them as cash deposited in your bank account or reinvest them automatically.
How Are Fundrise Returns Taxed?
You receive a 1099-DIV for dividend income from each Fundrise eREIT and their Interval Fund. When you sell shares in these non-traded REITs, you get a form 1099-B documenting your profits (or losses).
If you own shares in the Fundrise eFund, you get a form K-1 each year.
Is Fundrise a Good Investment?
I invest in Fundrise myself, so I clearly believe that it is.
But it’s not necessarily for everyone, either. You should only invest money with Fundrise that you’re comfortable leaving invested for at least five years. Which, by the way, is true for almost every real estate investment. If you’re looking for short-term real estate investment opportunities, try Groundfloor, Stairs by Groundfloor, or Concreit.
I recommend starting with a small initial investment to get comfortable with it as a real estate investment platform. That’s how I started, and have gradually invested more and more money with them over the last few years. So far, I’ve been pleased with the returns, the diversification, and the ease of use.
Consider diversifying further with Lofty, Streitwise, and Arrived as well (see our full Arrived review for details). Each brings its own unique pros and cons. If you’re looking for a real estate crowdfunding platform for short-term investments, try Groundfloor.♦
What do you like and dislike about Fundrise? Let us know about your thoughts or experiences with them below!
Full Disclosure: In addition to being investors in Fundrise, we are also partners with them and receive a commission when we refer other investors to them. Transparency = important!
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