Adding real estate to your investment portfolio can be a great way to generate solid returns and protect yourself against market downturns or inflation. If you are not interested in buying and managing a property on your own, there are alternatives. REITs and platforms like Fundrise make real estate investing easier and more accessible to investors. However, while Fundrise may seem very similar to basic REITs, there are some important differences between these two investment options that should be noted. Here’s what you need to know.
With all the options you have for investing in real estate assets, it makes sense to work with a financial advisor when choosing such securities.
What is fundraising?
Fundrise, which is a type of REIT, is an online platform that allows investors to buy real estate interest stocks. With Fundrise, investors are able to diversify their portfolio, adding low cost real estate investments without having to buy, renovate or manage these properties.
It also makes real estate investing possible for more people. Rather than requiring the total capital needed to buy a property, Fundrise has lower minimums that make real estate investing accessible to newer or low budget investors.
Fundrise operates as a crowdfunding-funded business model. Investors buy stocks from predefined portfolio strategies; their funds are then diversified among various funds within this strategy. Fundrise uses this capital to buy, renovate, market and occupy a range of property types, while charging investors an annual advisory fee and management fee.
Over time, the investment properties held in Fundrise portfolios may increase in value and generate income. In turn, investors can see the value of their own portfolio grow and can even receive quarterly dividends as a result.
How eREITs work
One of the easiest ways for investors to add real estate to their portfolio is through a real estate investment trust, or REIT. Buying shares of a REIT is similar to buying shares of other investments such as mutual funds, exchange traded funds (ETFs), or even individual stocks.
When investing through Fundrise, investors purchase shares of private equity REITs, or “eREIT,” which is a trademark term. These investments provide capital for various residential and commercial real estate projects, providing investors with a return on the property as it increases in value.
Equity REITs can be listed on the stock exchange or privately; in the case of Fundrise, their eREITs are open to all investors but are not traded on an exchange. There are no brokers and no sales commissions for investors who buy eREITS; they are sold directly by Fundrise.
Fundraising vs. REIT Invest
Investing in REITs – especially publicly traded REITs – is a lucrative option for many investors. Not only have these investments traditionally given good results, but most of the time they benefit from a higher yield than the S&P 500. The eREITs offered through Fundrise are, however, private investments. This means that they may not offer the same returns or the same benefits as public REITs purchased through a brokerage account.
That said, Fundrise REITs generally cover a wide range of investment types. For this reason, they can protect themselves against market downturns better than some specialist REITs or individual real estate purchases.
What is better?
So, between investing through Fundrise or investing in public REITs, which is better? Well the difference will really depend on your goals and priorities as an investor.
Here is an overview of some of the important differences between the two REIT investing methods:
Fundrise offers a low investment minimum. To start investing through Fundrise, investors only need to make a minimum investment of $ 10. Other REITs may have significantly higher requirements – sometimes in the order of four or five digits – especially when they are private or non-exchange traded REITs.
Fees may be higher with Fundrise eREIT. Fundrise charges investors a total of 1% annual fee. This includes an advisory fee of 0.15% and an asset management fee of 0.85%. The typical publicly traded REIT charges a fee of around 50 basis points, or 0.50%, per year. This makes Fundrise twice as expensive as public REITs, on average.
Private REITs don’t offer the same liquidity as public companies REIT. Typically, REITs work best as a long-term investment. However, if you ever need to liquidate publicly traded REITs, you can often do so fairly quickly through your brokerage platform. Fundrise REITs, however, are private and non-traded, which means your stocks could take much longer to sell.
The Fundrise platform can be simpler to use. There are many different REITs out there, but finding the one that best suits your investment goals and timeframe can be tricky, depending on where and how you invest. Fundrise offers predefined investment portfolios, allowing investors to choose the one that suits their goals. All invested funds will be disbursed according to the allocation of that portfolio, without the need to shop around or dig much.
All REITs are required by IRS pay at least 90% of their taxable income to investors. These are paid in the form of dividends. While dividends (and total returns) are never guaranteed, this requirement can make REITs a great choice for investors looking for passive income streams.
The bottom line
Standard REITs can be publicly traded, privately listed, or public unlisted. Fundrise REITs are private and therefore can be somewhat illiquid, may be simpler for some investors, and only require an initial investment of $ 10. Investors can simply choose the predefined portfolio that best matches their goals. The fee for the Fundrise platform is 1% per annum, which is higher than the average fee for public REITs. While the Fundrise investment model is fairly straightforward, the returns can be lower than public REITs, depending on which portfolio you choose.
Tips for investing
Consider working with a financial advisor as you weigh the pros and cons of various real estate assets. Finding a financial advisor doesn’t have to be difficult. The SmartAsset matching tool connects you, in just a few minutes, with professionals in your area. If you are ready, start now.
REITs can be a key part of your retirement nest egg. Planning for retirement requires knowing how much you will need to maintain your lifestyle after you finish working. SmartAsset’s free retirement calculator can give you an idea of how much you need to save.
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