Fundrise Starter Portfolio: What’s Cool and What’s Not
Fundrise is a real estate crowdfunding platform that helps users invest cheaply in many different properties. Using Fundrise Starter Portfolio, investors can invest as little as $10 in dozens of deals that they couldn’t participate in if they invested in their own. Investors are also able to diversify risk so that they have much less risk of losing money on any one property.
How the Starter Portfolio works
The Fundrise Starter Portfolio is marketed as a real estate crowdfunding option for smaller investors, and it is… sort of.
When most people think of real estate crowdfunding, they think about lots of investors pooling small amounts of money to buy large properties or portfolios of properties so they can all share in the profits.
This is how Fundrise works, but only kind of.
The way Fundrise works—including the Starter Portfolio—is it pools investments from smaller investors who wouldn’t typically qualify for private real estate deals (they don’t meet the SEC’s definition of accredited investors). Fundrise offers investors the option of participating in real estate deals by investing in its proprietary real estate investment trusts (REITs).
So, while Fundrise investors do get the benefit of investing small amounts of capital in a large number of properties, what they’re really investing in is one or a series of REITs, rather than actual properties.
When you invest in the Starter Portfolio—or most of Fundrise’s portfolio options, for that matter—what you’re really investing in is two underlying real estate investment trusts REITs. Both of these are non-traded REITs—meaning that you can’t buy or sell them through third-party platforms like E-Trade.
One of the REITs used in the Starter Portfolio invests in properties designed to produce income for investors (usually rental income), while the other invests in properties designed to produce growth (price appreciation) by buying properties and selling them for more later on.
When users invest in the Starter Portfolio, their investments are pre-selected: 50% of their invested capital goes into Fundrise’s Income REIT and the other 50% goes into the Growth REIT.
Investors who invest more capital through Fundrise get the option of allocating their investments themselves (rather than just 50-50 between Growth and Income). These users can also get the option to invest more money in individual private deals. And, while the fees are the same for these upper tiers, they also have higher investment minimums and other requirements.
What’s an eREIT?
If you visit Fundrise’s website, you’ll see reference to what they call eREITs that their investors get to participate in. An eREIT is basically just a real estate investment trust—the only real difference is that shares of these REITs are sold directly by Fundrise to investors online (hence the “e”), instead of through brokers and other intermediaries.
In comparing Fundrise with some other real estate investment providers, there are a few unique features that make Fundrise stand out.
For one thing, investors using Fundrise can go through the entire investment process online—they never need to meet with an advisor or attend a seminar.
Second, Fundrise actually offers investors the option of investing IRA assets, which many platforms don’t because of regulatory hurdles.
Lastly, though not necessarily a positive, Fundrise is unique as a REIT provider in that investors do not have the option of investing in its REITs through any other platforms. In order to invest with Fundrise, investors HAVE to go direct.
One of the biggest benefits of investing with Fundrise is that there are so few limits or restrictions. Unlike other real estate investment options, Fundrise is structured specifically so that basically any U.S. investor can participate. In fact, if you can invest in a basic mutual fund, then you can probably invest in Fundrise Starter Portfolio.
The only real limitation for investors using Fundrise is that investors can’t access their capital immediately like they can with traded REITs, mutual funds, or ETFs. Because Fundrise uses non-traded REITs, investors can only sell their shares a few times per year, when Fundrise allows.
Basically, Fundrise investors can only redeem their shares once per quarter, with certain exceptions.
Of course, the entire concept of crowdsourcing has some of its own limitations as well.
Firstly, investors don’t really get the same benefits with crowdsourcing that they get by investing directly in real estate. Their name doesn’t go on the deed; they don’t get the same tax write-offs for mortgage interest expense; and they largely lose the ability to borrow against their investments if they want to access cash to invest more or pay their bills.
Who can invest
Basically anyone in the United States can invest in the Fundrise Starter Portfolio—any citizen or non-resident alien with $500 or more to invest is eligible. This is one of Fundrise’s biggest benefits because many real estate deals like this are only available to accredited investors and require tens of thousands of dollars to invest.
What’s more, Fundrise accepts investment of both qualified (IRA) or non-qualified assets, which isn’t an option with most private real estate deals.
How to invest
To invest in the Fundrise Starter Portfolio, all you have to do is go to the company’s website. You’ll walk through a brief online application and arrange to transfer funds to Fundrise to secure your shares.
You can work with Fundrise to invest cash from a savings or checking account as well as qualified assets (if you have a self-directed IRA or 401(k)) or if you have rollover 401(k) assets that are available to invest. The minimum investment is just $500.
The one downside, though, is that in order to invest with Fundrise, you have to go direct. In other words, you can’t invest in a Fundrise portfolio through ETrade, TDAmeritrade, or another platform—you have to go direct to set up an account and make your investment.
Other Fundrise benefits
In addition to the Starter Portfolio, Fundrise also offers several other portfolios that you can invest in. Fundrise’s premium portfolios let you choose your own investment allocation or even individual deals (they also have higher minimum investments).
Fundrise also offers articles and resources to help people learn about crowdfunding and investing in real estate.
A final word on the Fundrise Starter Portfolio
If you’re new to the investing game and are looking for a way to dip your toe into the water, the Fundrise Starter Portfolio might be a good option for you.