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This content is for informational purposes only and is not intended to provide financial advice.
Founded in 2010, Fundrise is a Washington-based investing company that focuses on real estate investments and the real estate sector as a whole. It was the first company to successfully step into this market, using a different approach than traditional Real Estate Investment Trusts (REITs): by keeping minimum investments low and lowering the entry barrier for small and non-accredited investors, these platforms can gain purchasing power comparable to that of some of the largest traditional REITs.
In this Fundrise vs. REITs review, we will compare the two investment vehicles and make a recommendation based on the type of investor you are.
Keep in mind this is a quick summary of these products; for a more in-depth analysis, check out our full Fundrise vs. REITs review.
Fundrise & REITs
Starting with the similarities; both types of investment:
- Have a focus on real estate properties
- Use REITs as investment vehicles
- Pay higher dividends than dividend stocks
- Are a great option for regular income
Investing in Fundrise and REITs has a lot of similarities. Both types of investments focus on real estate properties; Fundrise prioritizes commercial and residential properties, while REITs can be more diverse and tend to focus on residential, commercial, offices, and retail properties.
On average, both types of investments generate higher dividends than stocks (the average returns in 2021 for dividend stocks was 1.7% vs. 3.5%. From REITs). One of the main disadvantages of REITs vs. Stocks is their growth; to avoid corporate taxes, most REITs pay out 90% of their income as dividends to their shareholders: This can be great if you’re looking for regular income – not so much if you’re looking for wealth generation and very long-term growth.
Usually, you can purchase this type of security from brokers; just keep in mind that Fundrise shares are only available on the Fundrise platform, while REITs are accessible from most brokerages. Here are some other important facts to consider before you start using Fundrise.
Fundrise vs. REITs: An Overview
Feature | Fundrise | REITs |
Minimum Investment | $10 | Varies. (From $1,000 to $25,000 per share) |
Investment Type | Non-traded REITs | Publicly-traded REITs |
Yearly Fees (Sales, Advisory, and Management) | 1.0%-1.5% | 10%+ |
Average Annual Return | From 11.9% (after 1 year) to 87.7% (after 6 years) | 8%-10% |
High Liquidity | No | Yes |
Supported Account Types | Self-Directed IRAs | Standard IRA, 401(k), 403(b) and 457 plans |
Property Focus | Residential and commercial properties | Residential, commercial, office, and retail properties |
Despite focusing on the same sector, the real estate Sector, Fundrise and REITs have plenty of differences. For starters, and probably the most important one, are the fees. When you invest in REITs, you can expect to pay at least 10% in fees over the lifetime of your investment. Fundrise fees are considerably lower, not even reaching 2%. If you think that sounds too good to be true, we don’t blame you. Many investors have asked this question – Is Fundrise legit? The short answer is yes – Fundraiser is fully regulated by the Securities and Exchange Commission (SEC).
In terms of returns, Fundrise also comes ahead. On average, after the first year, it’s reasonable to expect a return on investment of 11.9%; over a 6-year period, it can go as high as 87.7%. Keep in mind that not all investments will follow this pattern, and there are many factors to consider.
Comparing the expected returns, REITs average 8%-10%/year and are considered safer investments thanks to their high liquidity, which means you won’t have trouble finding a buyer. Fundrise, on the other hand, has very low liquidity; as a non-traded REIT, you have to trade your shares on the Fundrise market instead of publicly traded markets like REITs.
One big downside of REITs is their prohibitively high entrance prices; to start investing, you need to purchase a full share. According to the National Association of Real Estate Investment Trusts (NAREIT), REIT share prices average anywhere from $1,000 to $25,000. To start investing in Fundrise, there’s no such limit; you can start investing with as little as $10.
Our Pick
Based on the fees, potential return over the long term, and overall accessibility, our top recommendation is Fundrise. Even after factoring in the liquidity of REITs and slightly higher diversification, it’s nowhere near enough to justify the higher fees and lower returns.
Signing Up With Fundrise
Signing up with Fundrise takes just a couple of minutes. Here are the steps to sign up:
- Visit Fundrise’swebsite
- Click the Get Started button
- Enter your email
- Fill in some of your basic information
If you sign up using this link you will get a bonus of $10 worth of shares of Fundrise’s Real Estate Interval Fund.
Fundrise Fees vs. REIT Fees
Fundrise
- Sales Commission: None
- Annual Advisory Fees: 0.15%/year
- Management Fees: 0.85%/year
REITs
There are many types of REITs, but in general, and according to the Securities and Exchange Commission (SEC), the upfront fees of REITs can be well over 10% when accounting for sales commissions, management fees, and various other fees.
- Sales Commission: 7%-8%
- Acquisition Fees: 1.0%-1.5%
- Management Fees: 1.5%-3%
Conclusion
If you’re looking to start earning a regular income, Fundrise is a great way to do that and gain exposure to the real estate sector as a whole. It has very low fees compared to REITs, and it doesn’t have prohibitively high minimums to start investing, like some other platforms out there: you can get started with as little as $10. Based on data from the last 20 years, you can expect this type of investment to beat dividends in the short- and long-term.
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