Fundrise Review 2018: Fundrise vs. My Rental Property

my rental property vs fundriseEver since I read Rich Dad, Poor Dad about 15 years ago, I have been itching to get into real estate investing.

While I don’t agree with everything in that book and he makes it seem just a little too easy, I do think some of the principles of building wealth with real estate are sound.

So in 2015 when we packed up and moved to Nashville, I thought it was the perfect opportunity to get my feet wet – we decided to hang onto our old house and see if we could rent it out.

Our 1st rental property

Being in a completely different state, I wanted to have a property manager who would take care of finding the renters, dealing with all their issues, and do the most important part of his job: mail me checks! 😉

The trade-off, of course, is that he eats into our profits. He charged 10% of rents, which was a little painful, particularly since we had such low-maintenance tenants.

But, since we were out of town, it just made the most sense.

Within a month he found someone who appeared to be a great tenant and told me all about him and asked for my go-ahead. Having never done this before, I just said, “I trust you – if you think he looks good, then let’s do it!”

A month later, I got my first check in the mail, and it was far more exciting than I thought it would be. It was truly passive income that I didn’t have to do anything for other than deposit the checks.

Over the last two years, I have realized that we really had found great tenants. They paid every single month – and on time! And only had 2 minor maintenance requests during that time as well.

 

Calculating Our Rental Property Returns

Keep in mind that this is my first rental property and that I didn’t seek out a property that would have a great ROI.

I just used our first house because it was easy.

Now that we have had our renter for over two years, I decided to run the numbers and see what kind of ROI (Return on Investment) I was getting.

After calculating out all our expenses (they add up fast) we have been sitting with an average return of 5.4% on the cash we have invested in the house.

Side Note: I know many Real Estate pros would suggest using the equity in the house to buy more properties and use leverage to grow those earnings, but that is not how I roll. 😉

When I discovered that we weren’t getting the 10+% returns from the property that I was hoping for (especially when we had GOOD tenants), I realized that while this was a great house to live in, it wasn’t the best earning rental property.

Stepping back to July 2017…

 

Enter Fundrise

Simply put, Fundrise is the simplest way I have seen to passively invest in real estate for most people.

It is kind of like crowdfunding for real estate investments.

As investors, we “own” a small percentage of each of the dozens of rental properties that Fundrise has in their portfolio.

I am oversimplifying it, but you can think of it like this:

Instead of needing $50,000,000 to buy a massive real estate development, they try to get $500 from a 100K investors to acquire the property.

What this means to you and me is that we can get in on their returns with a far smaller investment.

 

Opening my Fundrise account

In July of 2017, I opened a Fundrise account. Basically, my idea was to take some of our rental profits and have it invested there so that it could grow until we had enough to buy another rental property.

The account opening process was surprisingly simple – especially since I opened a business account (which usually is much more of a hassle).

I don’t think I spent more than 15-20 minutes on the entire process and within a few days, I had gotten email notifications that my investment had been divided up into 8 different properties that I now “owned” a small part of.

Fundrise minimum investment

For those interested, you need a minimum of $500 to get started with their Starter Plan (which is different than the plans listed below), but see these other ideas on how to invest without much money if $500 is too much. You do not need to be an accredited investor to invest with Fundrise.  Just a $1,000 investment gets you into the advanced portfolio.

 

Getting paid

About three months later I got an email from them saying that I would be receiving a dividend payment – woo hoo!

fundrise dividend payment

It turns out that they pay out dividends every three months.

I chose to have all the dividends reinvested to keep things growing.

 

Calculating my investment returns

Fundrise returns and performance

Fundrise advertises very strong historical returns:

fundrise returns and performance

And those numbers sound really nice, but I wanted to see what kind of returns I got from Fundrise myself.

I should also mention that they have three separate investment approaches:

  • Supplemental Income – (Lower Risk)
  • Balanced Investing – (Middle Risk)
  • Long-Term Growth – (Higher Risk)

I opted for the ‘Balanced Investing’ option with mine.

Here is a look at the projected returns for the ‘Balanced Investing’ option:

Fundrise projected annual returns

As of the time of this writing, here are my total dividends since I opened the account in July 2017:

fundrise earnings

 

How have your returns been on Fundrise?

Because I have dividend reinvestment turned on as well as an auto-invest each month, it is a little messy trying to calculate my ACTUAL returns so far.

But getting deep into a spreadsheet and taking a fairly conservative approach, I calculated annual earnings right at 6% from my investments in Fundrise.

Since this doesn’t take appreciation into account, this is right in line with the 5.9-6.4% in dividend earnings that the reference in the blue graph above.

As with all investments, I know past returns are not a promise of future results, and I am interested to see how the Fundrise does during hard times.

 

Is fundrise a scam?

I have been reviewing financial companies long enough that I know some of you are automatically thinking it is a scam. I am pretty skeptical by nature myself and have been burned in the past, so I get it.

Here is why I am very comfortable that Fundrise is not a scam or a fraud, but an actual legit company worth working with.

  1. I have gotten paid from them already.  Most scams do NOT play the long game, they try to get your money quickly and never give any back.
  2. They have had an IPO – and raised over 14 million from legit investors.
  3. The Fundrise reviews out there are generally fantastic and they have an A+ rating at the BBB:

Fundrise a scam? A rating at BBB

 

 

Comparing the Returns

In case you just scrolled all the way down to see which one won, here is your answer:

  • Rental Property: 5.4%
  • Fundrise (Mid-Risk): 6.0%

The reality is that both of these could be increased pretty easily:

  1. With the rental property, I could just use more leverage and get more properties and minimize my cash invested to increase my ROI, but I am done with adding debt so that won’t happen.
  2. And with Fundrise, I can click a button and change my investments to the Long-Term Growth option to get higher overall returns, or use the Supplemental Income option if I were trying to increase my dividend payments.

 

Even more enticing than the Fundrise returns

Even with having a property manager for our rental property, it still has surprised me how many times I have had to spend mental energy thinking about the rental.

On the other hand, my Fundrise investment is 100% passive income. I don’t have to think about it at all and even with the middle-risk option selected it beat out my rental property.

At some point, I might be interested in building out my own massive real estate portfolio, but for now, the ridiculous ease and returns of using Fundrise has me putting more of my money there.

 

Any Fundrise investors out there?

If so, can you let us know in the comments what kind of returns you have seen with them?

 

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40 Comments
  1. danielle

    Have you thought about selling your rental property and reinvesting in a house closer to you that can net better rental returns? I’ve done rental property investing in the past couple of years and my 4 rent houses net 10%-12% annually each. (note I don’t use property managers, but do have another full time job) I have also learned not to buy high-end houses. Stay simple with 2/2 as they work for roommate situations or new families.

    • Bob

      Danielle, I probably will give traditional rental properties a try again and I will seek out properties that will hopefully ROI as well as yours, but for the time being and at this stage in my life, the simplicity of Fundrise has me moving that direction.

  2. Azna

    Thank you so much, Bob, for this great article, and all the other articles and information you so generously share. Your email is one I always open without deleting. I love how you compared the two real estate investing vehicles. I am very much impressed by how honest, ethical, sincere, truthful, transparent, etc. you are. I trust you and I trust your judgment immensely.
    You probably do not get into investing in forex, but I am very much interested in eventually trying to earn income from forex. If you have any knowledge or if you know someone totally honest, ethical, etc. like yourself whom you can recommend that I can learn from, I would greatly appreciate you writing an article about it. Thank you immensely for what you do. I also loved your article on tithing and will attempt to tithe my age (not easy since I am now a senior citizen).

    • David Field

      Azna, I am not an expert by any stretch of the imagination, but I have a little personal experience. There are some seemingly trustworthy resources out there on Forex in particular and a lot of great resources on Technical Analysis in general. Adam Grimes would be a good start if you really insist. He says plainly in several of his blog posts that you should expect to put in several years of very hard work educating yourself before you begin to break even, and many years after that before you can be consistently profitable. I think anybody who paints a rosier picture than that is trying to sell you something. Actually Adam is hoping to sell you something too, for that matter.

      I would really encourage you to look elsewhere. You’d probably have better results, be more in control of your outcomes, learn quicker, and have more fun, betting at horse races. Even the most respectable experts agree that the forex industry is highly manipulated. Some recommend “betting on the side of the house,” but the problem is that “the house” in forex is capable of betting against every player simultaneously and still winning almost every bet. There might be individual retail investors who sometimes manage to get on the same side of a trade as all the manipulators at once (who aren’t necessarily cooperating with each other), and are lucky enough to not get stopped out, but I think the chances of anyone being in that tiny group consistently are too small to make it worth the risk.

      I’m not just being a pessimist – if I told you you could catch more fish by spearfishing while swimming the same direction as the sharks in a feeding frenzy, you’d probably opt out. I really think that’s a suitable analogy.

      Finally, a book I’d heartily recommend to anyone regardless of your interest or lack thereof in trading/investing is Trading in the Zone by Mark Douglas. It talks about trading, but it’s really about mindset, and it has broad application outside of securities trading. Mark did a great job of explaining how to recognize and overcome mental barriers to success.

    • Bob

      Thanks for the kind words Azna – it means a lot. As far as Forex, I don’t know of anyone personally to recommend. If I ever find someone that fits that bill I will pass the info along –

  3. Keith

    We also used out first house as a rental when we moved. In hindsight, we foolishly took bad advice as we were not in a position to take on any additional financial risk at that time. Many lessons were learned. While we had a great tenant for the last six years, we had five less-than-great tenants in the first four years. It only took one or two late rent payments, bounced checks, major repairs, or tenants skipping town for us to realize that we were in over our heads. The last six years with a good tenant coincided with us hiring a property manager – even though we were only about five miles away. We ended up with more income even though we were paying 10% to the manager – due to not having to fix, repair, replace things and find new tenants annually (or more frequently).
    Thankfully, we sold that house about a year ago and dumped that debt & risk. My wife and I generally say ‘never again’ regarding rentals – though I have fantasized about the getting back into it later in life (part-time/part-retirement). But, as I get a little older, I’m also becoming a more averse to risk and an option like Fundrise is very appealing.
    Bob, thank you for the insight! Always good stuff.

    • Bob

      Thanks for sharing Keith!

  4. maria Pena

    is this for real ? sounds too good to be true

    • Bob

      What about it sounds too good to be true?

  5. Aucuria

    Thank you for sharing this information in a way that is easy to understand. I’m definitely going to check into Fundrise, as I have been thinking about investing, but feel a little overwhelmed by stocks (I feel like I need a stockbroker just to break things down to me).

  6. Hitower

    Hello Bob, God bless you for your honesty. Your blog is one of the few I truly read and keep. I have been seeking an investment option like the one you just shared and will prayerfully consider. Thank you once again.

    • Bob

      Thanks Hitower!!

  7. Jason Cabler

    I’ve been wanting to write an article like this one for a while (maybe soon!). I’ve been thinking about using Fundrise to see how it works, but haven’t done the research yet.

    I’ve had a rental house in Hendersonville, TN for about 5 years now and LOVE IT! I paid cash for the house and got it at below market value. Like you, I have a property manager that handles everything and an awesome renter who pays on time. I literally spend only about 3-4 hours per year dealing with my rental property- it’s truly passive income!

    Being in the Nashville market, I’ve gotten very good returns, as real estate appreciation and rents have both been on the rise. Even after property manager and flood insurance, my returns have averaged about 17% a year. I wish I had 10 more properties!

    My goal is to keep investing the rents until I have enough for my next property. I’ll definitely be looking at Fundrise to potentially invest that money!

    Great article Bob!

    • Bob

      Wow that is awesome Jason!

  8. Dai

    I am a little confused bob! So is that means you will have to put $500 in account every month or just once investment and turn on the dividend investment?

    • Bob

      Nope, I think they have a $500 minimum to get the starter plan. But from what I understand you wouldn’t need to add $500 each month – just whenever you want to add more, you could.

  9. David Field

    Bob, this is the second of your articles my wife has forwarded to me and I’ve really appreciated your perspective. I have a similar situation with a financial instrument that I’d rather not describe in detail here, but simply put it pays me a steady 0.15% per week. Meanwhile the underlying asset is up significantly from when I invested despite unusually high volatility.

    Before I read past your headline, by the way, my first thought was that you would be talking about real estate tax lien investing. I wonder if you’ve heard of that, and I’d be interested in your thoughts on it.

    Thanks, and keep up the great work,
    David

    • David Field

      Re: the financial instrument I mentioned in my earlier post – it’s not for everyone or even most (high volatility, significant barriers to entry, changing regulatory environment), but I forgot to mention the biggest reason for bringing it up – the way I interact with it. I’ve actually forgotten it exists most of the time, except for when I hear a cash register sound from my smartphone that means my mobile wallet associated with that account has received a payment. That’s always a great sound to hear. My wife’s eBay sales generate similar sounds from her iPad, but I know how much work goes into those sales.
      We’ve all heard passive income is awesome, but everyone just really needs to find a way to experience it to really understand. Fundwise sounds like a great way to get that start.

    • Bob

      Thanks David, I have some really smart friends in the RE world who could add a lot of value on that topic – maybe I will do an interview with them…

  10. Javier T

    Hello and thank you for the article. Did you account in the 5.4%. The extra tax savings from the rental in the equation? Interest, Insurance, property tax, repairs, mgnmt fee, deductions?? This is the phenomenal advantage of RE that other investments do not have…

    • Bob

      Agreed. Admittedly this was a pretty quick and dirty comparison – there were some spreadsheets that helped me get as accurate as possible guess, but factoring in all the tax implications of each is a little bit beyond the scope – so take that into consideration.

    • Kelly Wongkar

      Always enjoy your blog! Sounds great! I’m going to give it a try. Can you later switch to getting payments to your bank account if you initially choose to reinvest your dividends? Also, can you switch to a higher or lower risk plan later on? Thanks!

  11. Bess

    Bob this is awesome thank you so much for sharing. I’m giving this a shot and opening my account today. I also want to reinvest dividends. Could you share your ROI spreadsheet? If not do you know of one I can download and use

    • Bob

      Hey Bess, I would go here… https://www.biggerpockets.com/blogs/4269/30123-calculating-return-on-investment-in-real-estate and maybe use this calculator… https://www.biggerpockets.com/buy-and-hold-calculator

  12. Keith

    Very good information. Thanks for sharing.

  13. Zap Martin

    Awesome Bob!
    I’ve been a fan an follower since “Christian Personal Finance” was in its infancy stages. So cool to see how your business (and family) has grown over the years.
    My wife and I to run a ministry for newlyweds at the Rock Church in San Diego, CA. We’d love to fly you out and have you speak sometimes. Who should I contact about working out those details?
    (Our class is a newlywed financial course, summarized here —> www.tisha.us and also www.sdrock.com/justmarried/newlywedfinancialcourse)

    Thanks!
    Zap Martin

  14. JR

    Hi Bob, is it international? I’m in Lesotho and your post inspire us here.we want to succeed in Africa.

    • Kelly Wongkar

      Hi Lesotho, I don’t think you can, unfortunately. 🙁 I just signed up and they require a social security number and to be a US citizen. Maybe there are other ways to invest for you in Africa? Best of luck!

  15. Kirsten

    Hi Bob,

    Very interesting article! How does Fundrise differ from the REITs (real estate investment trusts) that were popular in the 90’s? Thanks!

  16. Kyle

    I read some of their material, but there is not much information on getting your money back out of the portfolio if/when you need it. Obviously, this is intended for long term investing, but they really do not answer how this is done. Have you considered or investigated your divestment strategy with Fundrise?

    • Bob

      I haven’t Kyle, and that is a good point to consider for those looking to stay somewhat liquid. For me it is a long-term play, so I am not too concerned about it, but it is worth digging into regardless…

    • Ryan Kaczmarek

      Though I like the idea, I have some concern about whether this is an elaborate Ponzi scheme. I can’t seem to find any information about the actual properties that they’re investing in. Though the returns look good, so did Bernie Madoff’s. Though I can appreciate your reasons for believing it is not a Scam, all 3 would have passed the same test in the mid 2000s for Madoff’s operation.

  17. Ernestina Narh

    Hi Bob, thanks for sharing the information. I am new to investing and was very much interested to start with fundrise however I read on their website it only applies to US residents.

    1) Do u know of any other similar property investment that a UK citizen can invest in the USA.
    2) Secondly my mother is a USA citzen and just reached her retirement age(66). She is interested in the fundrise and can potentially invest more than $500.

    The goal is to help her have good retirement income. Can you please advice which option is best suited for her.

    Lastly can I co- invest with my mother in the US on fundrise?

    Looking forward to your sound advice.

    God Bless you .

    Kind Regards

    Ernestina

  18. Troy Taft

    Thank you for posting that for us see. That’s very helpful. I was coming up with much the same results in my calculations when I attempted to compare rentals to REITs, but they were just calculations not real live experiments.

  19. Mrs. Money

    This is a wonderful idea! We couldn’t invest in rental properties yet, but may give this a shot as it’s much easier to do!

  20. Ryan

    Do you have thoughts on the eFunds and the Schedule K-1’s that come out of it?

    This is my first year receiving a K-1 from Fundrise and wasn’t sure how to file it at first since I do my own taxes. I’m thinking of hiring a CPA to review my return

  21. Tom Johnson

    Hello Bob, I have been reading your post for quite some-time now and I figured I would start dropping you a few comments. Thanks for sharing this information about fundrise, I do not know very much about this but the information you shared is very good.

    I have been looking for ways to help my retirement and increase my capital since I only have about 10 to 15 years left to work. I have invested in some rental property and I have three blogs in the works to help my side income while I keep dumping money into my 401K.

    I welcome all your financial wisdom and look forward to reading more in the near future.

    God Bless you and your family.

    • Bob

      Thanks for saying Hi Tom!

  22. Terrance King

    Nice article, Bob. I have been an investor with FundRise almost since they started (2+yrs). I see alot of comments about legitimacy, so here’s my experience.
    They are a legitimate company. I continue to received dividends every quarter. They offer several different ways to invest and tell you details of your fractional real estate investments. A couple were near me , and I drove through the properties to look .
    Pay attention to the part about long-term investment. You can’t jump in/out like stocks, Only use money you would use in a long-term portfolio .
    They buy midrange housing and rehab it, mostly although they have bought into future projects. Updates are always available on their website through your “dashboard”.
    Thanks again, Bob, I enjoy your blog. Good luck to all , hope God blesses you every day

    • Bob

      Thanks so much for sharing Terrance!

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