Fundrise vs REIT: Maximizing Your Money Via Real Estate
October 25, 2022 (Investorideas.com Newswire) Real estate has always been one of the most sought-after investments. However, until recently, real estate investing options have been limited to only the wealthy, i.e. accredited investors. Since the vast majority of Americans don't have an income exceeding $200k per year or a net value of over $1m, this obstacle severely limits opportunities for the working class. Thankfully, companies like Fundrise-and the JOBS Act in 2012-have made real estate investing accessible to everyone. Of course, investing through a platform like Fundrise isn't the only option around: there are still plenty of conventional REITs to choose from. So, how exactly does Fundrise stack up against the more traditional options? In this Fundrise vs REIT comparison, we aim to find out!
REITs can be regulated or non-regulated, depending on the type. Publicly traded and public non-traded REITs are regulated by the U.S. Securities and Exchange Commission (SEC). Private REITs aren't regulated or registered with the SEC but are generally only open to institutional or accredited investors. This reduces the likelihood that an uneducated investor will have access to private REITs.
Fundrise, on the other hand, is open to both accredited and non-accredited investors. Currently, the company holds an "A+" rating from the BBB. Fundrise has been operating legitimately for 11 years and has been BBB accredited since 2016. The company has only received 19 complaints in the last three years, and has a 100% response rate to all complaints.
Accredited vs Non-accredited Investing
As mentioned above, to be considered an "accredited investor," one must have a net worth exceeding $1m or an annual income of more than $200k ($300k for couples). Should you meet these requirements, nearly any investment opportunity will be available to you. Contrarily, non-accredited individuals will be limited to investing in/with companies willing to work with non-accredited investors.
Minimum Investment Requirements
Different REITs have different minimum investment requirements, but you can expect a minimum of $1,000 to $25,000 (depending on the REIT in question). Even if the REIT is open to non-accredited investors, the large amount of capital required as a minimum deposit may pose too great a challenge for potential investors. When you compare Fundrise vs REIT investments, this is where Fundrise begins to seem like a viable alternative for the average investor.
Fundrise has an account minimum of $10, which will provide access to their "Starter Portfolio." Increasing the initial deposit to $1,000 provides access to the "Basic Plan." Their "Core Plan" requires an initial deposit of at least $5,000. For investors with a bit more capital to work with, the "Advanced Account" ($10,000 minimum initial deposit) or "Premium Account" ($100,000 minimum initial deposit) may be a potential option.
Fundrise doesn't charge any annual fees, but they do charge 1% of your portfolio's value per year. As explained in greater detail in this Fundrise review, this percentage consists of both asset management and advisory service fees. While this may not seem like much, this is a point where Fundrise-unfortunately-pales in comparison to the competition. Exact rates vary, but most standard REITs only charge 0.50% in fees, giving tradition the upper hand in this case.
The latest data suggest that investing in a publicly traded REIT only offers 2.91% returns on average to investors. Granted, the market has been doing poorly lately, so perhaps a look at the historical average return since 2019 (4.34%) will provide a more accurate perspective. While this outperforms the stock market-which has only offered a 2.17% return since 2019 -overall, the performance isn't up to par when compared to the competition. Fundrise has achieved an average return of 5.42% since 2019. In this Fundrise vs REIT comparison, Fundrise is the clear winner!
Liquidity varies widely, depending on the type of REIT you're investing in. However, publicly traded REITs enjoy high levels of liquidity, allowing investors to move their money around and instantly react to market changes. Fundrise falls short when it comes to liquidity, although investors are able to sell their shares. Unfortunately, selling early can result in high fees that severely offset any gains made during the investment period. If you sell off-or "liquidate"-your shares within the first five years, you'll be charged a 1% fee. However, if you can wait until after five years before liquidating your shares, you won't have to pay any liquidation fees.
When comparing Fundrise vs REIT, it's important to ask yourself: "How long do I plan on holding onto my investments for?" If the answer is five years or less, you might be better off with a traditional REIT. However, even in this case, it's important to compare the projected returns against Fundrise returns & fees. Even with the early withdrawal fees, you may still enjoy a larger return with Fundrise!
However, if you're planning on investing for the long term, Fundrise is the winning option. Although the yearly gains may not be as much as a publicly traded REIT, Fundrise hasn't had a losing quarter in the last few years. This consistency speaks volumes for the platform, especially when compared to the significant turbulence of the S&P 500 (-19.60 in its worst quarter).
If you're ready to begin your real estate investing journey - and want to redeem $10 in free shares - then sign up for Fundrise today by clicking here!
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