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Passive Income From Real Estate Investment With Fundrise — Does it really work?

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  • #32837
    VBJ
    Keymaster

    It’s insane to me how quickly someone can can start up a new investment now. Seriously, within 60 seconds I had set up and funded a Fundrise account. I was sort of surprised when I had finished. So that’s it? Had I really just invested in 40 different real estate projects around the country?

    Yeah, that was it.

    What is Fundrise? Fundrise was the first eREIT. A REIT (Real Estate Investment Fund) is a company that invests in a portfolio of real estate projects with money pooled from a multitude of investors that’s completely run online. Right now, I’m drawn to REITs due to the high dividends they generally pay and the fact that publicly traded ones are on sale now due to the pandemic. Basically, REITs are a way to make passive income with real estate without dealing with the hassles of being a landlord and the need for a large amount of startup capital. As far as Fundrise goes, being an “eREIT” it’s a little different than a REIT on the stock market because the fund isn’t publicly traded and I’m able to have more control over where my money goes and have better insights into what’s being invested in. I’m not sure what the pandemic means for their business — are they getting hammered or are they banking on depressed prices and cheaper interest rates?

    I’m going into Fundrise with tempered expectations. While there are enough reviews out there that show it works — investors are generally making nearly 10% in annual dividends — I’m not yet 100% sold on it. It’s not like a stock where you can take your money out at any time and the fees that the company charges are a little opaque — they say 1% per year, but then there are miscellaneous fees randomly tacked onto this. However, I feel it’s worth a try with a relatively small amount of money for a year or two to see how it actually plays out. If it works, I’ll put in more. If not, I will just keep what I have in there and collect the dividends on it indefinitely.

    Many people generate passive income with rental properties — each month you get money. But I don’t want to be out in the jungle of Cambodia trying to call a plumber because Joe plugged up the toilet again. Sure, I could hire a property management company but with the costs associated with that, upkeep, a mortgage, and everything else, do I really think that I would be profiting much over 10% per year anyway? I’m not sure yet. But what I do know is that when you invest money into a REIT and there is nothing else you need to do. You just sit back, drink beer, and collect dividends.

    Check out Fundrise and let me know what your take is below.

    #32895
    VBJ
    Keymaster

    I began automatically adding $100 each month to this investment. So that will be around $1,200 more each year, with the dividends being reinvested. The goal is that when I turn 50 to have enough passive income coming in that I can go off on the beach and do whatever I want without needing to work.

    So far my Fundrise portfolio has made $.92. Hey, it’s 92 cents more than what I previously had…

    Fundrise account earnings

    #33829
    VBJ
    Keymaster

    I closed out my Fundrise investment. The reason? Not enough earnings, too many fees, and the fact that they allocated 40% of my investment to under-performing REITS.

    In nearly two months, I only made $5.58. That’s alright. It’s an investment. Sometimes they pay more, sometimes they pay less. If this was only a matter of less-than-expected returns then this wouldn’t be a problem.

    What I didn’t like was that 40% of my investment was allocated to REITs that weren’t fully functioning — one of them only had a single property in it.

    While I can invest directly into certain REITs, the fact that they would allocate my (albeit relatively small amount of) money towards projects that are not yet ready to produce returns left a bad taste in my mouth.

    I also got a taste of their fees, which seem to nickle and dime investors at every available opportunity.

    Then I read about their redemption policy, which states that if you don’t have your money in for at least five years you must pay a penalty that can be up to 3% of your portfolio’s value. If this was a situation where you could redeem without the penalty 5 years after you make your initial investment that would be alright, but it isn’t. The way the rule is enacted is that each time you make a deposit (or I imagine a dividend re-investment) the five-year cycle begins all over again. This would mean that I would need to leave the account completely dormant for five years before I could get my money back. That’s not the worst thing — however, it left another bad taste in my mouth.

    So I began reading a little more about Fundrise and discovered some discrepancies — let’s call it that — in the prices they charge investors for shares of their REITs, and it was time to pull out.

    They have a 90-day trial where you can pull your cash out without paying a penalty, and I went for it. However, I didn’t quite get their math:

    They subtracted my dividend earnings from my cost basis. I’m not sure why they would do that. If they were to decline paying my dividend that would be one thing, but subtracting my dividend from the amount of money that I invested seems absurd.

    But it’s only $6 — not enough to complain about, but it does reveal what this company is all about.

    In the end, you can invest in publicly traded REITs and have your funds more or less liquid. You get your dividend payments and can move your money at any time. I tried out Fundrise to add a little diversity to my real estate investment portfolio. It didn’t do what I wanted to, so I got out. This doesn’t mean they are bad, it’s just not the direction that I want to go.

    #33907
    VBJ
    Keymaster

    They sent me my $6 dividend payment but it is still unclear why they would deduct this from my cost basis. I don’t really care.

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