Time for another investment. As I already own a rental property (beach condo) in my portfolio, I would like additional real estate returns but without the headaches. Fundrise, LLC seems like it might fit the bill. Their website states that they had the “simple idea to give everyone the opportunity to invest directly in high quality real estate, without the middle man”. They combine online crowd source funding with technology and commercial real estate to locate the best deals for their members, now numbering 80,000+. A Fundrise investment in 2015 would have returned 13% according to their website. For 2016, they now have two offerings: an Income eREIT (focuses on income through debt) and a Growth eREIT (focuses on growth through equity). REIT stands for real estate investment trust. A REIT is a “company that combines the capital of many investors to acquire or invest in a diversified pool of commercial real estate”. These REITS are not publicly traded on the stock market so they do not fluctuate with the broader market and have a 1% management fee which is lower than their publicly traded counterparts. The Income eREIT has lower risk with fixed returns. The Growth eREIT may provide higher returns but with higher risk associated with their investments. Both pay quarterly dividends.
I am going to invest in the Growth eREIT so I will only focus on that portfolio. The objective of the Growth eREIT is “to produce moderate returns over the life of the investment, with the potential for much higher returns paid out at the end of the investment”. In order for Fundrise to show accountability to their investors, they will pay a penalty to the eREIT if certain preset annual return objectives are not met. It is their version of skin in the game. There are currently 4 property investments in this eREIT at cost totaling $19.5 million. Returns are produced from rental income and appreciation when the properties are sold. The company does have a redemption plan but I definitely consider this a long term investment. There are risks associated with this type of investment so any purchase should be made after doing due diligence. I would recommend researching all aspects of any purchase by going to the company’s website and searching the internet. Since a REIT is required to distribute at least 90% of the taxable income that it earns annually, there are tax implications of which one must be aware. I will choose to limit my initial investment to $3,000 (their minimum required amount is $1,000) with another $2,000 in reserve to be invested after seeing how this proceeds. Since my mission is to learn and educate by diversifying into many investments, I will limit each particular investment and document the asset’s cycle through this blog.
41 Unit Property in Denver held by the REIT
Thanks for reading.
Jeff Kahn CPA