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I recently discovered this real estate investment company, Fundrise, and after doing some research, I’m interested in investing with them. But I’m on the fence about the trustworthiness of their business, and whether it’s a smart investment. Here is their website: https://fundrise.com/

Here are some of the pros & cons I found from reading their website:

Pros:

  • Multi-options for investing
  • Supplemental income (risky)
  • Balanced investing (moderately conservative)
  • Long-term growth (low risk)
  • Low upfront cost ($500)
  • w/ free upgrade to core plan (once $1k is invested)
  • More diversification options & more tailoring options

Cons:

  • Minimum 60 day waiting period to liquidate investments
  • 0.85% annual asset management fee (I don't know if these are good percentages or not)
  • 0.15% annual investment advisory fee (I don't know if these are good percentages or not)

What risks are there in investing in private real estate funds, and in this way?

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  • The Offering Circular for the various Fundrise funds discloses the risks. See, for example, pp. 31-32 of the Fundrise East Coast Opportunistic REIT Offering Circular: fundrise.com/oc#rega-1
    – TainToTain
    Feb 21, 2019 at 23:56
  • When you haven Fundrise $1,000, what do you get in return? Do you get a piece of equity in a fund? What does the fund do? It develops buildings? How? Does it hire the people? Does it own the dirt? Does it manage tenants in existing buildings, if not who does? How does the fund make money? From where is income derived to actually pay a dividend? You have literally zero idea if this is "balanced (moderately conservative."
    – quid
    Feb 22, 2019 at 0:59
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    I don't see any "pros" in your list under that heading. I see several flavors, and then I see several expenses with no justification (before one cares that an "upgrade to core account" is free, one should know if it is useful). What do they claim to do better than an REIT public mutual fund or ETF?
    – Ben Voigt
    Feb 22, 2019 at 6:32

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Fundrise is an interesting subject because it represents a new way of investing for the non-accredited investor.

They explain an income fund based largely on renting and they explain a growth fund based largely on selling renovated property. (The regulatory statements suggest that the headline funds hold various funded companies as developed by the fund sponsor.)

The risk is that they don't really explain how their shares are valued. They might say net-asset-value divided by the number of outstanding shares but how is the net-asset-value determined ?

A renovated property might have a value based on an asking sell price. A rental property might have a value based on a multiple of rental income.

They say that they have 9.11% growth and pay a dividend of 6.21%. Well, 6.21% is 6.21% of the fund value. Then the reciprocal of 0.0621 suggests a P/E ratio of 16.1 .

The next risk is the possibility that they might not be able to balance the fund sellers with new buyers. And then how much in fund shares will the fund sponsor buy itself ? See, the fund sponsor can't just immediately sell real estate to buy-back fund shares.

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