You’ve probably seen all the overly-appealing ads at this point, either through Facebook or on TV. Fundrise is a company that invests in real estate projects and earns interest on their loans to developers – often at a rate of 10%-12%.
Here’s where the message gets good for regular schmoes like you and me…
Do you know where Fundrise gets their money from for their investment projects? From the general public who wishes to invest as little as $1,000 in the project. Essentially, Fundrise is a mutual fund company for real estate ventures and cuts out a bunch of middle men in the process.
Sounds pretty good right?
At first glance, yes….but should you invest in Fundrise?
Your Investment in Fundrise
There are loads of personal finance bloggers that absolutely love Fundrise. In my opinion though, it’s only because they’ve got a carrot dangling in front of their face — a $50 referral bonus for everyone that they can get to register at the Fundrise site.
Because of this fantastic referral bonus, many PF bloggers fail to dig into the details and truly understand what a Fundrise investment is actually about. Here are the pros and cons as I see them.
- You can invest in real estate with as little as $1,000
- The income is 100% passive since you have to do nothing other than click your mouse
- Fundrise boasts that investors can earn
6.95%8.76% on their money, but that’s before regular fees that typically eat up another 3% of those gains.
- Your money is fairly illiquid, meaning it’s tough to get it back out. If you withdraw your money before the five year mark, you’ll likely bring home only a small portion of your earnings thanks to additional fees and regulations.
- Your investment could actually go down in value if the real estate project goes bust.
So pretty much you can invest easily, but you won’t make much money (if any) and it takes half a decade if you actually want a positive return. This suddenly isn’t sounding so good is it??
Sure, I could lead you to the Fundrise page and recommend that you sign up so I can make a quick $500+ (figuring 10 sign-ups or more), but would I be able to sleep at night? Not even close. I wouldn’t recommend this option if they paid me $1,000 per sign-up.
In case I wasn’t already clear, DO NOT INVEST IN FUNDRISE.
Where Should You Put Your Money Instead?
If you’re looking to invest in real estate, why not just save up the money to buy a property with cash? It’s not impossible you know. If you earn $60,000 a year and live on half of it, thereby saving the other half, it would only take you three years to save up $90,000. BOOM! That’s enough to buy a house where I’m living!
If hands-on real estate isn’t for you, then maybe REITs (Real Estate Investment Trusts) are a better option. These are essentially mutual funds for real estate projects just like Fundrise, but they come with lower fees and it’s much easier to buy in and sell your shares since it trades just like a stock.
If you’re still interested in real estate, but don’t love the first two options, then you’d probably enjoy Wealthsimple. Simply click the link, answer the questions, and they’ll recommend a solid investment in just minutes.
So let’s recap.
- Don’t invest in Fundrise
- Consider buying a rental property entirely with cash
- If you don’t want a cash rental, look into REITs through an investment company like Vanguard
- If you want a cheaper, slightly different option, invest with Wealthsimple.
Be Purposeful With Your Money
Don’t put your money into something just because of a flashy advertisement or because your friend swears by it (they’re probably clueless too). Take the time to learn about the investment for yourself. If you don’t understand the investment, don’t put money into it. It’s that simple.
Instead, think about where you want to be in life 10, 20, or 30 years from now. What do you need to do today to get to that life of your dreams tomorrow? You probably don’t need a fancy investment option that earns 20% a year to do it.
Nope, instead you should probably just:
- live on less
- invest more of your earnings into something simple that you understand
- do this for many years
It’s not exciting and your friends won’t be wowed initially, but when you reach a million bucks in your retirement fund from these seemingly simple moves, you’ll be more than satisfied.
What will you start investing in today?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.