Fundrise eREIT - A good investment?

[Mr. FI]

Hello,

Recently the real estate investment site Fundrise released a non-tradable eREIT open to accredited and non-accredited investors. Traditionally, non-traded REITs have had terribly high fees attached (like 8%-15%) and are illiquid for the most part.

However, with this offering, the fees (while still large if you're into index funds) are much lower and they make your investment liquid quarterly. The appeal is that obviously it's not exposed to the markets and secondly, has the potential for a pretty darn good return after fees and taxes.

I am looking to diversify my portfolio some more--most of my investments are in stocks and bonds with some in Prosper Loans as well. So I'm wondering if I'd be better off in like Vanguards' ETF REIT or try something like this. Minimum investment is $1000. You can see the FAQs and their Circular here: https://fundrise.com/education/faq

Any input is appreciated!

[protostache]

I am personally waiting until I see some sort of track record before jumping in. As of right now, all they've proven is that they can hire good marketers and raise some VC.

Edit after reading parts of the circular: liquidity only starts after 6 months. They'll pay the greater of $9.50 or the NAV per share with a minimum redemption of 25% of your total investment.

Also, just to be clear, this is a mortgage REIT. They won't be owning any properties, they'll just be writing notes to small commercial businesses. We, as outside investors, have zero visibility or control into what they actually plan on doing with our capital contributions.

For me this goes in the "too complicated" pile for now.

[Mr. FI]

I am personally waiting until I see some sort of track record before jumping in. As of right now, all they've proven is that they can hire good marketers and raise some VC.

Edit after reading parts of the circular: liquidity only starts after 6 months. They'll pay the greater of $9.50 or the NAV per share with a minimum redemption of 25% of your total investment.

Also, just to be clear, this is a mortgage REIT. They won't be owning any properties, they'll just be writing notes to small commercial businesses. We, as outside investors, have zero visibility or control into what they actually plan on doing with our capital contributions.

For me this goes in the "too complicated" pile for now.

They do have a track-record as far as their other investments go. They've been around awhile now, just dealing with accredited investors. Also, liquidity beginning after 6 months isn't a big deal--this would be a long term investment.

And I realize this is a mortgage REIT--but with I think, and I could be wrong, you don't really have any say on where investments go on any REIT. I would like to invest directly in a property, but currently, that platform doesn't exist for non-accredited investors.

Thanks for the input though!

[protostache]

I am personally waiting until I see some sort of track record before jumping in. As of right now, all they've proven is that they can hire good marketers and raise some VC.

Edit after reading parts of the circular: liquidity only starts after 6 months. They'll pay the greater of $9.50 or the NAV per share with a minimum redemption of 25% of your total investment.

Also, just to be clear, this is a mortgage REIT. They won't be owning any properties, they'll just be writing notes to small commercial businesses. We, as outside investors, have zero visibility or control into what they actually plan on doing with our capital contributions.

For me this goes in the "too complicated" pile for now.

They do have a track-record as far as their other investments go. They've been around awhile now, just dealing with accredited investors. Also, liquidity beginning after 6 months isn't a big deal--this would be a long term investment.

And I realize this is a mortgage REIT--but with I think, and I could be wrong, you don't really have any say on where investments go on any REIT. I would like to invest directly in a property, but currently, that platform doesn't exist for non-accredited investors.

Thanks for the input though!

That's fair. The company has only really been around since 2012 and have generated something like $138mil in VC, but I guess I haven't actually dug into their results. I just get their email marketing.

HomeUnion has a platform for investing in SFH and small complexes for non-accredited investors, but it's an entirely different animal.

[Mr. FI]

Wow,

yeah I had heard of HomeUnion but never got around to checking in to it. Definitely a different beast, but intriguing. Another platform that may open to non-accredited investors is GroundFloor--pretty similar but they only operate in 8 states at the moment.

[GGNoob]

I was incredibly close to tossing $5,000 into the eREIT to check it out. But I figured the $5,000 was not enough to provide much income and that my P2P investments provide just as much as Fundrise's other investments...so I tossed more into P2P instead.

[Mr. FI]

I was incredibly close to tossing $5,000 into the eREIT to check it out. But I figured the $5,000 was not enough to provide much income and that my P2P investments provide just as much as Fundrise's other investments...so I tossed more into P2P instead.

Yeah. I have some P2P investments as well, but the more diversified...just wondering if it's worth "dipping my toe" since I wouldn't make a large financial commitment to this right off the bat.

[DividendMoney]

I invest in Commercial Mortgages for a living. If you have any specific questions, I'd be glad to do my best to answer them.

FWIW - Liquidity is going to be a bit of an issue due to the nature of the investment. If you want the best returns, the fund has to be substantially invested. It can take some time to raise cash/sell mortgages.

[Mr. FI]

I invest in Commercial Mortgages for a living. If you have any specific questions, I'd be glad to do my best to answer them.

FWIW - Liquidity is going to be a bit of an issue due to the nature of the investment. If you want the best returns, the fund has to be substantially invested. It can take some time to raise cash/sell mortgages.

Yeah, I understand it's a long-term investment but it's knowing there is an option to move out of the investment if necessary. How do you invest in commercial mortgages specifically?

[DividendMoney]

I am part of a group that manages a Commercial Mortgage Fund.

[Jeremy E.]

Mortgage rates are like 2.5%-5%... there are also defaults
I don't know a lot about it, but I don't see it doing much better than matching inflation. Therefore the only use I see in it is to diversify.
I'm not very diversified currently, but if I wanted to diversify, I would want very liquid funds, so if over a short period of time the stock market dropped in price dramatically, I could sell non-stocks and buy more stock market funds. At the very least I'd want to rebalance annually. However with the prior, a lot of people would call that "timing the market".

[Mr. FI]

Mortgage rates are like 2.5%-5%... there are also defaults
I don't know a lot about it, but I don't see it doing much better than matching inflation. Therefore the only use I see in it is to diversify.
I'm not very diversified currently, but if I wanted to diversify, I would want very liquid funds, so if over a short period of time the stock market dropped in price dramatically, I could sell non-stocks and buy more stock market funds. At the very least I'd want to rebalance annually. However with the prior, a lot of people would call that "timing the market".

I think they would be able to do better than break even. If all these funds did was break even, I don't think people would see the appeal or invest.

Also, selling non stocks to buy stocks when they are low is not timing the market. It's a smart way to invest. Timing the market occurs when you're constantly trying to buy at the lowest point and sell at the highest point. Because the stock market is so hard to predict, it will eventually get you in trouble. All the costs associated with buying and selling add up as well. Better to get in the market and stay but purchasing extra stocks when prices are low is a good thing to do.

[Jeremy E.]

Mortgage rates are like 2.5%-5%... there are also defaults
I don't know a lot about it, but I don't see it doing much better than matching inflation. Therefore the only use I see in it is to diversify.
I'm not very diversified currently, but if I wanted to diversify, I would want very liquid funds, so if over a short period of time the stock market dropped in price dramatically, I could sell non-stocks and buy more stock market funds. At the very least I'd want to rebalance annually. However with the prior, a lot of people would call that "timing the market".

I think they would be able to do better than break even. If all these funds did was break even, I don't think people would see the appeal or invest.

Also, selling non stocks to buy stocks when they are low is not timing the market. It's a smart way to invest. Timing the market occurs when you're constantly trying to buy at the lowest point and sell at the highest point. Because the stock market is so hard to predict, it will eventually get you in trouble. All the costs associated with buying and selling add up as well. Better to get in the market and stay but purchasing extra stocks when prices are low is a good thing to do.

Assuming you had 10k in stocks and 10k in bonds, then stocks dropped 50% and you had 5k in stocks and 10k in bonds, then sold the 10k in bonds to buy all stocks, many people would call this timing the market and it's a debated subject. I would do something in this realm if I were to carry bonds anyway, but from my math, holding 100% stocks is more profitable.

[DividendMoney]

Investing in mortgages is basically an alternative to a bond allocation.

A higher return to compensate for the illiquidity vs. bonds - but, you also have hard security in the underlying mortgaged asset in the event of default. With a corporate bond, you have little, if any, hard underlying security.

On a risk adjusted basis, a diversified pool of mortgages should outperform bonds 9/10 times.

[Jeremy E.]

Investing in mortgages is basically an alternative to a bond allocation.

A higher return to compensate for the illiquidity vs. bonds - but, you also have hard security in the underlying mortgaged asset in the event of default. With a corporate bond, you have little, if any, hard underlying security.

On a risk adjusted basis, a diversified pool of mortgages should outperform bonds 9/10 times.

I think mortgage investing is close to as risky as corporate bonds, and much more risky than U.S. bonds. With mortgages, sure you can foreclose on the property, but what if there is a housing bubble and someone has a $2,000,000 mortgage balance on a $1,200,000 house? And then you find out tens of millions of people have a much higher mortgage balance than there house is worth. You then foreclose on the $1.2 million dollar house and it takes 2 years to sell it. With Corporate bonds, companys can go bankrupt, but they are forced to sell off there assets and someone with one of there bonds will generally still get x% of the bonds value. Usually it's like 70%+. Then there's U.S. bonds and other government bonds, much safer than corporate bonds and mortgage investing. But I'll be honest I don't think any of this matters because I think 100% stocks is the way to go, and they are much more risky than all of the above.

[Jeremy E.]

Mortgage rates are like 2.5%-5%... there are also defaults
I don't know a lot about it, but I don't see it doing much better than matching inflation. Therefore the only use I see in it is to diversify.
I'm not very diversified currently, but if I wanted to diversify, I would want very liquid funds, so if over a short period of time the stock market dropped in price dramatically, I could sell non-stocks and buy more stock market funds. At the very least I'd want to rebalance annually. However with the prior, a lot of people would call that "timing the market".

I think they would be able to do better than break even. If all these funds did was break even, I don't think people would see the appeal or invest.

Also, selling non stocks to buy stocks when they are low is not timing the market. It's a smart way to invest. Timing the market occurs when you're constantly trying to buy at the lowest point and sell at the highest point. Because the stock market is so hard to predict, it will eventually get you in trouble. All the costs associated with buying and selling add up as well. Better to get in the market and stay but purchasing extra stocks when prices are low is a good thing to do.

Bolded the flaw in your thinking.

You, and none of us, have any idea if prices are either high or low.  Market prices are just that, an equilibrium point between buyers and sellers.  This is fundamental to understanding investing.

Saying you know prices are high/low is basically saying you can time the market.  If you have this power you have no need to post on this forum.

There is no free lunch. A diversified portfolio still carries many types of risk, interest rate, economy, legal/fraud, etc.

At one time Puerto Rico Muni bonds were a tax free 'sure thing' income investment, backed by solid assets.  I have some Puerto Rico Electric power 5% triple tax free bonds I would be happy to sell you.  Care to establish a price? (Note: I greatly limit my exposure to these types of speculations now).

Fortunately I bought them when already distressed, but they carry very high risk, despite physical assets.

You can somewhat decide if stocks are priced low via the price to earnings ratio, personally I like the shiller cape.

[Jeremy E.]

You can somewhat decide if stocks are priced low via the price to earnings ratio, personally I like the shiller cape.

I think you are missing the point, but I will agree that market timing and value investing are two different approaches.  Both seek to buy assets that will rise in value.

My point more generally is that when you are trying to 'beat the market' you need to guess correctly that the market has under or over valued the asset vs a date in the future when you sell (unless you want the asset for other reasons than to sell at a profit).

My opinion is that the information to establish a value is already out there. History of market, momentum, asset values, earnings reports.  It's all there.  Unless you have superior information, the market has already decided the PE or CAPE that it feels best fits the future earning power of the asset.  What you now need to do is outguess that collective wisdom.

This is very hard to sustainably do.  Eastman Kodak's Historical PE is meaningless.  The company is defunct. I happen to have MSFTs income statement from 1979.  The roughly 100k in revenue and it's CAPE at the time had little to do with what my current stock is worth today.  Kodak could have bought MSFT for perhaps the revenue of about 1 minute in 1979.   The future is hazy for most of us mere mortals.

I was talking about the value of the whole U.S. market, not individual stocks, sorry for the confusion.

[Mr. FI]

Mortgage rates are like 2.5%-5%... there are also defaults
I don't know a lot about it, but I don't see it doing much better than matching inflation. Therefore the only use I see in it is to diversify.
I'm not very diversified currently, but if I wanted to diversify, I would want very liquid funds, so if over a short period of time the stock market dropped in price dramatically, I could sell non-stocks and buy more stock market funds. At the very least I'd want to rebalance annually. However with the prior, a lot of people would call that "timing the market".

I think they would be able to do better than break even. If all these funds did was break even, I don't think people would see the appeal or invest.

Also, selling non stocks to buy stocks when they are low is not timing the market. It's a smart way to invest. Timing the market occurs when you're constantly trying to buy at the lowest point and sell at the highest point. Because the stock market is so hard to predict, it will eventually get you in trouble. All the costs associated with buying and selling add up as well. Better to get in the market and stay but purchasing extra stocks when prices are low is a good thing to do.

Bolded the flaw in your thinking.

You, and none of us, have any idea if prices are either high or low.  Market prices are just that, an equilibrium point between buyers and sellers.  This is fundamental to understanding investing.

Saying you know prices are high/low is basically saying you can time the market.  If you have this power you have no need to post on this forum.

There is no free lunch. A diversified portfolio still carries many types of risk, interest rate, economy, legal/fraud, etc.

Yeah, I think the sentiment is, when the market is down, having available money to buy is a good idea. It was poor wording, and I don't really subscribe to any sort of timing at all. I just put a set amount into index funds each month. But I am aware that if stocks are having a down year, you get more stock for the same investment amount. But the day to day, month to month, even year to year fluctuations don't mean anything long term and that's where constantly trying to buy in or get out of the market gets you in trouble.