New Opinions On FUNDRISE REIT before I (maybe) sink some money into it?

[FIreSurfer]

Mint just advertised at me for these FUNDRISE folks - was intrigued, and while scouring the web for the good and bad on these guys (it's mostly good, not a lot of bad), noticed that no one had written here about Fundrise in quite some time.  Wondering if I should take that to mean it's not worth the time to write about ? And therefore my (or your) money?  It's being promoted as an alt. to PeerStreet, which I, like many here, find to be a couple years away -

Would appreciate any thoughts.  My paycheck savings religiously  goes into Vanguard, but I got paid unexpectedly for an old gig and wanted to give something else a try......
Conversely, would the Vanguard ReIT be a better way?

Thanks!
TTFIRENYC

[Interest Compound]

What's behind your desire to "give something else a try"?

[FIreSurfer]

Just putting everything into Vanguard every two weeks is kind of dull, I think I'm squarely in that grey zone MMM has described of being on the path to the goal, but finding it a bit boring.

Hence the allure of trying something a bit riskier, but perhaps with a higher return.....just with a grand or two -

However, I think your question may have answered my question.....

[arebelspy]

If you're bored, go skydiving.  Or whatever other thing you find thrilling.

Chasing yield is a poor idea because you're bored.

If you want to go outside of total market into some real estate for diversification purposes (not boredom), go buy a REIT.  (Fundrise's non-traded "eREITs" are very, very different from a traded REIT).

But run from the real estate crowdfunding websites.  Run far, and fast.

:)

[Another Reader]

If you're bored, go skydiving.  Or whatever other thing you find thrilling.

Chasing yield is a poor idea because you're bored.

If you want to go outside of total market into some real estate for diversification purposes (not boredom), go buy a REIT.  (Fundrise's non-traded "eREITs" are very, very different from a traded REIT).

But run from the real estate crowdfunding websites.  Run far, and fast.

:)

+1000

All the crap deals go to the crowdfunding people.  Savvy investors are flipping their dogs to these folks.  I cringe when I read the property details for these offerings.  The crowdfunders have to maintain deal flow to keep THEIR investors (lots of VC) happy.  Your interests are therefore not at the top of their list. 

Investing in real estate requires a high level of real estate knowledge.  Chasing yield in illiquid, poor quality deals that you do not understand is not a good plan.

[FIreSurfer]

Thank you all for talking me down off the "impulsive investing" ledge!  I'll take 3 votes against as a sign and stick with the Total Market----

I think it was the word "crowdfunding" that did it.....!!!!

[zazpowered]

I have 10k in Fundrise and 2.5k in RealtyMogul. I trusted them mostly because of their funding and I did quite a bit of research but I know that they are risky investments. I really like the concept though and I hope that they do well so that it becomes viable.

[Indexer]

Total stock already has REITs in it. Just about everything in the Vanguard REIT is also in the Total Stock index.

Oh, and just to jump on the bandwagon... investing should be boring.


If you already have VTSAX and you "really" feel an itch to add risk look at VEXAX. It is VTSAX minus the 500 companies found in the 500 index. In other words it is all the little companies in the US. It is still diversified so no need to worry about one or two companies causing a total loss, but it is normally much more volatile than VTSAX. Adding them together gives you the total market with a tilt towards the smaller companies.

If you want to add risk to your portfolio that is normally the only thing I'm ok with. You maintain broad diversification at a low cost, but you are more weighted towards the more volatile companies.

[mr_orange]

Fundrise is actually run by quality folks that used to run a better business model.  When they pivoted to Title IV investments a year or so ago and starting pumping this "eREIT" narrative things quickly went downhill.  The VC venom was in their veins, which is creating more and more misalignment. 

The better crowdfunding platforms will emerge during the next downturn.  There is a plethora of stupid money chasing any founder team around in the VC and angel investing industry right now.  I see this all the time at CTAN. 

Look for founder alignment as co-investors in projects presented and some ancillary business they're performing in addition to a strict marketplace model that generates viable cash flow for the platform.  This sort of business model is unlikely to be coupled with VC backing so I'd steer clear of any platforms with VC backing or sites that are run by brokers, people from the technology industry, lawyers, bankers, or other industries tangential to the sponsor industry.  Professional real estate investors that have the best deal flow will either:

1.  Want their own site and digital marketing, and/or
2.  Want an arrangement from the platform that creates alignment between the platform's backers/investors and the crowdfunding investors

These types of companies are rare, but they're not non-existent. 

[Another Reader]

Fundrise is actually run by quality folks that used to run a better business model.  When they pivoted to Title IV investments a year or so ago and starting pumping this "eREIT" narrative things quickly went downhill.  The VC venom was in their veins, which is creating more and more misalignment. 

The better crowdfunding platforms will emerge during the next downturn.  There is a plethora of stupid money chasing any founder team around in the VC and angel investing industry right now.  I see this all the time at CTAN. 

Look for founder alignment as co-investors in projects presented and some ancillary business they're performing in addition to a strict marketplace model that generates viable cash flow for the platform.  This sort of business model is unlikely to be coupled with VC backing so I'd steer clear of any platforms with VC backing or sites that are run by brokers, people from the technology industry, lawyers, bankers, or other industries tangential to the sponsor industry.  Professional real estate investors that have the best deal flow will either:

1.  Want their own site and digital marketing, and/or
2.  Want an arrangement from the platform that creates alignment between the platform's backers/investors and the crowdfunding investors

These types of companies are rare, but they're not non-existent.

These people are funding the next real  estate crash.  Cash in hand will allow you to pick up a lot of good assets on the cheap when it happens. 

[mr_orange]

These people are funding the next real  estate crash.  Cash in hand will allow you to pick up a lot of good assets on the cheap when it happens.

Respectfully, this is a rather trivial view of the industry.  Most platforms are operating under Title II of The JOBs Act or some coked-up Lamp NAL scheme.  These marketplaces are all catering to accredited investors who represent somewhere between 3% and 7% of our country's population.  This is hardly a recipe for a fintech-generated crash.  Real estate will follow the same cycle it normally does.  The amount of money circulating in the industry is trivial compared with the traditional funding sources at this point. 

Cash in hand will also count as a close to zero percent return and possibly a negative return in real terms until bargain prices are plentiful again.  Pick your poison. 

[Another Reader]

Like any other economic good, real estate is a marginal good.  When these folks go down, they will go down hard and fast.  They will take other operators with them.  IMO,  there's a good chance they will precipitate the next cyclical crash and make it deeper than it otherwise would be.   They remind me of the tax based limited partnerships of the late 80's. When the rules changed and they went under, they pulled down more than a few lenders.  Those folks had more than a little to do with the collapse of the savings and loans which gave us the RTC and the biggest sale on commercial real estate in my lifetime.

[mr_orange]

There are bankruptcy remote ways of structuring transactions.  Most of the platforms are operating with SPEs too and thus the success of the platform/marketplace is largely decoupled from the success of individual projects. 

Given that most platforms are selling minority interests to accredited investors I don't see it impacting the cycle much.  there certainly is some impact, but it won't be a RTC crisis precipitating event or another 2008. 

There are also a handful of platforms that know what they're doing.  They don't receive much fanfare and you probably won't read about them in Techcruch, but painting the whole industry with a single broad brush does MMM readers a disservice. 

[zazpowered]

There are bankruptcy remote ways of structuring transactions.  Most of the platforms are operating with SPEs too and thus the success of the platform/marketplace is largely decoupled from the success of individual projects. 

Given that most platforms are selling minority interests to accredited investors I don't see it impacting the cycle much.  there certainly is some impact, but it won't be a RTC crisis precipitating event or another 2008. 

There are also a handful of platforms that know what they're doing.  They don't receive much fanfare and you probably won't read about them in Techcruch, but painting the whole industry with a single broad brush does MMM readers a disservice.

Which platforms would you recommend?

[mr_orange]

I honestly haven't done a ton of studying of late and things change quite frequently given how early the industry is and how often the laws have changed.  This page has some good information to get you started:

http://www.therealestatecrowdfundingreview.com/how-we-created-the-site-rankings

CrowdStreet is run by brokers, which I dislike.  They seem to know what they're doing, but make sure you read through their documents.

Equity Multiple also seems like they know what they're doing, but the same caution applies.  We ran one of their deals through our underwriting about 6 months ago and it failed to meet our expectations for a number of reasons. 

If you start with Ian's top 20 or so sites here are things I'd look for:

1.  Co-investment by the platform; preferably with their OWN money and not money from investors into their operating entity
2.  A decent business plan for their platform where they can demonstrate how their operations cover expenses in the near-term
3.  People from the sponsor industry that actually know how to construct deals and/or underwrite sponsors
4.  A business model that will attract high quality sponsors and eliminate middlemen if this is desirable.  This is almost impossible with a marketplace-only business model

So basically:

-Skin in the game
-A viable business model
-Experience as an operator or in scrutinizing operators
-Some features that attract good sponsors