Choosing Your Path in Real Estate Investments: The Tug of War between Fundrise and Owning Rental Properties
Let’s Talk About Real Estate: Fundrise vs. Rental Properties
Getting into real estate investing can seem very intimidating given the large amount of money often required. It’s this very reason that platforms like Fundrise have become popular. They let people with a smaller budget enter the world of real estate investing. But how does it stack up against the traditional method of owning rental properties? Let’s delve into it.
Fundrise vs. Rental Properties: The Basics
The key difference between Fundrise and owning a rental property is that Fundrise is passive while the latter is not. When you invest with Fundrise, you don’t have to deal with the hassle of owning or maintaining a property. With rental properties, you’re the one managing everything unless you employ a property manager.
On Fundrise, you can start investing with just $10. This is in stark contrast to purchasing rental properties, which requires a significant amount in down payments and closing costs.
However, owning rental properties can be great for those willing to put in the time and effort because of the long-term potential. On the other hand, Fundrise is a simpler option for those who want a hands-off way to invest in real estate.
About Fundrise
Fundrise is a platform that allows anyone to invest in high-end real estate projects with as little as $10. Normally, these projects are only open to accredited, wealthy individuals. Fundrise uses investors’ money to fund a variety of real estate projects, similar to how a Real Estate Investment Trust (REIT) operates.
Alison Staloch, the CFO of Fundrise, explains that it used to require a significant part of one’s net worth to buy an investment property and prepare for a “second job” in managing the property. Fundrise offers a simpler solution that is attractive to both experienced and new investors, providing diversification, passivity, and low cost.
Getting to Know Rental Properties
Rental properties can be residential, commercial, or vacation properties rented out to tenants. Managing rental properties requires clear consideration of several elements including purchase price, potential rent, operational costs, and potential losses from tenant issues.
Despite the complexities, rental properties could provide a more lucrative investment compared to passive real estate or stock investing, especially if the property value increases over time. But, the performance of this investment greatly depends on market conditions and requires a lot of research.
Investment Minimums
The amount you need to invest in real estate can greatly determine whether the investment is feasible for you or not.
With Fundrise, the required minimum investment is a mere $10. They also have different membership levels, each requiring different investment totals that offer different benefits. The highest level, Premium, requires a $100,000 investment.
For rental properties, the minimum investment can vary quite a bit and depends on individual properties. Generally, you must put at least 20% down which, depending on the property, could range from $20,000 to $50,000.
How They Work
Fundrise handles every aspect of investment from property purchase to management, making it easy and hands-off for investors. It’s designed for long-term investments, generally holding investments for five years.
On the other hand, investing in rental properties requires hands-on input. From property assessment to signing paperwork, finding tenants, and managing the property, it’s all your responsibility.
Potential returns
Both Fundrise and rental properties offer potential returns. Fundrise has a good track record with an average annual return of around 5% to 23%.
Rental properties, if managed properly, have potential for greater returns. However, the overall profitability remains dependent on a number of factors such as location and market trends.
Pros and Cons
Let’s look at each briefly:
Fundrise Pros:
– Low entry cost
– Passive income
– Hands-free investing
– Access to commercial properties
– Diversification
– Opportunity for asset appreciation
– Limited risk
Fundrise Cons:
– Long-term commitment is required
– Illiquid shares
– No control over individual projects
– Higher membership levels needed for better features
– Some investments are not registered with the SEC
Rental Property Pros:
– Full control over property and location
– Potential for greater returns
– Rental income
– Ability to sell when desired
– Physical investment you own
Rental Property Cons:
– Large investment needed
– Risk of having no tenants
– Time-consuming management
– Possibility of problematic tenants
– Potential legal implications
In conclusion, Fundrise and rental properties serve different types of investors. Fundrise offers a low-cost, hands-off, and diversified way to invest in real estate, while owning rental properties gives you more control and potential for greater returns, but comes with its share of responsibilities and risks.
