Nolen has invested in private REITs and publicly traded ETFs as a part of an overall retirement savings strategy.
What Are Private REITs?
A real estate investment trust (REIT) is a legal entity that owns, operates, or finances income-generating real estate. By law, a REIT must return 90% of income collected from rents and other fees to investors each year. Under this legal umbrella exist both public and private real estate investment trusts.
Pubic vs. Private REITs
There are private REITs that are not traded publicly and public REITs (such as Gladstone Land - LAND), which you can trade on the open stock market through your brokerage account.
While publicly traded REIT's may be easier to buy and sell, they may not offer investors the same flexibility in terms of where their dollars are going—such as into which projects. Private real estate investment trusts may offer the ability to select geographic areas, types of homes, apartments, or commercial real estate you want to target, etc.
Which Is Best for You?
Deciding which one of these is best for you as an investor can be challenging. Publicly traded REITs are much easier to invest in, while private real estate investment trusts may have more barriers to entry for the average investor. Often a private real estate investment trust may require as much as $50,000 or more to become an investor and may require filling out multiple application forms.
The concept of the eREIT, as envisioned by Fundrise, is to make a private REIT accessible for a very low dollar amount to novice investors through their app-based investment platform.
Fundrise Fees vs. Private and Public REITs
When it comes to investing in any real estate investment trust, public or private, how much profit you're able to put in your pocket each year is partly a factor of how much fees you've paid the fund each year to manage and invest your money. Any REIT may charge investors annual management fees, transaction fees, sales commissions, and fees for carried interest. The amount of difference in these fees directly affects your overall return.
Why We Chose Fundrise
As a small investor, we chose to invest with Fundrise Real Estate Investment Trust because it offered the lowest overall fees of any competitors that we had researched. Fundrise charges a 0.15% annual servicing fee, along with a 0.85% annual management fee, for a combined annual fee of 1%.
In comparison, Blackstone Real Estate Income Trust, a competitor, has annual servicing and management fees totaling 2.1%.
All this means more money in our pocket at the end of the year, which is one reason we chose to invest with Fundrise.
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eREITs Offer Transparency and Low Barrier to Entry
Historically high returns were one thing that attracted us to the family of eREITs offered by Fundrise, along with the fact that there was a very low minimum investment.
Installing the App and Investing Our First $10
After installing the Fundrise app on our phone, we made our first investment of $10 into a starter portfolio, all of which took only about ten minutes. We were easily able to see which projects our investment would be going to, along with photos and locations of the multi-family or single-family housing projects that were being constructed.
More Investment Options Available
As the balance within your Fundrise account grows, so do your chances of participating in more diverse investment opportunities. There are five levels at which you can participate in Fundrise - Starter ($10), Basic ($1,000), Core ($5,000), Advanced ($10,000) and Premium ($100,000).
Within the higher account levels are more opportunities for diversification, including access to special projects and choice of geographic area. For more info on these membership levels, you can visit the Fundrise website.
Pros and Cons of Fundrise
- Open to non-accredited investors (high net worth individuals meeting certain SEC criteria)
- Very low investment minimum - only $10
- Various Investment options
- Easy-to-use app and website
- Better than average returns (17% average in 2021)
- Must be traded through the app or website, not available through a brokerage.
- Premature withdrawals may incur penalty fees.
- Some investment opportunities only available to higher account tiers.
We've been investing in eREITs through Fundrise now for just over a year. So far, we're very happy with our returns, which have outperformed the stock market during the most recent downturn by more than 10%. Investing is as easy as opening the app and adding a few dollars each day to our account.
Please note that any investment of this nature could result in loss of some or all of your principal. Please be sure to read all disclosure statements regarding risks when investing in any real estate investment trust.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Nolen Hart