The Minority Mindset earns commission from this Fundrise endorsem*nt via the partner links below. All opinions are the author's.
Passive income is the holy grail of wealth-building strategies, but building it through real estate can be costly and time-consuming. My first crack at real estate investing left me with a leaking oil furnace, angry tenants, an empty bank account, and a firm resolve to make my future investments much more hands-off.
Luckily today, there are super easy and affordable ways to get all of the benefits of passive income through real estate, without owning a property or forking over an arm or a leg.
Apps like Fundrise allow you to generate passive income in private real estate assets called REITs through quarterly dividends and appreciation. Investors receive an average return of 8% according to Fundrise.
Let’s dive into exactly how Fundrise works, and how you can start generating passive income with real estate, without unclogging toilets.
How Does Fundrise Work?
Fundrise allows you to invest in real estate investment trusts (a.k.a. REITs). REITs are to real estate assets as mutual funds are to stocks — managers mix a lot of assets in one big pie, then offer investors slices of the pie so they can get access to all the ingredients. In the case of a REIT, these assets are apartment buildings, single-family rentals, vacant land, storage units, commercial real estate buildings, and other real estate assets.
Previously these private (i.e., not on the stock market) funds were only accessible to the rich and famous. With Fundrise, you can get a piece of the private real estate fund action at a fraction of the cost.
Dividends. Once you buy shares in one of Fundrise’s eREITs, you own a slice of all the apartment buildings, offices, and storage units the fund contains. Tenants of these buildings pay rent to the fund, which generates passive income for fund investors like you!
Dividends are typically distributed quarterly in April, July, October, and January. You can set your account to reinvest those dividends, which will add them back into your investment plan. As another option, you can pull out your dividend money to give you a stream of passive income. Even if the value of your shares goes down, you can still receive a dividend each quarter because the dividend is tied to the rent money paid, not the value of the shares or the assets the fund owns.
Appreciation. What’s more, managers work to improve the properties the funds hold, which increases the property values. This drives up the value of the REITs shares in turn. Each quarter, Fundrise will adjust your shares’ net asset value (NAV) to reflect how much the underlying real estate assets are worth.
Basically, Fundrise allows you to get many of the perks of being a landlord (rental payments and property appreciation) without having to swing a hammer, fix a toilet, or chase down overdue rent checks.
Just as you wouldn’t expect to see your house dramatically increase in value in a few months, appreciation takes time to show up in REIT investments. It can take months or years to see increased property value drive up the value of your shares.
It’s important to keep in mind that Fundrise shares are long-term, buy-and-hold investments, just as a duplex would be. In fact, if you plan to hold your investment for less than five years, Fundrise recommends you invest elsewhere.
How Much Do I Need to Invest in Fundrise to Generate Passive Income?
With most real estate investments, you need to pony up a hefty chunk of change. To buy my first real estate investment, I had to scrimp, save, AND borrow money from my father-in-law for the down payment.
If you opt for a Fundrise real estate investment instead of the typical landlording type, you can spare yourself an uncomfortable conversation with a relative or friend and get started for the price of a take-and-bake pizza.
Here’s a breakdown of Fundrise’s different levels of accounts, as well as the minimum and features for each one.
The Fine Print
*It’s worth noting that you can’t choose which REITs you invest in until you get to the Core level. You get a pre-set mix of real estate assets until you can choose what specific REITs you want to invest in.
Also, it’s worth diving in to understand the differences between the plan levels, and how important additional features really are to you. For instance, the Fundrise website notes that there is no substantial difference between the allocation of investments in the Standard and Plus plans at the time of this writing.
As someone deeply immersed in the world of real estate investing, it's evident that passive income is a sought-after treasure for wealth-building enthusiasts. The article discusses Fundrise as a platform that facilitates passive income through real estate without the hassles of property ownership. Let me break down the key concepts used in this piece.
Fundrise operates by allowing investors to participate in Real Estate Investment Trusts (REITs). REITs are akin to mutual funds for stocks, where a pool of assets is managed collectively. In this case, the assets includes apartment buildings, single-family rentals, vacant land, storage units, and commercial real estate. The platform opens up access to these private real estate funds that were traditionally exclusive to high-net-worth individuals.
The mechanism of generating passive income on Fundrise involves dividends and appreciation. Dividends are earned when tenants of the properties held by the fund pay rent. These dividends are distributed quarterly and can be reinvested or withdrawn as a stream of passive income. Unlike traditional stocks, the dividend is tied to rental income rather than the value of shares or underlying assets.
Appreciation is another avenue for returns. Fund managers actively work to enhance the value of the properties, consequently driving up the value of the REIT shares. This appreciation is reflected in the net asset value (NAV) of the shares, adjusted quarterly based on the underlying real estate assets' worth.
Fundrise positions itself as a means to enjoy landlord perks, such as rental payments and property appreciation, without the responsibilities of property management. It emphasizes a long-term, buy-and-hold approach, recommending investors to hold their shares for at least five years.
The article also outlines the affordability of Fundrise compared to traditional real estate investments. The platform offers different account levels with varying minimum investments. Notably, the Core level provides a pre-set mix of real estate assets, while the ability to choose specific REITs comes at higher levels.
Understanding the nuances between plan levels and additional features is crucial. The article mentions that, at the time of writing, there is no substantial difference in the allocation of investments between the Standard and Plus plans. This emphasizes the importance of investors diving into the fine print to make informed decisions.
In conclusion, Fundrise emerges as a user-friendly platform, democratizing access to private real estate investments and making passive income from real estate more accessible to a broader audience.
