Fundrise is an exciting new way to invest in real estate locally.
Overview. Two Washington, DC-based entrepreneurs and real estate investors/developers, Ben and Daniel Miller, have launched the Fundrise.com platform to facilitate the raising of equity capital for real estate transactions. In so doing, they are exposing once-inaccessible investment opportunities to any member of the general public with $100.00. It’s revolutionary.
How It Works. You go to Fundrise.com, select an Investment Offering (currently there is only one posted), and then learn about it by studying the wealth of information posted under the various headings: Overview, Tenant, Property, Neighborhood, Financials, and Benefits.
How To Invest. You must first be invited to be a member of the Fundrise community. You can request to be invited at the top of the webpage with the “Request Invite” button. My invitation came in under 24 hours.
Once you join, you can purchase shares in the transactions currently offered. (Always consult your professional advisors [and significant others] before making any investment…)
Voila! You’re a real estate investor.
Kudos to the Fundrise team for driving a positive change in the commercial real estate business.
Hey Bruce, I recently wrote about peer to peer lending over on my site – http://www.astudentoftherealestategame.com/2012/08/09/peer-to-peer-the-future-of-real-estate-lending/.
What I love about the Fundrise model is that it’s hyper-local, allowing local residents to shape their community. However, it’s also great from an investment standpoint; not only does it cut out all the middlemen, but it gives you access to investing in the area you know best, you’re own backyard.
I’m excited to see how this model evolves over time. I wouldn’t be surprised to see every bank launch their own peer-to-peer lending platform.
Hi Joe, agreed, this is an extremely exciting time in the world of real estate. The crash allowed many to totally re-think how things were being done and put forth improved methods.
Love the idea but hard to see how it is economical in practice. Although relaxed regulatory standards make it easier to offer shares to the public, you still must incur substantial legal fees to get started and cover the ongoing cost of accounting and taxes for hundreds to thousands of capital accounts, respond to investor relations calls, as well as transfer agent fees.
You raise a great point. There’s no question that P2P sites are efficient for the investor, but what about from the sponsor standpoint?
Any guess what the added cost would be from a legal and accounting standpoint versus a typical transaction with just a few LP’s?
I’d guess that the large number of investors adds about $25,000-$50,000 to expenses annually. I’d expect that legal costs would be about the same either way, but let’s assume $25,000 in legal. So if you have a $325,000 offering, your upfront cost would be around 7.5% of capital and your ongoing expenses would be approximately 7.5%-15% of capital (plus, say 3% of revenues for management fees).
However, if you’re doing a $325 million raise, the costs above wouldn’t change much and as a result it would make more sense economically.
This fundrise deal is an interesting test case, but to make it a business I’d guess that they would eventually look to buy and sell interests in larger, institutional sized properties or perhaps locally concentrated portfolios in a fund format.
I finally had a chance to look at their prospectus. They estimate legal/accounting startup costs at $50,000. The costs are paid by the investors and as a result, they’ll be diluted by 40% initially. So it may work for the sponsor, but for the investors it is not as attractive as it looks on the surface. See my post on it for more: http://www.fairlawncapital.com/1/post/2012/08/crowdfunding-for-real-estate-will-it-work.html
Hey Jason, I actually wrote about this in debt a few weeks ago. There are a few other P2P sites for real estate, namely Money 360. While from the investor standpoint I think this is great, but as @Fairlawn Capital mentioned, is it economical for the sponsor?
You can check out my post here – http://www.astudentoftherealestategame.com/2012/08/09/peer-to-peer-the-future-of-real-estate-lending/
Hi Bruce, wow, this is fascinating! Remember, Abhi was mentioning a friend of his has started something in this “crowdfunding” space in the UK. And I have been doing some research – lots of variations poised for launch – such as “upstart” started by an ex Google exec targeting college grads and their business idea. Hope you are well. We should catch up soon! Himmat
Bruce, as you would ask in any of your courses, what is the forecasted %IRR and multiple? Any info on the Fundrise team’s track-record?