Fundrise vs. REITs: Fees
Many REITs have internal managers. Thus, investors aren't paying any fees to an external manager who oversees the real estate portfolio. Instead, they pay the REIT's management team.
On the other hand, Fundrise serves as the external manager of eREITs and eFunds on its crowdfunding platform. Investors typically pay Fundrise an annual investment advisory fee of 0.15% of their investment on the platform. On top of that, the eREITs and eFunds pay a 0.85% annual management fee. These fees eat into an investor's return. However, they're relatively low compared to other real estate crowdfunding platforms and private real estate investments. Though, they're much higher, for example, than the 0.12% expense ratio of the Vanguard Real Estate ETF (NYSE: VNQ), a leading real estate exchange-traded fund (ETF) focused on publicly traded REITs.
Fundrise vs. REITs: Strategy
There are two types of REITs: Equity and mortgage REITs. Equity REITs own a portfolio of cash-flowing real estate, while mortgage REITs invest in pools of loans backed by residential or commercial real estate. Most equity REITs concentrate on one of the following property types: residential, office, industrial, healthcare, self-storage, retail, infrastructure, timberland, hospitality, data center, diversified, and specialty.
That allows investors to choose a REIT based on its strategic focus. For example, if they want to invest in the fast-growing data infrastructure segment, they can purchase a data center REIT. Meanwhile, if they want broad exposure across many property types, they can invest in a diversified REIT.
Fundrise has offered a broad range of commercial real estate investment opportunities in the past, including loans backed by real estate. However, it has homed its focus in recent years on investing in affordable housing across the Sun Belt region. Because of that, its current offerings would only appeal to investors seeking exposure to that megatrend.
REITs vs. Fundrise: Which has the better historical performance?
Publicly traded REITs have been excellent value creators over the very long term. As measured by the FTSE Nareit All Equity REIT Index, REITs have outperformed large-cap stocks (Russell 1000 Index), small-cap stocks (Russell 2000 Index), and bonds (Bloomberg Barclays U.S. Aggregate Bond Index) during the last 10-, 15-, 20-, 25-, 30-, and 40-year periods. Overall, REITs have produced double-digit total annualized returns during most periods.
While Fundrise hasn't been around as long as many publicly-traded REITs, the platform as a whole has a solid track record of growing investors' wealth: