Fundrise Vs. Investing In Syndications Directly

Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes

Looking at getting into syndications as a passive investor. Does anyone have any experience with Fundrise or any other crowd funding sites? Was interested to see the pro's & con's of investing directly with a syndicator or a site like Fundrise.

2 Reply

125 views

Most Popular Reply

Ian IppolitoBusiness Member

Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes

@Dan Shelhamer,

I have both syndications and crowdfunding deals in my portfolio. In my experience they are essentially the same: Crowdfunding deals are basically syndications but done over the Internet.

The one main difference that I see is that the most experienced sponsors have a very enthusiastic investor base that they have accumulated over many years. So they don’t need to go to a Crowdfunding platform. So typically (although not always) the platforms have sponsors with less experience.

As far as Fundrise, I have interviewed many investors who have used that platform and many others. I think it’s a good choice if you are non-accredited and aggressive. On the other hand, if you are accredited, then there are many other choices with much more experience, much more skin in the game and/or much lower fees. If you are non-accredited and conservative, then in my opinion most of their options have too much risk and you will probably find other Crowdfunding/syndication deals a better match (like Blackstone real estate investment trust, BDREX etc).

The Real Estate Crowdfunding Review

View Page

3 Reply

See this reply in the discussion

21 Replies

Jump to latestLatest

Sort by

Sam Grooms
Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
7y
I invested through RealtyShares before they stopped taking new investments. I didn't like not having direct access to the sponsor.
1 Reply
Chase McArthur
Specialist · Washington, DC · Member since 2019 · 177 posts · 150 votes
7y
@Dan Shelhamer
Look into DST's (Delaware Statutory Trust)
0 Reply
Josh Oaten
Investor · Phoenix, AZ · Member since 2017 · 261 posts · 143 votes
7y
@Dan Shelhamer
I have been told that Crowdstreet is a good platform but I personally dont have any experience with it. I assist a firm that acquires 100-200 unit building. We are actively expanding into Phoenix and would be happy to talk with you more on this. Let me know
2 Reply
Evan Smith
Member since 2019 · 5 posts · 4 votes
7y
I personally like groundfloor over fundrise. I spread out my investment over a ton of properties and you can do it as a non accredited investor, but if you make a good income realize that you will be taxed at your income bracket so you might want to think about physical real estate instead. The big problem with online services is they just dont have a long term track record of multiple decades so you are taking a higher risk than owning property directly. Also with loans you are trusting their underwriting system heavily so do your own Due Diligence.
2 Reply
David Miller
Developer · Magnolia, DE · Member since 2017 · 75 posts · 28 votes
7y
@Dan Shelhamer One more thing. I have looked at fundrise and its underlying initial project.
0 Reply
Marcus House
Rental Property Investor · Woodbridge, VA · Member since 2018 · 87 posts · 26 votes
7y
@Sam Grooms I am curious. What kind of returns were you experiencing with RealtyShares?
0 Reply
Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
7y
@Dan Shelhamer,
I have both syndications and crowdfunding deals in my portfolio. In my experience they are essentially the same: Crowdfunding deals are basically syndications but done over the Internet.
The one main difference that I see is that the most experienced sponsors have a very enthusiastic investor base that they have accumulated over many years. So they don’t need to go to a Crowdfunding platform. So typically (although not always) the platforms have sponsors with less experience.
As far as Fundrise, I have interviewed many investors who have used that platform and many others. I think it’s a good choice if you are non-accredited and aggressive. On the other hand, if you are accredited, then there are many other choices with much more experience, much more skin in the game and/or much lower fees. If you are non-accredited and conservative, then in my opinion most of their options have too much risk and you will probably find other Crowdfunding/syndication deals a better match (like Blackstone real estate investment trust, BDREX etc).
The Real Estate Crowdfunding Review
View Page
3 Reply
Ronan DonnellyPro Member
Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
7y
Hi @Dan Shelhamer, passive investing as an LP can be a great way to invest in physical real estate investing where you pay a fee for somebody else’s experience.
I would suggest researching what market you wish to invest in and also which asset class or strategy (multi-family, retail space, self storage etc.). You can then look for sponsors that specialize in your area by networking on BP or by researching sites like the real estate crowdfunding review run by @Ian Ippolito or www.crowddd.com
I have invested through crowdfunding sites, as an LP and as a GP so feel free to DM me with any specific questions. Good luck!
[email protected]
3 Reply
Sam Grooms
Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
7y
Originally posted by @Marcus House:

@Sam Grooms I am curious. What kind of returns were you experiencing with RealtyShares?
They matched their projected returns, which was high teens. But like Ian mentioned, they're more geared to newer sponsors. They matched their returns, when the vast majority of experienced sponsors were outperforming. The sponsors in those deals made some rookie mistakes in their underwriting, which didn't allow them to outperform. Overall, I still had a good experience. Their reporting was top notch, which I appreciated (my prior career was financial reporting). Now that I'm on the sponsor side, I've been able to incorporate a lot of their financial reporting into our projects.
2 Reply
Lance Bloggs
Homeowner · Wilmington DE · Member since 2008 · 21 posts · 10 votes
7y
Originally posted by @Sam Grooms:

Their [RealtyShares] reporting was top notch, which I appreciated (my prior career was financial reporting). Now that I'm on the sponsor side, I've been able to incorporate a lot of their financial reporting into our projects.
Sam,
Given your background and what you learned, are you willing to share a bit here? A sample report or something that highlights how you think financial reporting should be executed.
0 Reply
Sam Grooms
Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
7y
Originally posted by @Lance Bloggs:

Originally posted by @Sam Grooms:

Their [RealtyShares] reporting was top notch, which I appreciated (my prior career was financial reporting). Now that I'm on the sponsor side, I've been able to incorporate a lot of their financial reporting into our projects.
Sam,
Given your background and what you learned, are you willing to share a bit here? A sample report or something that highlights how you think financial reporting should be executed.
Absolutely, I can tell you what they provided. I'm a little weary of posting the actual reporting on a public forum, since the sponsor's performance isn't public information. If you email me, I'll share it with you.
First, they provided actual performance vs budget. You'd be surprised at how few sponsors provide this, even though its not difficult to prepare. They also did a variance analysis for each line item in the P&L.
They did the same for quarter-over-quarter and quarter-to-quarter. These ones are a little more common, without the variance analysis.
They had very detailed CapEx updates. When each unit is expected to be renovated, what stage each renovation was in, how much was spent on it, the rent they were able to get on the completed ones, etc. All of this was provided in detail, as well as in the aggregate.
They also had a narrative describing where we're at in the overall business plan. How much value had been created. Updates on the exit strategy and timing.
Overall, they were very transparent, which is important.
1 Reply
Trevor Ewen
Rental Property Investor · Weehawken, NJ · Member since 2014 · 1k+ posts · 704 votes
7y
@Dan Shelhamer
The advantage of syndication is the same as the advantage of Bigger Pockets. Building relationships is powerful and can help you in a number of avenues, some outside of real estate.
Granted, I can't speak for the other side. I have never invested money in a Fundrise deal. I do appreciate the potential, and I think it will be an important part of the market moving forward.
2 Reply
Alina Trigub
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
7y
@Dan Shelhamer
My experience has been very similar to what others here said. When I started out as a passive investor, first and foremost I was interested to know more (all I could get) about the deal sponsors as I was only going to invest with someone whose strategy made sense for me and whom I’d have a respect for as a person. Back then I also signed up for a couple of crowdfunding sites but there was no access to GPs through those sites so I never invested through them.
It all comes down to what’s most important to you!
2 Reply
Dan ShelhamerPro Member
OP
Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
7y
Originally posted by @Evan Smith:

I personally like groundfloor over fundrise. I spread out my investment over a ton of properties and you can do it as a non accredited investor, but if you make a good income realize that you will be taxed at your income bracket so you might want to think about physical real estate instead. The big problem with online services is they just dont have a long term track record of multiple decades so you are taking a higher risk than owning property directly. Also with loans you are trusting their underwriting system heavily so do your own Due Diligence.
Great points brought up! Would you still be taxed at your normal income bracket if you invest directly with a syndicator? Also, with a platform like Fundrise or Groundfloor are you able to take a portion of the depreciation as well?
0 Reply
Dan ShelhamerPro Member
OP
Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
7y
Originally posted by @Ian Ippolito:

@Dan Shelhamer,
I have both syndications and crowdfunding deals in my portfolio. In my experience they are essentially the same: Crowdfunding deals are basically syndications but done over the Internet.
The one main difference that I see is that the most experienced sponsors have a very enthusiastic investor base that they have accumulated over many years. So they don’t need to go to a Crowdfunding platform. So typically (although not always) the platforms have sponsors with less experience.
As far as Fundrise, I have interviewed many investors who have used that platform and many others. I think it’s a good choice if you are non-accredited and aggressive. On the other hand, if you are accredited, then there are many other choices with much more experience, much more skin in the game and/or much lower fees. If you are non-accredited and conservative, then in my opinion most of their options have too much risk and you will probably find other Crowdfunding/syndication deals a better match (like Blackstone real estate investment trust, BDREX etc).
Ian, thanks a lot for the great info! As far as payout goes on these deals, is it cash-flow plus a larger return when the deal is refinanced and/or sold?
0 Reply
Dan ShelhamerPro Member
OP
Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
7y
@Ronan Donnelly thanks for the great insight! I will be reaching out to you!
0 Reply
Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
7y
Originally posted by @Dan Shelhamer:

Originally posted by @Ian Ippolito:
@Dan Shelhamer,
I have both syndications and crowdfunding deals in my portfolio. In my experience they are essentially the same: Crowdfunding deals are basically syndications but done over the Internet.
The one main difference that I see is that the most experienced sponsors have a very enthusiastic investor base that they have accumulated over many years. So they don’t need to go to a Crowdfunding platform. So typically (although not always) the platforms have sponsors with less experience.
As far as Fundrise, I have interviewed many investors who have used that platform and many others. I think it’s a good choice if you are non-accredited and aggressive. On the other hand, if you are accredited, then there are many other choices with much more experience, much more skin in the game and/or much lower fees. If you are non-accredited and conservative, then in my opinion most of their options have too much risk and you will probably find other Crowdfunding/syndication deals a better match (like Blackstone real estate investment trust, BDREX etc).
Ian, thanks a lot for the great info! As far as payout goes on these deals, is it cash-flow plus a larger return when the deal is refinanced and/or sold?
Dan, it depends on the strategy. If it is a more conservative core or core plus strategy (i.e. no or little improvements to the property), then the majority of the return is going to be from income. If it is value-added or opportunistic (i.e. heavier improvements or development) then the majority is expected to come from hoped-for price appreciation.
The Real Estate Crowdfunding Review
View Page
0 Reply
Chihiro Kurokawa
Rental Property Investor · Dallas, TX · Member since 2016 · 63 posts · 71 votes
7y
Hey @Dan Shelhamer,
I've been investing in the Fundrise Growth eREIT since July of 2016 which returned 17.3%, 14%, 2.9% and 11.9% for 2017, 2018, 2019 YTD and all-time, respectively. I'm also an LP in two syndicated real estate projects in addition to putting together my own syndication on a 128 unit about a month ago.
Fundrise pros are that's it's really easy and you can invest small amounts. Cons are that I have no idea who's running those deals which is something that's been mentioned already in this thread.
Passive investing pros are that I know exactly who I'm investing with and I've insisted on investing with people who are experienced, which to me means thousands of units under management and tens or hundreds of millions in acquisitions. I know them personally, trust them and can call or email them at any time.
And perhaps somebody can jump in to verify but I believe everything I've earned from Fundrise is taxed at the ordinary income tax rate whereas I'm showing massive paper losses on my passive investment due to accelerated depreciation. So a 11.9% nominal return from Fundrise is inferior to an 11.9% nominal CoC return in a syndication. Not to mention that the overall return after the project is sold is projected to be about 20% annually for the deal in which I am a passive investor. So there's simply no comparison.
One might argue that the Fundrise investment has a better risk profile which is true from a number of assets standpoint, but not necessarily true from a quality of manager standpoint because as many have mentioned I have no idea who's running those deals.
As an operator I think that knowing/liking/trusting the people I've invested with is paramount, so the jury is out on whether Fundrise is truly less risky.
Moving forward I intend to invest in my own deals (obviously) and passively invest my money in 506B and 506C syndications with operators I trust - it's a no-brainer.
3 Reply
Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y
Crowdfunding sites can be good if you want to get in with less money and don't want to go through the work of finding the sponsors. Traditional syndication companies are exactly the same, but typically have higher minimums and as mentioned often times have more experience - though, not always.
Both are a good option to look at, just make sure that you can talk with the main sponsor and vet them out yourself.
0 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
7y
Crowdfunding sites are for syndicator who can't raise their own capital and they have to pay an arm and a leg for it.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.