Fundrise, a real estate investment platform using Reg A+ to provide access to “eREITs and eFunds,” notes that their annual letter to investors (released in January 2021) had revealed that they rang in 2021 with an updated version of their proprietary fund infrastructure, “enabling the creation of a unified flagship product, which [they] intend to power the core of our investors’ portfolios going forward.”
Fundrise noted in an update:
“We believe this innovation should not only reduce the overall impact of cash drag on investor returns but also provide the potential for greater portfolio diversification over the long run. One quarter into ramp-up, we’re pleased to report significant progress toward this aim, having invested more than $110 million into real estate, totaling 846 rental units (768 existing and 78 under development) across both multifamily apartment and single-family asset classes.”
For Fundrise investors, whether they’ve recently joined the platform or have been investing with them for a long time, a considerable portion of any funds they’ve added to the platform has now been channeled toward the updated fund infrastructure, the blog post update confirmed.
It also mentioned that while Fundrise thinks the “potential returns are strong,” it’s also important to keep in mind that private real estate business plans “take time to begin to bear fruit.”
Fundrise added that the Coronavirus crisis has led to a lot of uncertainty regarding the future demand for urban apartments in expensive areas such as New York, Boston, or San Francisco. But “more affordably priced suburban apartment communities across the Sunbelt have generally experienced stable or growing demand during this period,” Fundrise claims.
They added that prices for these assets have increased during the past year, but they think that “opportunities to invest at (or below) current market prices continue to represent an attractive proposition from a risk-adjusted return perspective.”
Fundrise further noted:
“To put this into context, we find it helpful to look at current stock prices. As of March 31, 2021, the Shiller S&P 500 price-to-earnings (PE) ratio stands at 35.7. That is to say, if you were to buy into the stock market today, you would be investing at a 2.5% annual return in terms of the actual current earnings produced by the companies whose stock you are purchasing. The only time in US history when stocks have been more expensive as a multiple of earnings was leading up to the “Dotcom Bubble crash” of 2000.”
“In comparison, we expect the annual current earnings of our recent apartment acquisitions to be at least 4.5% of the price we paid for the investment (this is known as the cap rate in real estate investing terms). In other words, one could argue that apartments represent a better value investment than stocks. By paying a lower price for an investment relative to its earnings, one would expect a higher income yield in the near term, as well as the potential for greater appreciation over the long term to the extent that demand increases in the future (of course, all investments involve risk and there can be no guarantees of any returns).”
Fundrise added that each of their first two apartment investments adheres to a Core Plus strategy of “acquiring and operating stabilized, cash flowing real estate.” Fundrise says they now expect these properties “to begin generating distributions for investors in the coming months, once they’ve paid off typical acquisition and onboarding costs.”
To learn more about these updates from Fundrise, check here.