At the beginning of 2021, the team at Fundrise, a real estate investment platform using Reg A+ to provide access to “eREITs and eFunds,” had introduced an updated version of their proprietary fund infrastructure that “enabled the creation of a unified flagship product, which aims to reduce the overall impact of cash drag on investor returns but also provide the potential for greater portfolio diversification over the long run.”
As noted by the Fundrise team in a blog post:
“In our first quarter flagship update published in April, we reviewed the portfolio that we had built throughout the quarter and outlined our plans for scaling it up.”
Fast forward, six months into ramp up, Fundrise says it is pleased to confirm that there’s been continued “strong” progress in building out the portfolio, having invested over $264 million into real estate across a diversified portfolio comprising of multifamily apartment, single-family rental, as well as industrial asset classes.
As Fundrise progresses through its ramp up, they’ve decided to share an updated review of the portfolio that they have worked hard to build so far in 2021, and their plans are “to continue scaling and diversifying in the coming months.”
As Fundrise had shared in their Q1 2021 flagship update, their investments in rental housing, including apartment investments and single-family rentals, “stem from a belief that affordably-priced rental housing in growing areas will generate consistently strong returns.”
Although increased demand due to the impact of the COVID-19 crisis and improved financing due to lower overall interest rates has resulted in rising prices for suburban apartment communities in the past year, Fundrise says that they continue “to see opportunities to invest at (or in some cases below) current market prices that represent an attractive proposition from a risk-adjusted return perspective.”
In their multifamily strategy section, they looked at the current stock prices “to help provide some context for the prices paid for our stabilized, cash flowing apartment investments.” At that time, stock prices had been the most expensive “as a multiple of earnings that they had been since leading up to the ‘Dotcom Bubble crash’ of 2000.”
As noted by Fundrise:
“Since that update, stock prices have only grown more expensive as a multiple of earnings. As of July 1, 2021, the Shiller S&P 500 price-to-earnings (PE) ratio stands at 37.92. That is to say, if you were to buy into the stock market today, you would be investing at a 2.18% annual return in terms of the actual current earnings produced by the companies whose stock you are purchasing.”
The company added:
“As with our first two apartment acquisitions, we’ve continued to target expected annual earnings 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 significantly lower price for an investment when compared 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 noted.
They also mentioned that each of these apartment investments “follows a Core Plus strategy of acquiring and operating stabilized, cash flowing real estate.”
The company also noted:
“The first two properties that were added to the portfolio have just recently begun generating distributions for investors, and we’d expect that newer acquisitions will begin generating distributions as well once they’ve paid off typical acquisition and onboarding costs.”
For more details on these updates from Fundrise, check here.