• Zach

Real Estate Investment #2 Update: Fundrise after 1 year


that little line there, that's a good direction

Over a year ago, I felt like I needed a real estate asset that wasn't correlated to the stock market. So, when the stock market went down, I wanted this asset to keep going up. In context that made sense, as 2018 had negative returns, and I wanted to limit volatility.


As you can see from the very real graph above, my account went steadily in the right direction. I started with an investment of $15,000 and by the end of one year, it was at $16,306. This amounts to a return of 8.7%, which is not shabby. This article will be about that experience: the purchasing, the dividends, the taxes, and my overall impression.


Purchasing

Super easy! I funded my account like I do my brokerage account. That means I sent money to my US Bank account, and from there did a wireless transfer straight into Fundrise. It took about 3 days for everything to get sorted out, which is pretty normal from my experiences investing in the stock market.


There were several different options that I could purchase. Growth, Blended, and Income. Based on my belief that due to my plans to retire overseas, I can have a higher percentage of dividend income before getting taxed, and I just like the idea of regular dividends, it makes me cozy wozy on the inside. So, obviously I bought the Income eREIT.


This didn't rely on appreciation, which as Paula Pant says, Appreciation is Speculation. I wanted cold hard cash flow, which I got. Basically, the Income eREIT is like investing in loans for builders and rehabbers, with a little bit of buying and holding thrown in for color. As those loans were paid off, that money was distributed to me in dividends, which were then promptly automatically re-invested to buy more shares, which should theoretically increase my dividend through the power of compound growth (but more on that to come).


One note of caution. This investment is not as liquid as other REITs. If you need the cash, you can't just press sell and get your money back. For a lot of people, this is a deal breaker. For me, I'm ok with letting this money ride for 5 years at least, hopefully longer than that, no matter what the market does. If I lose $15,000 it's not the end of the world, and if you do choose to invest with these guys, make sure you don't need the money for a while. You still can get your money out, but if you do it before 5 years, there's a penalty of 3% in the first year or two (sorry, I forget), 2% in the next year or so, then 1% in the 5th year. Even then, they do quarterly distributions of money pulled out early, because they need the money working in the fund.

Rating: 5 stars


Dividends


My dividends were "released" to me on time. The first one is a bit lower because I wasn't in the fund the entire quarter. I chose to get the dividends automatically re-invested as I don't need the income at this point.


The dividends are kind of weird to me. As you can see from the distribution above, the numbers kind of bounced around a bit. It started low, about $2.91 a day, then it bounced up and up to about $3.00, then $3.27, and reached a high of around $3.60 a day about June 1. (yes, there's a spreadsheet for this, and yes, I did spend a stupid amount of time on it, so yes, I gave up after I got the drift). Then, IT WENT DOWN! It went down to like $3.00 a day with no explanation. I thought it would keep increasing, as the dividends bought more shares, but nope. It's climbed a bit, back up to around $3.30 a day now, again with no explanation for the shifts.


The only thing I can think of is that periodically, the properties the fund is invested in will pay back the loans and stop paying interest. This happens fairly regularly, and then the fund finds new projects to invest in. Perhaps some of the loans paid off were ones paying a higher interest amount, so they were more motivated to pay off their loan or re-finance. When I say "they" here, I mean the builder who was getting the loan.


This, to me, is a major kink in my plan. I thought the dividends would keep going up as previous dividends compounded. But it's not as much of a straight line as I thought. Oh well, you live you learn, and now, you know too!

Rating: 3 stars


Taxes

Here, my information may be helpful, but also less helpful, because I'm in a pretty unique situation. I live overseas, and have no real taxable income due to the Foreign Earned Income Exclusion. I was worried that this might change that, as it's income. I also had heard that doing taxes for funds like this was really complicated, so I worried I was going to have to spend hundreds of dollars on an accountant who knew what to do with expats.


Then, Fundrise sent me an email in January, saying that Turbotax could automatically handle their tax forms. This turned out to be TRUE! While I was doing my taxes with Turbotax (this is NOT a paid advertisement, although it should be!), I just imported my 1099's from Fundrise and TD Ameritrade (my usual brokerage) and it did all the stuff automatically.


The double bonus was that I didn't have to pay the government anything, as I think I'm still under the threshold for paying income from dividends. PLEASE understand that I am NOT a tax professional, just that it worked for me, and instead of paying a ton of money to an accountant, I paid Turbotax $70 and they handled everything.

Rating: 5 stars


Overall Impression

This was easy, and I made money. It hasn't dipped in the last couple days with the coronavirus scare, so I'm happy with its ability to stay stable during times of volatility.

I'm not super pleased with the variability of the dividends, BUT, besides that, it's a great experience.

I'm going to keep my money in the fund for at least 4 more years. I want to see how it does in a legitimate downturn. I'm also using it as a buffer for downturns and like that role in my portfolio.


I won't be adding to my position though, beyond the re-invested dividends. The illiquid nature of it worries me a bit, it worries me exactly as much as it takes to leave my money in but not add more.

Overall Rating: 4 stars


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Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.

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