Fundrise eREIT Quarterly Liquidity Details and Redemption Process

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I’ve been putting some side money into crowdfunded real-estate investments – see here and here – and I am now closing out my Fundrise eREIT investment. An important difference between most of these private real estate investments and publicly-listed REIT is liquidity. On most any given weekday, I can sell my public REIT (i.e. VNQ) for a price that an open market deems fair and within few days I will have cash in hand.

The Fundrise Income eREITs are private REITs that take advantage of new crowdfunding regulations open to all investors (not just accredited investors). The intended time horizon of this investment at least 5 years, but they also advertise “quarterly liquidity” as a feature (see below). I was interested to see how this feature worked, as many of the other asset-backed loans in which I am invested could take a year or longer to get my money back. I decided to test out this “emergency hatch”.

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The rules. You are allowed to make a redemption request once per quarter. For the full details on Fundrise quarterly redemption plans, please see the section of each eREIT Offering Circular titled, “Description of Our Common Shares—Quarterly Redemption Plan” at this link. It’s pretty dense, and I will only highlight this table which includes the “early withdrawal penalty” imposed if you redeem your shares within 5 years.

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In other words, if I redeem now after one year, I will pay a 3% penalty on the current net asset value (NAV). The NAV itself is a complex calculation of the underlying assets that I believe is only updated to investors once a quarter.

Note that you are not guaranteed to have liquidity of all your shares. If too many shareholders request liquidity at the same time, that might force them to sell assets at large discounts and harm other shareholders. Here is an excerpt from the Offering Circular:

Q: Will there be any limits on my ability to redeem my shares?

A: Yes. While we designed our redemption plan to allow shareholders to request redemptions on a quarterly basis, we need to impose limitations on the total amount of net redemptions per calendar quarter in order to maintain sufficient sources of liquidity to satisfy redemption requests without impacting our ability to invest in commercial real estate assets and maximize investor returns.
In the event our Manager determines, in its sole discretion, that we do not have sufficient funds available to redeem all of the common shares for which redemption requests have been submitted in any given month or calendar quarter, as applicable, such pending requests will be honored on a pro rata basis. […]

Redemption Process. The process of requesting a quarterly redemption was straightforward. Here’s a step-by-step rundown:

  • Contact Fundrise support and request a redemption (3/6 in my case). You need to make this request at least 15 days prior to the end of the applicable quarter.
  • They asked the reason for my redemption, and I told them. You don’t need to supply a reason, they just wanted feedback.
  • They sent over the official redemption form, which I was able to read and complete online. I received an e-mail confirmation of my redemption request.
  • At the end of the quarter (3/31 in my case), I received another e-mail confirmation that my redemption request was processed.
  • 12 days after the end of the quarter (4/12 in my case), I received another e-mail confirmation that the funds were being transferred to my bank account.

Complete Investment Timeline. Here’s a summary of cashflows from beginning to end.

  • December 29, 2015. Invested $2,000 into Fundrise Income eREIT (200 shares x $10 a share).
  • Held for 15 months. Received 5 quarterly income distributions on a timely basis in April, July, October 2016 and January, April 2017. Total of $234.79.
  • Early March 2017. Requested redemption of all 200 shares as of the end of quarter 3/31/17.
  • April 12, 2017. Received $1,908 in principal back. 100% of NAV would have been $1967.

Screenshot:

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So I invested $2,000 and after 471 days I collected a total of $2,142.79 for a total gain of 7.14%. The annualized return works out to 5.49%. That’s not amazing but better but not bad considering that I am basically bailing out of a 5+ year investment after only a year. I’m pretty confident that my returns would have been better if I waited out the full 5 years as real estate ownership investments take time to work out. (Traditional non-traded REITs are infamous for having huge penalties for early withdrawals where you get back less than 90 cents on the dollar.)

Hopefully this post answers some questions about the liquidity of Fundrise eREITs. If daily liquidity is important to you, I would still stick with publicly-traded REITs.

Bottom line. The Fundrise Income eREITs are meant as long-term investments with time horizons of at least 5 years. However, they advertise the availability of limited quarterly liquidity. I tested out this liquidity feature and was able to cash out subject to a 3% discount from net asset value. I would not recommend using this option unless necessary as it will significantly impair your overall return. In an extreme case, you might not be able to redeem early. In my case, my annualized return (after all fees and penalties) worked out to 5.49%. New investors can sign up on the Fundrise Income eREIT waiting list here.

Buy, Hold, Rebalance a Globally-Diversified Portfolio 2017

When I think about it, I am impressed with how different 2017 feels compared to when I started seriously learning about investing in 2003. Instead of only reading about it in few books mostly read by finance nerds, nowadays nearly every robo-advisor out there uses a globally-diversified mix of low-cost ETFs to build their portfolios. What used to be a relatively quiet alternative to buying 4-star active funds is now becoming the default choice.

We’ve seen from the Callan Investment Returns Table that the best-performing asset classes constantly change from year to year. In a industry magazine called Investments & Wealth Monitor, there was an article titled Why Global Asset Allocation Still Makes Sense by Anthony Davidow. (Found via AllAboutAlpha.)

Here’s an illustration of how a globally-diversified portfolio has outperformed. Below is a graphic from the article comparing a 100% S&P 500 portfolio, and 60/40 S&P 500/US Agg Bond portfolio, and a “globally diversified portfolio” using historical data from January 1, 2001 to December 31, 2016. Index values are used directly as opposed to actual ETFs or funds. The portfolio are rebalanced annually back to target asset allocation.

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Their “diversified portfolio” had a rather finely-diced list of asset class ingredients:

  • 18% S&P 500 (US Large-Cap)
  • 10% Russell 2000 (US Small-Cap)
  • 3% S&P US REIT
  • 12% MSCI EAFE (International Developed)
  • 8% MSCI EAFE Small Cap
  • 8% MSCI Emerging Markets
  • 2% S&P Global Ex US REIT
  • 1% Barclays US Treasury
  • 1% Barclays Agency
  • 6% Barclays Securitized
  • 2% Barclays US Credit
  • 4% Barclays Global Agg EX USD
  • 9% Barclays VLI High Yield
  • 6% Barclays EM
  • 2% S&P GSCI Precious Metals
  • 1% S&P GSCI Energy
  • 1% S&P GSCI Industrial Metals
  • 1% S&P GSCI Agricultural
  • 5% Barclays US Treasury 3–7 Year

I do wish this portfolio was a bit more simple and easy to replicate. However, if you take a step back, you could simplify this asset allocation into the following:

  • 56% Global Stocks (50% US/50% Non-US)
  • 5% Global REIT (60% US/40% Non-US)
  • 34% Global Bonds (70% US/30% Non-US)
  • 5% Commodities

Now, we can’t necessarily expect a global portfolio to always outperform. One thing is usually doing better than another thing you own. Most recently, US stocks have outperformed International stocks quite significantly. Here’s an explanation from the article about the “free lunch” of diversification:

Diversification strategies do not guarantee capture of profits or protection against losses in any market environment, but they have been shown over time to provide a smoother ride. Rather than bearing the brunt of the 2000 Tech Wreck and the 2008 Great Recession, the diversified portfolio provided cushioning under the large market drop and was able recoup losses and grow over time.

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