Fundrise eREIT Quarterly Liquidity Details and Redemption Process

fundrise_logo

I’ve been putting some side money into crowdfunded real-estate investments – see here and here – and I have decided to test out the quarterly liquidity window of my Fundrise eREIT investment (review). 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”.

fundrise_ereit1

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.

fundrise_redeem

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:

fundrise_final

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 not bad considering that I am bailing out of a 5+ year investment after only a year. I’m 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. I received my money, as requested, in about a month. If instant/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. It worked as promised, howewer I would not recommend using this option unless necessary as it will impair your overall return. In an extreme case, you might not be able to redeem early. You can sign-up and learn about currently-available Fundrise eREITs here.

Comments

  1. Great post about your experience. I invested in Fundrise recently as well, so am always interested in your real estate crowdfunding posts. thanks!!

  2. Thank you for sharing your Fundrise experiment with us. I was contacted by them recently, and I am doing some due diligence on the service. Your articles have been helpful.

    It seems like an investment in Vanguard REIT fund would have netted 11% over that same time period. Having daily NAV fluctuations may have been stressful for some investors however- the fund investment swung from a loss of 10% to a gain of 18% to the current gain of 11%.

    It would be interesting to see how an investment would have done over a 5 year period.

  3. Thanks for sharing your numbers and your experience. I’m very interested in Fundrise and am trying to evaluate them as fully as possible.

    From a tax standpoint, the dividends are non-qualified, correct? Assuming a 25% tax bracket, doesn’t that take your return down to $107.09 for an actual annualized return of 4.12%? Still not bad when you consider that you exited a 5 year investment after 15 months.

    Also, can you (or anyone reading this) speak at all to the new ‘Fundrise 2.0’ platform? I know that you exited before it was launched but I was wondering if you knew anything about it. It looks like you are no longer able to invest directly in an specific eREIT but instead are investing in a predetermined allocation of their eREITs. Does anyone know if this is the case? Can you change your allocation easily/ever? Can you invest directly into a specific offering?

  4. Great writeup; thank you! The detail is very helpful and the fact that you actually redeemed and writing about actual experience counts for a lot. I’m trying to decide on Fundrise’s eREIT compared with RealtyMogul. RM only allows redemptions after one year, and then you can only redeem 1/4 each quarter. Fundrise seems more flexible.

Speak Your Mind

*