Fundrise Starter Portfolio eREIT vs. Vanguard REIT ETF Review – Updated April 2018

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Updated April 2018. This post tracks my experiment comparing a Fundrise eREIT portfolio and the Vanguard REIT ETF. In Fundrise, we have a start-up that bought a concentrated basket of roughly 20 properties chosen from the private market. In Vanguard, we have a one of the largest real estate ETFs in the world that owns a passive slice of 184 public-traded REITs. I invested $1,000 into both in October 2017 and hope to let them run for 5 years.

Fundrise Starter Portfolio background. Despite the name, the Fundrise Starter Portfolio is actually a simple 50/50 mix of their first two eREITs: the Fundrise Income eREIT and the Fundrise Growth eREIT. Learn about other Fundrise portfolios here. This private eREIT utilizes recent crowdfunding legislation that allows all investors to own a basket of individual real estate properties (not just accredited investors with high net worth). The minimum deposit is $500. You must buy shares directly from Fundrise, and there are liquidity restrictions as this is meant to be a long-term investment. Here’s a recent map of locations for the holdings. Most are apartment complexes, condominiums, and hotels.


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Vanguard REIT ETF background. The Vanguard REIT ETF (VNQ) is one of the largest index funds to invest in publicly-traded real estate investment trusts (REITs). You can purchase it via any brokerage account. You have the liquidity of being to sell on any day the stock market is open. A single share currently costs about $76, not including an trade commission. You are holding a tiny slice of (tens of?) thousands of office buildings, hotels, nursing homes, shopping centers, apartment complexes, and so on. Here are the recent top 10 holdings:

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Expenses. The Fundrise Starter Portfolio waived their advisory fees until 12/31/17 and is now 0.15% annually. Each underlying eREIT will also have their own internal fees and costs for managing the properties. The Vanguard REIT ETF has an expense ratio of 0.12%, with each public REIT having their own internal costs to manage their properties. Due to scale, I would expect the net effect of fees to be significantly higher for the Fundrise assets than for the Vanguard ETF. We will see if Fundrise can provide higher net returns for this concentrated holding.

Five-year time horizon. Both Fundrise and VNQ usually announce dividend distributions on a quarterly basis. Vanguard updates the NAV daily, but Fundrise only updates their NAV quarterly. Fundrise NAVs are only estimates as there is no daily market value available (similar to your house). Therefore, I plan on holding onto this investment for 5 years at the minimum. This will allow the investments to “play out” and also avoid any early redemption fees. I will withhold final judgement until both investments are cashed out, but will provide quarterly updates.

Fundrise Portfolio performance updates. Screenshot of my most recent statement:

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  • 10/20/17: $1,000 initial investment – 50 shares @ $10.00/share Income eREIT and 48.78 shares @ $10.25/share Growth eREIT.
  • 1/9/18: 2017 Q4 dividends of $17.98 total distributed. Total value $1,018.72.
  • 3/31/18: NAV values of $9.81/share for Income eREIT and $10.71/share for Growth eREIT.
  • 4/11/18: 2018 Q1 dividends of $16.13 total distributed.
  • 4/11/18: Total Fundrise value $1,049.44 (includes reinvested dividends).

Vanguard REIT ETF performance updates. I own VNQ and the mutual fund equivalent VGSLX (same underlying holdings) in my retirement portfolio, but will be using Morningstar tools to track the performance of a $1,000 investment bought on the same date of 10/20/17.

  • 10/20/17: $1,000 initial investment – 11.9545 shares at $83.65/share.
  • 12/27/17, VNQ distributed a gain of $0.012 per share, return of capital of $0.37 per share, and a dividend of $0.88 per share.
  • 1/9/18: Total VNQ value $971.45 (includes dividends). Share price $80.45.
  • 3/29/18: VNQ distributed a dividend of $0.71 per share.
  • 4/11/18: Total VNQ value $915.52 (includes reinvested dividends).

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The net asset value of the major US REIT indexes has dropped since 2018 started. Again, I wouldn’t put too much stock into the short-term movements as the accuracy of the Fundrise NAV is inherently limited, but this is the best information that I have available. Once a year has passed, I can also include a trailing 12-month yield.

You can learn more about all Fundrise eREIT options here. I have written about my past experiences in my Fundrise eREIT review and Fundrise Liquidity and Redemption review.



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Comments

  1. Jonathan – a neat experiment that I look forward to reading updates about! By the way, you wrote “As of 12/13/17, the VWO holdings are worth $995.95.” I believe you meant VNQ, not VWO.

  2. Looking forward to your results as well! I just invested in the Fundrise eReits and I’m considering the Vanguard Reit ETF as well. Hmm.. what to do..

  3. Jonathan – Do you have an update on this?

  4. Bouthazar775 says:

    I’m curious to see how this plays out.

  5. Posting for reminder of update, thanks for the leg work!

    Cheers

  6. Why would anyone want to own VNQ with the state of REITs in general and Commercial Property Real Estate specifically. VNQ has a nice yield no doubt about it but the share price has gone no where over the last 5 years and with the state of the Retail Industry and higher mortgage rates to come things can only get worse.

    • Shrug, my investment policy doesn’t time in and out of sectors. You could be right that the near-team outlook for REITs isn’t great. But as the saying goes, oftentimes you pay a high price for a rosy/cheery consensus.

  7. thanks for the comparison. as you said, too early to make conclusions, but i too am curious if Fundrise (and similar sites) live up to the hype. i too have invested in Fundrise since last year.

  8. “Despite the name, the Fundrise Starter Portfolio is actually a simple 50/50 mix of their first two eREITs: the Fundrise Income eREIT and the Fundrise Growth eREIT.”
    ___

    I just opened a Fundrise account, and in my account the Starter Portfolio is a 33.333/ 33.333/ 33.333 mix of 3 different REITs, one for the east coast, one for the west coast, and one for the “heartland”– i.e., 3 not 2, and differentiated by geography not by investment style.

    On another note: why the comparison with VNQ, which is not a REIT but a BASKET of REITs? A better comparison would be to compare Fundrise with a single company, e.g., one of the REITs that is actually held inside the VNQ ETF basket.

    • Thanks for the info. Perhaps my REITs were fully funded and now the new money is being shifted to those newer REITs.

      I could compare with a specific REIT, but which one? Why that one and not another one? I think a VNQ is a better comparison because many more people hold VNQ in their portfolios than any one REIT. It is a more common alternative, like comparing a single stock to the S&P 500 and not just Apple or ExxonMobil.

      • how about comparing fundrise with NLY ?

        • You could compare them, but NLY is a mortgage REIT that mostly owns a leveraged portfolio of mortgage bonds. I would think a better comparison would be with an REIT that holds a mix of commercial and residential properties.

      • I take your point about “which one” of the many REITs to compare to Fundrise, but I would respectively point out that you have been willing to pick one private REIT here (i.e., Fundrise) to compare to VNQ, and so I wouldn’t think it would be any more difficult to pick one public REIT to compare to Fundrise.

        If you compare VNQ to Fundrise, then obviously only one part of difference is the liquidity issue and consequent pricing issue; a major difference is that VNQ is not a REIT in the first place and, unlike Fundrise, doesn’t make any decisions about which properties to acquire. Rather, the management behind VNQ essentially just buys REITs in proportion to their market capitalization. It doesn’t take any specifically real estate expertise to manage VNQ, because the managers of VNQ don’t make any real estate-related decisions. That’s why I think comparing Fundrise to an actual REIT (one that is inside VNQ, no doubt) is the better comparison.

        I also would add that any investor who would be comfortable picking an individual company like Fundrise ought to be, in principle, comfortable choosing an individual public REIT over a *basket* of public REITs.

        As you say in your reply to Sam (on April 24), comparing Fundrise to a REIT with a mix of commercial and residential properties would be the way to go. I quite agree.

        On another note: have you ever looked at Emerging Trends RE Corp, which parters with the developer New Nordic? I have had a bit of money with them for a while. It’s far less diversified even than Fundrise but, like Fundrise, is all about illiquidity. It is most heavily focused on Thailand but also has branched out into other parts of Southeast Asia; it is not really about residential but more about hotel/ resort properties and is a play, especially, on growing Chinese tourism in the area.

        (Finally, let me add that I enjoy your blog very much).

        • I’m not against comparing against an individual REIT, but you’d just have to track dividends and reinvestment. With VNQ I can let Morningstar do the math for me. I notice Realty Income (O) a lot in individual portfolios. If I could find a good data provider we would compare that.

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