This startup wants to turn your $5,000 real estate investment into $2.5 billion
It’s the motto high-net-worth investors live by: Invest in real estate.
In fact, the famous “Yale model,” which outperformed traditional stock and bond allocations for decades, allocates up to 20% of investment portfolios to real estate. Many people do this by investing in a house — never an office building or apartment building, let alone a skyscraper.
Why? Though commercial real estate is known as a great investment,historically outperforming stock and bonds, it’s had a high barrier to entry — access has always been restricted to billion-dollar investment funds run by Wall Street.
Add to that the fact that commercial real estate investing has been riddled with inefficient systems that get passed onto the investor in the form of higher fees and lower profit margins. But the internet has changed everything, and could alter the way we invest in real estate forever.
Bringing real estate investment to the people
In 2012, brothers Ben and Dan Miller founded Fundrise, a Washington, DC-based start-up, with one goal: Give everyone the ability to invest directly in the same real estate as multibillion-dollar institutions — online.
“The idea is pretty straightforward,” says Fundrise president Dan Miller. “Technology allows us to dramatically reduce costs and provide our investors with better returns.”
Fundrise’s online crowdfunding platform connects individuals with real estate investments in one convenient marketplace — side by side with millionaires. This allows the average investor to build out a real estate portfolio quickly and efficiently, with the opportunity to achieve higher returns.
In addition to being a more efficient process, lowering the barrier to entry to Fundrise’s platform gives investors access to the most desirable commercial properties in major US cities. For example, today on Fundrise you can invest $5,000 in the development of the skyline-defining 3 World Trade Center — a $2.5 billion deal. You can purchase a piece of what stands to be one of the most iconic buildings of the century as easily as you can buy a book on Amazon.
FundriseFundrise is hoping its crowdfunding technology will make traditional investment banks obsolete.
Fundrise is hoping its crowdfunding technology will do to traditional investment banks and Wall Street what the internet did to the travel, publishing, and taxi industries — make them obsolete.
Quality over quantity
The ability to produce strong returns while maintaining quality is not easy. Fundrise says there are 250 new deals submitted through its website each week. Of those, fewer than 1% meet their strict underwriting standards.
“The introduction of new technology into the process of finding quality real estate investments allows us to cast a much wider net,” says CEO Ben Miller. “We are able to find the needles in the haystack that others can't because of the sheer volume of opportunities we see.”
Unlike other investment startups such as LendingClub and Wealthfront, it’s not enough for the Millers to make the process more efficient. The company wants to open up an entirely new asset class worth an estimated $9 trillion to 98% of the population who have never invested in commercial real estate.
For investors, Fundrise's main draw is that it allows them to build build a low-fee portfolio of high-yielding real estate. "This gives me the ability to be in 15 different deals across the country, all from my laptop," says Mesh Lakhani, founder of Future Investor, an online education portal for alternative investments. "I have much better diversification, which reduces my risk. It's part of the income strategy for my overall portfolio."
Fundrise envisions a future where investing in buildings is as commonplace as owning stocks, where investors can shop an inventory of the best properties across the country without leaving their living room.
With an investor base of 50,000 and growing, that future doesn’t seem so far away.
