This is a follow-up to my post about exploring the real estate crowdfunding capital stack. I have started an experiment to compare the equity side with comparison between a real estate crowdfunding start-up (Fundrise eREIT Starter Portfolio) and a mainstream real estate ETF (Vanguard REIT ETF) with $35 billion in assets. The question is essentially:
How will a concentrated basket of roughly 20 whole properties bought on the private market compare with an index fund tracking the largest public-traded REITs in the US over the same 5-year period?
Fundrise Starter Portfolio. Despite the “starter” title, 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. These private eREITs utilize recent crowdfunding legislation to own a basket of individual real estate properties. It is open to all investors (not restricted to accredited-investors) and has a minimum deposit of $500. You must buy shares directly from Fundrise, and there are liquidity restrictions as this is meant to be a long-term investment.
I purchased $1,000 worth of Fundrise shares on 10/20/2017. Specifically, 50 shares @ $10.00/share for the Income eREIT and 48.780488 shares @ $10.25/share for the Growth eREIT. Here’s a current screenshot as of 12/13/17 from my account page.
Here’s a map of locations for the current holdings. Most are apartment complexes, condominiums, and hotels.
Vanguard REIT ETF. 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 $85, not including an trade commission. I own VNQ 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. As of 12/13/17, the VNQ holdings are worth $995.95.
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 top 10 holdings as of 10/31/17 per Vanguard:
The Fundrise Starter Portfolio is waiving their advisory fees until 12/31/17 and will be 0.15% after that. Each underlying eREIT will also have their own internal fees 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.
Fundrise will announce dividend distributions on a quarterly basis, as well as provide updates to NAV, so I will probably update quarterly as well. I plan on holding onto this investment for at least 5 years. This will allow the investments to “play out” a bit and also avoid any early redemption fees.