Archives for April 18, 2018

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.