Syndication, the coming together of individuals to make a group investment, has been a historically profitable investment model. However, while conceptually simple, these investments have either been unknown or unavailable to the average investor. New online platforms such as Fundrise are changing this. But is investing in Fundrise the same as investing in a private syndication? This is not a review of FundRise but rather a comparison of Fundrise vs private syndication.
What types of investments does Fundrise offer?
Fundrise is an online crowdfunding platform that allows investors of all levels to invest in real estate. They offer two investment types. Electronic Real Estate Investment Trusts (eREIT) used to invest in portfolios of commercial real estate such as multifamily, Hotel, Retail, or Office and Electronic Funds (eFund) which invests in portfolios of single family housing for development, rental or flipping.
How are Fundrise and syndications similar?
Fundrise and syndications allow investors to earn passive income from real estate investments. They both pool together funds from a group of passive investors to acquire assets. Investors then share in the profits from the asset’s rental income and sale.
Real estate in general is an illiquid investment so no surprise here, Fundrise and syndications are both illiquid. You should be in it for the long run. This doesn’t mean you can’t get your capital back before the investment matures. It just means it is not guaranteed. Some see this as a disadvantage but not being able to buy or sell quickly creates greater stability in the real estate market than is seen in the volatile stock market.
With both, you have the opportunity to invest both in debt or equity positions. All investing carries risk and while both Fundrise and syndications offer great returns, neither is guaranteed.
What are benefits of Fund Rise over syndication?
What’s great about Fundrise is that it reduces barriers to entry into real estate investing. You can start with as little as $500 - $1000. Syndications often require $50,000 commitments or more.
"You can start with as little as $500 - $1000. Syndications often require more
There are also opportunities for all investors regardless of accreditation status, not just for your rich uncle. This is the biggest advantage of Fundrise over syndication. You can test the waters without putting much capital at risk or being independently wealthy.
While both Fundrise and syndications are illiquid, you can withdraw from a Fundrise investment in the first 3 months without consequence. After this you will incur fees. The process to withdraw from a syndication varies between investments and depending on dollar amount invested may take longer to withdraw.
What are benefits of Syndication over fund rise?
Private syndications are often focused on acquisition of a single asset. You also meet the team members/ sponsors who will be putting your hard-earned money to work. This puts more power in the hands of the passive investor as you are directly choosing the deals and sponsors, you want to invest in.
Syndications also allow you to experience more of the advantages of investing in real estate due to tax implications. Both Fundrise and private syndications utilize depreciation. In a private syndication, tax benefits directly pass through to investors. Due to the structure of Fundrise you are not able to directly benefit from this pass through of depreciation. Syndications offer cashflow distributions that may potentially be tax free (or deferred) while Fundrise offers less tax efficient dividends. These dividends are taxed as ordinary income whether you reinvest them or not.
Private syndications also give you direct ownership of the asset. The eREITs Fundrise offers are like investing in REITs on the stock market without equal liquidity to the stock market.
Think orange tree vs orange juice. Syndications would be the orange tree and eREITs/REITs the orange juice. Now orange juice you can buy at the supermarket. If you get home and decide you should’ve gone with grape you can head back to the store and return it -If you have the receipt. That’s a liquid investment (no pun intended). Owning the tree allows you to enjoy all the benefits, the shade from its leaves like a tax shelter. You can have the whole fruit or make juice. How hard would it be to sell that tree? That’s an illiquid investment. The tree, like a syndication, exchanges liquidity for many added benefits.
Decide what’s right for you
Fundrise and private real estate syndications both offer opportunities to earn true passive income. Fundrise is not the only platform of its kind. It shares many of the qualities of other crowdfunding platforms as well as traditional REITs. It can be confusing to decide which one is the better option for you. Fundrise or private syndications? Depending on where you are financially the decision may be an easy one to make. If you can do both, hopefully this comparison has clarified the differences between Fundrise and syndications and helped you in deciding which is right for you.