The Invention of REITs
In 1960, Congress passed a law creating Real Estate Investment Trusts (REITs). The idea behind creating REITs was to give average individuals the opportunity to invest in income-producing commercial real estate.
Since then, the number of investors investing in REITs has exploded. Today, an estimated 70 million Americans invest in and own shares of various REITs. Meanwhile, public REITs own and manage an estimated $2 trillion worth of real estate assets.*
Why Have REITs Become So Popular?
One simple answer is that REITs have performed well for their investors. Since 2000, the FTSE NAREIT All REIT index (an indicator of the overall REIT market) has enjoyed a 482% growth increase, while the S&P 500 total return since 2000 is only 80%.*
Another potential reason for REITs’ growth in popularity is that they tend to pay a higher relative dividend compared to most other publicly listed investments. This feature has made them particularly popular with retirees who are looking for a source of consistent stable income.
The Shortcomings of Today’s REITs
Today, there are two primary types of public REITs: Traded & Non-Traded.
Publicly traded REITs offer the benefits of being traded openly on an exchange, giving investors liquidity. However this liquidity tends to be priced into the value of the stock itself, aka a “liquidity premium”, resulting in lower relative returns for investors who otherwise would be happy to own the shares for the long-term.
The most commonly cited shortcoming of publicly traded REITs is that they are overly correlated to broader market volatility, meaning that the value may fluctuate up or down depending on how the rest of the stock market is doing. This can happen regardless of whether or not anything has actually changed with the underlying properties owned by the REIT.
Non-traded REITs, on the other hand, have grown in popularity because of the perceived consistent double-digit dividends paid to investors. However, these investments have recently come under heavy scrutiny due to the often large up-front fees charged to investors - and questionable practices around the disclosure of those fees. According to an Investor Bulletin by the Securities and Exchange Commission, up-front fees for a non-traded REITs are often times as much as 15% of an individual’s initial investment, which are some of the highest fees charged across the entire financial industry.
Fundrise eREITs- The Next Evolution in REITs
Fundrise eREITTM investments are the next evolution in real estate. The result of over a half-decade of learning, the Fundrise eREITs leverage technology and new federal regulations to offer investors the first ever low-fee, diversified commercial real estate investment available directly online to anyone in the United States, no matter their net worth¹.
Fundrise eREITs offer:
- Low minimums (typically $1,000)
- Quarterly Liquidity²
- Low Fees (roughly 1/10th the fees of similar non-traded REITs)
- Radical accountability
Fundrise’s first eREIT, the Income eREIT, aims to provide investors with consistent strong cash flow to be paid out through quarterly distributions.
Publicly launched on December 3rd to a waitlist of more than 16,000 people, the Income eREIT has seen a tremendous amount of interest from investors. The Income eREIT’s initial processing window exceeded expectations by more than 403% with the current wait list having grown to over 89,000 members (as of July 2016).
Since its launch, the Income eREIT has begun acquiring quality real estate assets around the country. You can see a sample of those assets here.
We are excited to see how well the Fundrise eREITs have been received. This evolution is a giant step toward our broader vision of a future where all investors can invest directly in real estate through one simple online platform.
It is our mission is to continue to innovate as we work towards achieving this vision. Stay tuned for our next big evolution!