When you are looking at getting into real estate crowdfunding as a non-accredited investor – as I am – there aren’t that many options out there. Two of the better-known ones are Fundrise and Cardone Capital. But which one of these two is the better choice for your first (or second) investment? Fundrise vs. Cardone Capital:
While Fundrise provides a lot of options and more flexibility, Cardone Capital will likely yield higher returns as well as great tax advantages. On the other hand, investing with Cardone Capital might be riskier because of less diversification and having your money illiquid and unavailable for at 7-10 years. If you are looking for higher returns and don’t mind a little more risk Cardone Capital might be the right option for you.
Let’s compare these two options in a bit more detail!
In this article I’ll look at what Fundrise and Cardone Capital is and how they work. We’ll also see some of the key differences regarding their investment process, the associated risk and possible returns.
What is Fundrise?
Fundrise is a real estate crowdfunding platform allowing non-accredited investors. Fundrise allows for a well-diversified portfolio of commercial and residential real estate at a low minimum investment.
The most common investment option Fundrise offers is closer to a REIT (Real Estate Investment Trust) than a real estate syndication. This means you will essentially end up buying shares of a trust that holds real estate rather than being a direct partner.
Fundrise does offer the option to invest e.g. in their national eFund which would make you a partner in their LLC, however, this offering represents but a small part of their overall portfolio.
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What is Cardone Capital?
Cardone Capital is a real estate syndication run by Grant Cardone. This syndication operates more like a crowdfunding platform as Grant aims to make large-cap real estate investments accessible to the layman.
With Cardone Capital you can invest in one real estate fund at a time. Each fund will hold a number of high-end residential real estate property in the southeastern United States, i.e. Texas, Florida.
As an investor, you will become a passive partner in the LLC owning and managing the fund. Rental income is then paid out to investors as distributions with a 65/35 split. You can read more about this here.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
Fundrise vs. Cardone Capital – Key Differences
|Holdings||–||$1.7B (7722 Units)|
Funrise’s minimum starting investment starts at $500 USD and goes up to $100,000 USD. These amounts vary by account type. In other words, the higher you are willing to invest initially with Fundrise the more features and options your account will have.
The only truly interesting distinction between the different account levels is that you need at least an “Advanced Account” to start investing in their eFunds.
Cardone Capital’s minimum investment is $5,000 USD across all funds. This might seems high initially to a novice investor, however, it is actually comparatively low. Other real estate syndications – such as Holdfolio – tend to start around $25,000.
Fundrise does make it easier to get started with their lower initial investment but this comes at a price: their more premium products and eFunds will not be available to you. I like Cardone Capital’s approach a lot better of having an equal minimum investment amount for everybody. However, for accredited investors who are looking to invest with Grant Cardone the minimum investment will be $100,000.
Investment Type & Holdings
Fundrise offers mostly eREITs to the public. These are comprised of nationwide real estate developments in the commercial and residential sectors. They have a large variety of different REITs available described as either income or growth investments. The income REITs seek to pay out higher regular dividends while the growth REITs are geared towards real estate appreciation.
Cardone Capital, on the other hand, operates solely in a fund structure. One fund usually comprises 3-5 high-end luxury residential properties made up of several hundred units which are held by an LLC. Their focus lies on investment properties in Florida and Texas. In total Cardone Capital manages some 7722 units with $1.7B of assets under management.
While Fundrise offers variety and nationwide investment possibilities, Cardone Capital is focused in on the states growing in population. Their offering speaks to me far more than Fundrise’s nationwide approach. Also, I couldn’t find any information on how many properties or units and assets are under management. Investing through an LLC instead of a trust also boasts a lot of tax advantages which we’ll get into next!
The basic difference between those two investment vehicles is the tax form you will receive. With Fundrise’s eREITs you are going to receive a 1099-DIV. This form is used to declare any dividends you receive. These dividends are then basically taxed the exact same way as any other capital gains and dividends you may receive from other stocks or ETFs (See: Are ETF dividends qualified?).
This negates one of the key advantages of investing in real estate over the stock market: taxation. Since a fund holding real estate operates like a company it can declare profits and losses. The depreciation of a property and any other maintance or improvement costs and thus be deducted from earning. This often results in a large paper loss with a tax shield of up to 85% or 90% of earnings.
In terms of overall returns, Fundrise advertises between 8-12%. This appears to be the combined returns of dividend payment and appreciation over time. While this number does appear slightly higher than what you would get out of the stock market (the S&P 500 average annual yield is 7.5%) it falls significantly short of the return that can be commonly expect in real estate syndication.
With an advertised IRR (Internal Rate of Return) of 15% Cardone Capital is setting the bar high. Grant Cardone aims to achieve this by 3x’ing the capital on the sale of property along with the monthly distributions of 6% annualized. If this goal will be reached is yet to be seen since none of the funds have been sold yet and closed. However, if this strategy holds up, Cardone Capital is the clear winner here.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
We’ve looked at some similarties between Fundrise and Cardone Capital but have also seen that there are many differences that set the two apart. In most areas Carone Capital emerged as my preference and Fundrise kind of fell short of my expectations. Especially when it comes to being able to invest in a specific set of properties as is possible with Cardone’s funds.
All in all, Fundrise is geared towards a slightly different audience and type of investor than Cardone Capital is. They want investors who like the idea of investing in real estate but don’t actually want to get depper involved in it – which is totally fine. In short they want you to think investing in real estate is like investing in the stock market.
If you are – like I am – a more ambitious and entrepreneurial investor, you will find the investment structure Cardone Capital provides a lot more appealing. There are some other players in this field as well, such as Holdfolio. I have talked about them before and written a more extensive review here.
You like the idea of investing in real estate and diversifying your portfolio? Then go with Fundrise.
Do you want more than the average return and actively research and take responsibility for your real estate investment decisions? Then choose Cardone Capital (or another real estate syndication).
What are your thoughts on Fundrise and Cardone Capital? Which would you choose?
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