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There’s No Such Thing As Passive Income
In a minute The Juice will detail the closest thing we’ve found, but despite it being all the rage, there’s simply no such thing as passive income. You’ve still got to work for income that you’re not actually working for. If that makes sense.
Dividend growth investing. We love it. We write about it all the time. However, don’t believe anyone who tells you it’s passive income. It takes a lot of work to build and maintain a dividend growth stock portfolio, especially if you’re looking to generate income to live off of to some extent.
Being a landlord. This might be the greatest fallacy of all. That if you own income property that generates cash flow in excess of your expenses, you’re earning passive income. Talk to a landlord – even the ones who outsource management and maintenance – and they’ll tell you having residential tenants is an active process. It’s work.
We’ll go deeper into this notion of passive income in future installments of The Juice, but think about the landlord example.
There is a way – that’s pretty darn close to being passive – you can make money via, albeit indirect property ownership. And the kicker – it doesn’t take a lot of money. In fact, it takes pocket change to get started.
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Private Market Investing
Wanna Be A Landlord Without Buying Property?
In Monday’s Juice, we continued discussing private market investing with more examples of opportunities once accessible only to rich people, now open to pretty much all investors. In that installment, we featured one of our partners – Benzinga – and an article they wrote about non-traded REITs (real estate investment trusts).
You can own a part of large real estate portfolios by signing up on one of the platforms Benzinga mentioned. Fundrise might be the most interesting, given its super low minimum investment.
The Juice was curious, so we opened an account.
And, yes, it’s true!
A screenshot of our account balance – just $10 – right after signing up.
When you create a Fundrise account, it asks you some questions about your investing experience and goals. All pretty straightforward.
How proficient of an investor do you consider yourself? Are you looking for growth, income, or something else? How long do you want to hold your investment? Things like that.
We told them we have a pretty solid handle on the markets, we want income, and we’re in it for the long haul.
From there, Fundrise put our $10 into its Flagship Real Estate Fund, which consists of 64 properties.
Let’s take a closer look at the composition of Fundrise’s Flagship Real Estate Fund to see what we’re part owners in.
So, the largest allocation in this fund consists of “Core Plus” holdings.
You can mouse along the dark blue circle to see examples and click on each one for more details.
If you ask for more details, you see what stage of development the project is at and more about Fundrise’s position.
If you’re good with taking Fundrise’s word for it – trusting they know what they’re doing – the process is quick and painless. And, of course, you can continue to invest more money at any time or with an automatic investment option.
At this level, Fundrise considers us “starters.” Once you hit $1,000 invested, Fundrise upgrades your account to “basic,” which lets you set more precise investment goals, open an IRA through Fundrise, and invest money in Fundrise itself. At $5,000 invested, you’ll have a “core” account, which gives you access to a wider assortment of REIT investment options and the ability to get even more precise with your goals, factoring variables such as risk versus reward into the picture.
Dividends. Fundrise pays dividends four times a year in mid-April, July, October, and January. The company says dividends fluctuate and are not guaranteed.
Fees. Fundrise doesn’t have a long list of fees. Transactions are free, however you will pay a 0.15% advisory fee for access to the company’s online platform. Here’s what Fundrise says about this fee on its blog:
This means that over a 12-month period, you will pay a $1.50 advisory fee for every $1,000 you’ve invested with us. For the sake of comparison, Vanguard’s famously-low advisor fee is 0.20%.
You can read more about Fundrise’s fee structure here.
Performance. Here’s a look at how Fundrise has performed against the S&P 500 (SPY):
No negative signs is a good sign. However, when stocks do well, they tend to outperform Fundrise by a wide margin.
The Bottom Line: The Juice will keep our Fundrise account open for research purposes. We’ll follow up with you on performance and as we play around with the platform’s other features. As we learn things about Fundrise we find interesting, we’ll report back.
For now, we’re fans.
As long as you don’t need complete and precise control over what real estate you own as a Fundrise beginner, you’ll probably like the platform for its low minimum, ease of use, and straightforward presentation. If you invest more money with Fundrise, you get more control and access to more investment options.
The two big downsides of going through Fundrise instead of buying publicly-traded REITs?
One, you can’t go super finegrain and invest in REITs that only deal in specific sectors, such as healthcare or storage facilities.
Two, Fundrise investments are illiquid, meaning there aren’t nearly enough buyers and sellers to form a fast-paced, buy one minute, sell the next type of market, as is the case with REITs traded on public stock exchanges. So you could be stuck with your investment or forced to take a loss or pay a penalty if you want to liquidate your Fundrise investment.
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