Alex Pettee, CFA
Real Estate Crowdfunding vs. Real Estate ETFs
Promising efficient and low-cost access to private market real estate, more than 100 online real estate crowdfunding platforms have emerged over the last decade, raising billions of dollars from investors.
Fundrise and other real estate crowdfunding firms have begun to offer online non-traded "eREITs" marketed primarily to younger investors as a better alternative to real estate ETFs.
Both FINRA and SEC have issued warnings about non-traded REITs, noting their high fees, lack of liquidity, “dividends” coming from return of capital, conflicts of interest, and lack of transparency.
Beneath a slick website and marketing materials, these "eREITs" are just your average highly-levered and conflict-ridden non-traded REIT. To be fair, Fundrise spells out these risks on their offering documents.
While we love the concept of making private real estate more accessible, these firms make misleading claims when comparing their inefficient and high-fee nontraded REITs to low-cost real estate ETFs.