Home Sweet In­vest­ment: Fun­drise In­tro­duces New Way For Mil­len­ni­als To En­dow Their Fu­ture Houses

ForbesWeekly - - NEWS - BY SA­MAN­THA SHARF, FORBES STAFF

Here’s an in­ter­est­ing idea: In­vest in the home you’ll want to buy in five years to­day.

That’s the crux of a new model be­ing rolled out this week by real es­tate crowd fund­ing startup Fun­drise. The Wash­ing­ton D.C. based com­pany is sell­ing shares in funds ded­i­cated to build­ing and re­mod­el­ing sin­gle fam­ily hous­ing in ur­ban lo­ca­tions. They’re call­ing the new ve­hi­cles “eFunds.”

“We need to fig­ure out ways to add sup­ply in the cities where peo­ple want to be, not force peo­ple to leave the cities be­cause they can’t af­ford to be there. That is what the eFunds are about,” says Fun­drise CEO and Co-founder Ben Miller. The funds “are a way to bring a gen­er­a­tion of peo­ple to­gether to change the power dy­namic, to change the fund­ing dy­namic” in the hous­ing mar­ket.

Fun­drise will launch the con­cept with two $50 mil­lion eFunds, one for Los An­ge­les and the other for Wash­ing­ton D.C. They re­ceived SEC ap­proval last month and have been build­ing up port­fo­lios of projects those cities, 100 in all. By the end of this year, Fun­drise hopes to have eFunds in ma­jor cities across the coun­try.

Like Fun­drise’s ex­ist­ing of­fer­ings of com­mer­cial and rental prop­er­ties, in­vestors will be able to join the eFunds for as

lit­tle as $1,000. Re­turns will come from the value added by de­vel­op­ment and also from any gains in the lo­cal real es­tate mar­ket. Fun­drise is there­fore push­ing this as a tool for fu­ture home­buy­ers, al­low­ing them cap­ture some of the gains on their even­tual homes to­day.

More­over, the goal is for a sub­set of the fund in­vestors to be­come own­ers of the very places their money is help­ing build. Fun­drise calls these “home­buyer in­vestors” or HBIs, and ar­gues these peo­ple will save by cut­ting out mid­dle men like tra­di­tional real es­tate agents. A sec­ondary goal of the model is to turn in­vestors into to ad­vo­cates for chang­ing cum­ber­some ur­ban build­ing reg­u­la­tions.

The whole idea is not so dif­fer­ent from one be­ing pushed by a small but grow­ing group of com­pa­nies that buy eq­uity from home­own­ers, which Forbes fea­tured in our re­cent In­vest­ment Guide. To­day, these star­tups are backed by in­sti­tu­tional in­vestors, which see owner-oc­cu­pied hous­ing as a hedge against in­fla­tion. Down the road, how­ever, there’s talk of open­ing this eq­uity up to every­day in­vestors as a way to di­ver­sify their hous­ing risk or in­vest in the hous­ing mar­ket of a place they hope to one day move.

More broadly, nu­mer­ous tech star­tups are at­tempt­ing to add liq­uid­ity to the hous­ing mar­ket or to mod­ern­ize the cum­ber­some sale process. Fun­drise’s ef­fort is unique in tack­ling the dearth of af­ford­able sup­ply, which many econ­o­mist agree is the big­gest is­sue in the hous­ing mar­ket to­day. Whether their model can make a dent in this mas­sive prob­lem re­mains to be seen, but it will be in­ter­est­ing to watch.

“There is a whole gen­er­a­tion of peo­ple who are fi­nally get­ting to home buy­ing age, fi­nally want­ing to buy homes,” says Miller, 40. “And they are dis­cov­er­ing that they can’t.”

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