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