Building Passive Income with Fundrise

After reading the four-hour workweek, passive income became one of my main financial goals. It opens up time for creative/humanitarian/intellectual/familial pursuits without sacrificing financial stability. These pursuits take lots of time to yield anything of value, which is usually eaten up by a garden variety 9-5 job. 9-5 jobs are great for earning income and contributing a valuable good or service to society, but they are not good for your schedule. Passive income provides a solution to this age-old dilemma of time versus money.

       Passive income is different from your wages because you accumulate it regardless of what you are doing with your time. After you work at your company, you are periodically compensated for the amount of time or specific task(s) you have completed. With passive income, you could be hopping from country to country sipping cappuccinos and still be earning money. This does NOT mean that passive income requires no time investment. In fact, it requires a lot of time. The caveat is that most of the time it requires is upfront. Once you set up your passive income stream, it takes little energy to keep it going. 

       There are generally two ways to earn passive income. The first is to create a valuable good or service for society which doesn’t require continued attention upon completion. The second is to own something of value that other people use for interest. While I plan to write on both topics, this article is about the latter. It is much simpler and an easy first step towards the lofty goal of creating a passive income stream.

       As a first step towards passive income, I chose real estate. There are so many things out there to invest in, but many of them are too opaque to understand easily. Real Estate is a tangible product that you can own. However, it is expensive to own even a single property. That is why I have chosen to include Real Estate Investment Trusts (REITs). These take your investment and spread them across multiple properties and multiple kinds of real estate. They then give you the returns from rent proportional to how much you own. Relative to other forms of investment, it is quite transparent and easy to understand.

The company I use to facilitate these purchases is called Fundrise. For very low fees, they distribute my investments based on their market research. They have a nice write up on how their fees are calculated here. Upon signing up, they have three investment plans to choose from which will determine how they distribute your money. They are Supplemental Income, Balanced Investing, and Long-term growth. Because my goal is to create a passive income stream, I chose the Supplemental Income plan. However, a portion of my returns are not rental income, but capital gains. I will get into the nuts and bolts of this soon.

Sampled above are some of the properties and areas that are included in my portfolio. At the time of writing, Fundrise only invests in U.S. real estate. So, there is risk in a nation-wide collapse of the real estate market if you park some of your earnings here. But it is comforting to think that people will always need to live in houses. So regardless of the natural and unnatural fluctuations in real estate, there is always opportunity to earn money.

       Now for the interesting part. How much money can I earn with Fundrise? How much of it will be purely passive income and how much will be portfolio income (you have to sell it later to get the money)? To start, you should read a little about their history here. Despite the somewhat short history, Fundrise is consistently positive and stable compared to other popular investment options. It’s also important to note the fluctuations. But in order to get a gut feeling on what your initial investment can do for you, I have written a little python script you can download here. After fees, let’s say we anticipate 6% APY with 3% dividends and 3% appreciation income. Say you start with 5000$ and plan to leave it alone for 15 years. I think 15 years is a good number because passive income building is not a short-term investment, but also not a long-term investment. We would eventually like to start relying on some of the cash flow. Fundrise will reinvest our rental income if we let it, which I think is a wise choice.

So after our investment period, our portfolio value is ~12,000$ and our monthly income from rent is 60$. We also have the option to liquidate our holdings upon request. Keep in mind that this was done with some conservative estimates and assumed we did not build our portfolio in the interim. This may not seem like much. But if you have passive income as a goal, it is important to remember  that it is usually built over time from a variety of sources. People generally don’t have a million dollars sitting around which they just park somewhere for 10% APY and live for free.

       I hope this helps you in your first steps toward the lofty goal of building cash flow. If you are interested in using Fundrise, please consider using my referral link here. You and I will get a bonus of 50$ added to our portfolios instantly. Remember, there is always risk in investing, so don’t blame me if a black swan happens. No one can predict the future ;)