Fundrise lets retail traders invest in real estate to hedge against inflation

Fundrise Co-Founder & CEO Ben Miller joins Yahoo Finance Live to discuss the fintech company's model of allowing traders to invest in real estate, how inflation may be benefiting housing markets, and macro trends investors should look for.

Video transcript

- So we talk a lot about ways to not only grow wealth, but to protect the gains you've made, hedging your profits. And one way to do that is real estate. And you don't necessarily have to buy the land or the building. Let's talk about this and not necessarily real estate investment trusts, but a new way, not necessarily new, but a way that you can get in on all of this. And Ben Miller is Fundrise co-founder and CEO. It's good to have you here.

And your platform actually offers investors who might want to protect some of the gains that they've enjoyed over the past couple of years as the largest direct to investor real estate investment platform out there. So if I come to the platform with some money I want to invest, how would it work?

BEN MILLER: So before Fundrise, you couldn't invest in real estate in small increments. We basically made real estate investing as easy as buying a book on Amazon. So you go online. You go on to fundrise.com. And you say what you're looking for. It could be fixed income. It could be long term appreciation. Could be diversifiable risk. And we build you a portfolio of real properties.

And that wasn't possible without basically the technology underneath of our platform.

- This is Emily here. I understand that this may vary based on the portfolio of funds that an investor is actually seeking out on your platform. But what kind of returns should investors expect through Fundrise?

BEN MILLER: Well, I mean, what's happening is inflation is driving real estate by huge measures. Last year, real estate equities were up 30% to 40% in a single year. So this year, I think inflation will continue to be a huge driver of real estate. You know, I don't expect it to be as high as it was last year. But the reason why we're seeing so much growth, we're seeing something like 3,000 new sign ups a day, is because there's so much demand for a hedge from inflation.

I mean, the stock market basically is usually punished by inflation. And so really everybody is asking, what is going to happen if inflation basically takes hold this decade?

- You're offering something for people with as little as $10, if they wish to invest, up to $100,000, if they wish to invest. Is there daily liquidity? Or are those funds tied up over a period of time in order to get the return?

BEN MILLER: Yeah, it's liquid every quarter. So basically, you hit a button. And you can get liquid every three months, every 90 days. So it's not as liquid as the stock market. But arguably, you don't need it to be liquid every day. Basically, it can be liquid quarterly.

And it's real estate. And real estate is a long term investment. You don't trade it. You invest in it, because of long term macro trends you think that will lift it in the coming decade.

- Well, and to that point, what sorts of long term macro trends, or what sort of factors do you think investors should be considering to identify opportunities on your platform in real estate? Because of course, it is a little bit different than looking at the balance sheet of a company and trying to find opportunities based on expected future earnings and cash flows.

BEN MILLER: Well, with all the inflation of the market, the market is seeing 7% inflation, people are asking basically, how does it play out? How do you basically take advantage of it, rather than get punished by inflation? So you have to look back to the 1970s. The last time inflation was this high, the stock market fell 36%.

From 1970 to 1980, the stock market fell 36%. And real estate went up 200%. And so what people are looking for in real estate is stability. And then when you're trying to figure out what kind of real estate, people usually ask what regions. Do you want invest in Austin? In the sunbelt? Do you want to invest in multifamily, single family, industrial?

And that's where people can get more granular, if they want to. Generally, people are more making a decision about wealth preservation. And real estate is up there, top three I think, for most people who are trying to preserve their nest egg.

- And this is different than what some of us would understand as crowdfunding. Because these funds, depending on as an investor which fund I place into, are going toward already built perhaps real estate developments. If I'm looking for an income generator that might be kicking off rent or those kinds of things?

BEN MILLER: Yeah, I mean, our funds are mutual funds. But they're novel. Because instead of mutual funds of stocks, they're mutual funds of properties. And you invest in them directly, not through any intermediaries. So that's one of the big differences is that most people really can't get real property. And if they do, it's through a lot of layers.

And so what the technology did was reduce the costs of entry. And so the big difference between last time, the 1970s when inflation was roaring, is that most millennials and Gen Z don't own houses. They don't really own real estate this time around. So they're not going to likely participate in that inflationary driven growth.

So we basically made it possible for people to invest at $10 or even $100 increments with technology. So that's a way for them to participate, even though they may not be able to afford a house at this time.

- As you've charted out for us, the Fundrise platform itself has gone through an evolution in the types of offerings that you actually have on the platform, from individual deals to funds and now, as you mentioned, to a portfolio of funds. Where do you see the future of the company heading?

BEN MILLER: Well, underneath all of our offerings, is technology. We have something like 100 software engineers at the company. So slowly but surely what we're doing is using software to eat up the value chain of real estate investment. So before if you wanted to invest in real estate, you either had to buy a whole property yourself or go through broker dealers or intermediaries. Now, you can do it online, the click of a button, with no commissions, no upfront costs.

We're slowly now going through the rest of the value chain, the operations, the investment management, and using software to basically eliminate MBAs. This coming decade, the white collar employees are going to be under pressure from software as AI and different algorithms can do a lot of their work for them and reduce basically overhead. So will the MBA be replaced by software? I think that we'll see a lot of that this decade. Our company is basically trying to drive that value change in our industry.