Fundrise Opportunity Zone Fund

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Contributor, Benzinga
September 9, 2022

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The only downside of making money on real estate investing is that you have to pay taxes on your earnings. But what if there was a way you could invest in real estate, make money and keep all of your profits without having capital gains tax exposure?  The Fundrise Opportunity Zone Fund gives investors the chance to do exactly that. 

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An Opportunity Zone is an area with a depressed real estate market. These areas have often suffered from a sustained lack of private investment. Cities can apply for them to be designated as Opportunity Zones where the government encourages investment by offering significant tax breaks to investors. Specifically, investors who have profits from any investment (both real estate and non-real estate) can put them into opportunity zones without paying capital gains tax. 

Sweetening the pot further, investors will not be taxed on their Opportunity Zone profits. Fundrise’s Opportunity Zone Fund targets commercial and residential real estate assets that are exclusively located in opportunity zones throughout the country. The other intriguing aspect of the Opportunity Zone Fund is the upside. Since most of the fund's assets began as undervalued, they have significant profit potential in terms of revenue and asset appreciation. 

Historical Performance

The Fundrise Opportunity Zone Fund came into being in 2017 with the passing of the Tax Cuts and Jobs Act. It is sponsored by the Fundrise real estate investing platform, which has launched eight different publicly traded real estate offerings. During its history, Fundrise offerings have provided investors with a lot of bang for their buck. Here are Fundrise’s aggregated average returns from 2014 to 2017:

  • 2014: 12.25%
  • 2015: 12.42%
  • 2016: 8.76%
  • 2017: 11.44%

That means Fundrise investors have seen their investment capital appreciate in value by almost 50% in just four years. 

Portfolio

Since reopening to investors, the Opportunity Zone fund is raising capital to target new acquisitions in the near future. The current assets in the fund include five separate commercial renovation projects in Los Angeles, California, and one apartment renovation in Washington, D.C. All assets were purchased with an opportunistic strategy, meaning Fundrise specifically targeted them for their upside and ability to generate revenue. 

Current Stats

Here are a few relevant stats regarding the Fundrise Opportunity Zone Fund:

  • Minimum investment: $25,000
  • Projected internal rate of return (IRR): 10% to 12%
  • Projected hold period: 10-year minimum
  • Tax reporting: 1099-DIV
  • Open to accredited investors only

The Fundrise Opportunity Zone Fund is only open to accredited investors. The 10-year hold period is long, but it’s a requirement under the Opportunity Zone’s qualification standards. 

The idea behind the long hold period is that investors will keep their money in the Opportunity Zone, which will allow the areas surrounding the investment to benefit as the asset appreciates. A shorter hold period would encourage flipping and other speculative real estate investment strategies that would not benefit the area over the long term. 

Final Thoughts

Fundrise’s Opportunity Zone Fund offers an impressive mix of upside and tax benefits to accredited investors. Aside from the risk of loss (which is ever-present with real estate investing), investors must consider whether they can afford to commit their capital for the full 10-year hold period. If the answer is yes, investors can potentially make money while helping underserved communities, a net win for all parties involved. 

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