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Eric Bowlin
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Real estate investor, blogger, and entrepreneur
Real estate investor, blogger, and entrepreneur

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A lot of investment properties have something we call Bonus Space.

It's space that isn't quite a bedroom, maybe not really living space, but doesn't have any one specific use.

So, how do you use this space to create value for your investment property?

Well, that depends...

Can It Become a Bedroom?
A bedroom is almost always going to be the highest value use of any bonus area, so let's try that first. So, it's time to look up your local health/building codes to determine the requirements for a bedroom.

The International Residential Code, which most states follow, has several requirements to be considered a bedroom. States and municipalities are free to add on top of this, and some areas don't use the IRC as their code.

Most places have a square footage requirement and also require a window and a closet. But, different states/municipalities may have different requirements so look them up.

Note About Egresses

Basements and Attics are notoriously bad places to be during a fire. There may be requirements for additional egresses for any living space that is in these two areas. Make sure you know all of the requirements before trying to make a bedroom.

Once you know the requirements, you can determine if a simple project can convert this random bonus space can be used as a bedroom.

For example, if it just needs a larger window, simply hire someone to install it. If you need a closet, get one put in.

It becomes more challenging if you need another egress added to a basement though.

how to use bonus space in an investment property
It Can't Be a Bedroom, Now What?
Most bonus space can't be used as a bedroom, so don't feel bad about that. The next thing is to figure out exactly what you can do with the space.

Determine What Kind of Space You Have
The first step is to figure out exactly what you're working with and what it can look like when you're finished.

Regardless if it's in an attic, basement, porch area, or whatever, it'll need to be finished with drywall, paint, floors, lights, and heat/ac. Your bonus space probably has some of these already, but often not all.

Keep in Mind The Location
Basements are usually cool and damp, so you may need extra heat during the winter and a dehumidifier in the summer.

Attics are really hot, so you'll need to add extra air conditioner. Also, you need to make sure your roof is ventilated properly before completely finishing an attic so take that into consideration before adding drywall to the rafters.

Every area will have it's own unique considerations before starting the project.

Figure Out It's Highest and Best Use
This is really open to interpretation, but you need to figure out it's best use for other people.

The best thing to do is to look at comparable sales in your market area. Look at what most other people are putting into their properties, then just copy them.

Here are a few common ways people use their bonus space

Den or Media Room

The most common way people use their extra space is by using it as a second living room, den, or media room. These are all different words for similar things.

Basically, one living room will be a bit more formal for having guests over. The den or media room will be for watching TV or movies mostly.

If you are outfitting a room for this use, it might be beneficial to install speaker wires around the room (this is very cheap), and make sure there is cable and internet hookups.

Game Room
If your investment property already has an area dedicated as a den, you might want to consider outfitting it as a game room.

A Game Room is a room in the house for relaxing or socializing. It is typically furnished with a Pool Table, Ping Pong Table, Dart Area, or other recreational amenities.

Storage

A lot of people just need extra space for storage. Having a clean and dry area to toss junk is the lowest value use, but still important. Having this finished space will most likely make it more valuable anyhow.

Advertising Bonus Space
The next step is to advertise your bonus space. You're either listing this property for sale, or listing it for rent (it's an investment property, right?).

It's important to bring attention to the bonus space, especially if it's not listed in the square footage or other information about the property. This is really common for basements and attics.

In this situation, bring attention to it and make people image what they could use it for, but don't specifically say it can be used for things that it shouldn't be used as (such as a bedroom). People will often use the space however they want, including as a bedroom, but you should not encourage this if it's not a legal bedroom.

So, you'd could potentially say something like:

There is an extra 400 square feet of finished bonus space in the attic that could be a game room for you and your friends, media room for late night movies, or whatever else you can imagine! It is heated, cooled, and has everything you need to enjoy it day and night all year long.
But you'd never want to say something like

There is an extra 300 square feet of finish bonus space in the basement that could be used as a media room, den, game room, or even an extra bedroom when friends come visit.

...assuming the bedroom is not legally a bedroom in your jurisdiction.

Charging For the Space

It's hard to say what bonus space is worth, but it's worth something.

The only way to figure it out is to try to sell it or rent it out, and see what the market will give you.

Have You Ever Sold or Rented Out Extra Bonus Space?

Tell me about it below!

https://idealrei.com/blog/how-to-use-bonus-space-in-an-investment-property
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Fundrise Review June 2018 - I Invested $1,000 in Fundrise and Here’s What Happened

I set up my account and invested an initial $1,000 into Fundrise back in 2016. I did it just to try it out and invest a few bucks, but I loved it so much I decided to review it.

Important Note:

It's impossible to cover everything in this article. The best thing to do is to go to Fundrise, set up a free account, and bang around the website and judge for yourself. Use this article as a guide.

There are 80+ crowdfunding websites, and the majority of them aren't really that good. But, most review sites simply pick the ones with the highest affiliate payout and rank them.

Because of my experience with Fundrise and others, we've created one of the most stringent sets of grading criteria on the web for crowdfunding platforms and we review as many crowdfunding sites as we can.

This strict and well-documented methodology helps us avoid any potential conflicts of interest, and you can see the methodology with the link above. We have 11 overall categories and rank every company based on the information we have and weight the responses based on what we believe is most important.

So, check out the criteria and read the review below about the company and how it stacks up against its competition.

Fundrise – Intro to the Company

Disclaimer: When I first wrote this article it was because I invested in Fundrise and enjoyed my experience with it. After some time I came to love it so much that I am now an affiliate. If you click on one of the links and sign-up for Fundrise, I may be compensated a small referral fee at absolutely no cost to you.

Why Try Crowdfunding?

I’ve been enamored by the idea of crowdfunding since before 2012. Not only have I thought about ways to crowdfund my own investments (though I haven’t got to that level yet), but I’ve also thought about investing in other’s real estate deals as well.

I have noticed that real estate is so far behind other areas when it comes to crowdfunding. Real estate investing is still amazingly arcane with how developers find investors, syndicate deals, and then move forward on projects. Why can tech startups find hundreds of millions of dollars in funding practically overnight, even for terrible ideas, but real estate is reserved for a very small and elite group, even when the potential projects are amazing?

So, if you are an experienced investor currently and want to diversify or simplify your portfolio, online investing is a great place. On the other hand, new investors might find online investing a great place to start!

Let’s dive in:

What is Fundrise?

Fundrise an investment service that allows you to invest directly in commercial real estate. Fundrise created a marketplace that is fairly transparent and their goal is to “make the process of investing in the highest quality commercial real estate from around the country simple, efficient, and transparent.” Essentially, they bridge the gap between the investor and the developer.

As I complained about above, real estate is traditionally very exclusive, and the only investors were those with direct access to the institutions that fund the deals. Fundrise (along with many others) is cutting out the middle-man and allowing us to directly invest. Also, by cutting out the institutions, it should hopefully reduce the overhead expenses and keep our fees low.

Fundrise currently has roughly 100,000 members and they have invested in nearly $3 billion worth of real estate. They let you invest as little as $500 at a time and you get to pick the allocation of the funds into different REITs.

Are you ready to see how they do it?

Check Out Fundrise Now

Continue reading this Fundrise review to find out.

Fundrise’s Accreditation Requirements

A few years ago Fundrise was for accredited investors only. The SEC released Regulation A which made things available to unaccredited investors, but it was too complicated so most sites used Regulation D instead, which excludes unaccredited investors. The SEC surprised everyone in March 2016 and released Regulation A+ which further simplifies the process for the unaccredited investors to invest.

Fundrise really has been the pioneer in this area and being one of the first (if not the actual first ones) to use Regulation A+ to bring online offerings to the masses….again. I was browsing around their site and found they are actually available to unaccredited investors as well (us unsophisticated masses that can’t make good investment decisions). It was a welcome surprise to see the potential for normal people to get their hands on passive real estate investments.

How Does Fundrise Find and Screen Investments?
Fundrise claims to receive over 250 submissions per week with less than 1 percent being approved. According to the Fundrise website, they have a very strict underwriting process that includes the following steps:

1) Sponsor Screening
The first thing they look at is the company and the sponsors. They look only for companies that are well capitalized and have a history of success in top US markets. They claim that only 25% of sponsors move beyond this step.

2) Initial Project Due Diligence
Fundrise is focused on short-term projects that last 1-3 years. Their preferred structure is Senior Secured Debt, Mezzanine Debt, or Preferred Equity. Fundrise investors are senior to the sponsor and “Fundrise investors must get paid back their principal and any owed returns before the company is able to realize any profits.”

3) Detailed Underwriting
If the sponsor and project meet the Fundrise requirements, it moves on to the detailed underwriting. The Fundrise underwriting team completes an extensive analysis and review of all these points. The total underwriting checklist contains more than 350 different data points.

I was originally going to include a list of some of the underwriting criteria, but instead, I found a cool video and linked it above. Check it out!

4) Purchase by Fundrise
So Fundrise actually funds the deal before putting it on the platform. By pre-funding the deal, they take on a large amount of risk that this project will be good and investors will want it.

Choosing How to Invest With Fundrise
One thing to remember about Fundrise – you are actually investing in a bundle of real estate deals. They’ve created a revolutionary real estate platform that most of you will be comfortable with.

Simply put, you pick you broad investing objectives, and Fundrise helps choose how to allocate your money.

As you can see, it’s generally broken down into high income, balanced, and growth.

Choosing an Investment to Crowdfund with Fundrise
Continuing on with the Fundrise Review… As you can see, there aren’t many choices. So how do you get diversification? Simply, they have several eREITs that have invested throughout the country.

By choosing one of their options, Fundrise will suggest an allocation. You can choose if you’re focused on current income, future potential, or a balance of the two.

A Real Estate Investment Trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. – Wikipedia

a REIT has a lot of requirements in order to qualify and it needs to distribute 95% of its taxable income to the shareholders. There are also different types of REITs, such as a publicly listed REIT, non-listed REITs. These eREITs offered by fundrise are non-traded REITs as they are not listed or traded on the stock exchange.

According to FINRA, there are a number of risks associated with non-traded REITs, the biggest of which is that it can be very difficult to get your principal back. Other issues are potentially high fees, especially on the front-end and a limited secondary market to sell your shares. In fact, you can read a very scathing review of non-traded REITs if you’d like.

So I decided to do a bit of digging on this eREIT. I was able to pull up the offering circular on the SEC website. Wow, what a hard document to read!

The first thing I wanted to investigate was the fees. Here is a quick breakdown of the fees I was able to find:

Breakdown of the eREIT Fees
Manager – Offering Costs of $1,000,000 or roughly 2% of money raised
Acquisition/Origination Fee – Manager – 3% of the amount funded. Paid by borrowers and not by the Fundrise Investors
Reimbursement of Acquisition – Manager – Only if not reimbursed by the Borrower – Amount Unknown
Asset Management Fee – 1%
Servicing Fee – 0 – .5% * This is the fee that may be waived if underperforming
Special Servicing Fee – 1% of non-performing assets
Other Fees – Unknown
Commissions – There appear to be no commissions
Redemption of Fundrise eREIT Shares
Here is another complicated one. There are a few variables at play here. First, Fundrise will only redeem a certain amount of shares per quarter. Once they have redeemed those shares, you will get in line for the following quarter, and so on. Additionally, when you redeem the shares, you will incur a penalty of between 3 and 5% of the share price. Thirdly, Fundrise gets to calculate the value of the shares and it’s essentially impossible for us to determine that value on our own.

Less than 6 months – No Redemption Allowed
6 months to 2 years – 95%
2 to 3 years – 96%
3+ years – 97%
The biggest unknown appears to be the unknown value that Fundrise will place on each share. Upon purchase, each share is worth $10, but that can easily go up or down based upon their valuation. On top of that, you can only get a portion of your money back when you redeem.

Checking the Fundrise Offerings
Fundrise is unique with the fact that you don’t actually choose specific projects to invest in. Instead, you choose an investment style and Fundrise helps choose a portfolio allocation across their investments. Below is the actual allocation of my investment money.

Fundrise vs The Competition
Fundrise vs other crowdfunding platforms is really what it comes down to. How does Fundrise compare in this review against others.

Well, at the time of writing there are 11 categories we rank them by. Here they are:

Is Fundrise Available in all 50 states? – Yes
Do they prefund deals? – Yes
Fees? – Approximately 3%
Minimum Investment? – $500
Co-Investing? – Unknown, but most likely not
Bankruptcy Protection? – Yes
VC Funding? – Yes
Non-Accredited Investors Allowed? – Yes
Diverse Property Types? – Yes
Equity Investments? – Yes
Debt Investments? – Yes
A few months ago, Fundrise was tied in first place with 3 other platforms, but now that they have dropped their minimum investment to $500 from $1,000, now they will take first place with an overall score of 5.5 points out of 6.5 points.

Our rule is the top 5% of sites will get a 5-star ranking, so it’s still an overall tie, but Fundrise is definitely #1 now.

My Overall First Impression of Fundrise
Seemingly lower fees than traditional real estate investing
I am impressed by the website, layout, and utter simplicity.
I love how you can reinvest dividends
I wish there were more offerings to choose from, or that they came along more often.
Waived management fee if it doesn’t perform makes you feel they are selling something they believe in.

https://idealrei.com/blog/fundrise-review
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