Show Summary

Our guest today, Dan Miller, and his company have implemented a very unique way to invest in real estate projects in your market that you wouldn’t be able to participate in otherwise. It’s extremely innovative, particularly in densely populated urban US markets. Check out this episode of to learn more!

Highlights of this show

  • Meet Dan Miller, President and Co-Founder of Fundrise.
  • Join the update on recent regulatory and technology changes in the crowdfunding space.
  • Learn about the Fundrise solution for an innovative way to invest in large urban infill projects, a fascinating solution to many densely populated areas.

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Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Welcome to the podcast. This is your host, Mike Hambright, and on this show I introduce you to expert real estate investors, awesome entrepreneurs, and super cool vendors that serve our industry. We publish new shows each week and have hundreds of previous shows and tip videos available to you. All of which you can access by visiting us at or visiting us in the iTunes store.
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And now, let’s get started with today’s show.
Hey, it’s Mike Hambright with Welcome back for another exciting VIP interview where I Interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
Today I’m joined by Dan Miller. He’s the co-founder and President of Fundrise, a crowdsourcing platform that has a unique and kind of interesting approach to the market and what they focus on. Dan is going to also give us an update and overview of recent regulatory and technology changes in the crowdfunding space because as all of you listening to this know, it’s a constantly evolving field and there’s some interesting changes that have happened recently.
And then we’re going to talk about urban infill projects, usually in densely populated areas, which is really what Dan focuses on. We haven’t really had anybody talk about that before on the show and it’s going to be really interesting. Before we get started, let’s take a moment to recognize our featured sponsors.
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Now, let’s start today’s show.
Hey Dan, welcome to the show.
Dan: Thanks for having me.
Mike: Yeah, yeah. I’m excited to… we’ve had a few crowdsourcing people on before as I mentioned to you, but it’s been a little while and I know there have been quite a few changes, so it’ll be great to get an update. Before we get started though, why don’t you tell us more about you and even a little bit about what you’re doing now.
Dan: Sure. So, my brother and I started Fundrise in 2010, but it actually came out of our real estate development background. So our father was a large developer based out of D.C, built around 20 million square feet. Mostly urban infill mixed use projects. We grew up around that kind of neighborhood revitalization, urban development deals. My brother and I spun off, started doing our own transactions and that’s when we realized there were a lot of gaps in the capital market. So in particular, we were focused on urban infill deals in some of the emerging areas in Washington D.C.
Mike: Yeah.
Dan: H Street Northeast, Shaw – neighborhoods like that and found that for deals where the check size, the equity check was below $10 million, institutions couldn’t make the investment.
Mike: Right, right.
Dan: So there was really a gap in the market so we build Fundrise to allow individuals to invest with us in these transactions. So it started out as a platform to raise capital for our own deals. The first crowdfunding platform in the country for real estate, now has become a platform to raise capital for other real estate companies.
Mike: Yeah, it’s fascinating. I think there are a lot of people that live in neighborhoods, especially in kind of inner cities where there are rundown sections or buildings that just seem to sit there for decades and never go anywhere. And it’s the really probably, correct me if I’m wrong here, they’re generally a little too big of the average individual and they’re probably way too small for the average institution. So they just kind of get stuck there, right?
Dan: Yeah, that’s really a market we focus on, because you look at a lot of these neighborhoods, the residential sales happen very quickly. There’s a lot of turnover, fix and flip, homes being upgraded and then the commercial strip kind of sits there with the dilapidated buildings that you would think would be renovating. But the issue is they’re a couple million bucks, so it’s not something that an individual can buy easily and do themselves. But, they’re too small, a couple million is too small for institutions.
So they’re in this gap where you really have to raise friends and family capital. There aren’t that many sources of funding. But those are really the projects that help revitalize those neighborhoods, help bring in new demand and businesses. So for us, we found that we were building those projects.
And after we did our first few deals on Fundrise, we had people from around the country reaching to us who were doing the same type of project in, you know, the Old Fourth Ward Atlanta or in east Nashville or in downtown L.A. that had similar profile and similar theme. And that’s when we kind of realized it wasn’t just us with that frustration. In a generalized product, it’s been very underfunded because it’s just fits in the middle in terms of size, as you mentioned.
Mike: Yeah, absolutely. Well, tell us more about you personally, your background. I know that you’re a… I know you got into the business because it’s been in the family for a long time but maybe talk about kind of how you got to the point where you started Fundrise.
Dan: Sure. So I finished business school in 2010. Spun out, starting working for my brother then. We had always had a wonderful relationship, had wanted to work together. He’s 11 years older than me so we weren’t beating each other up.
Mike: Yeah, yeah.
Dan: But I think it created a dynamic where he’d help guide me and I learned a lot with him and when we started working on our own, we thought, we’re both interested in real estate, let’s find some properties and projects that make sense for us. And we both in particular have a real passion for urban development. We just didn’t want to buy buildings, we wanted to create an environment, lease and create tenants that we felt represented that area and fit the best.
So, we started buying what were up and coming neighborhoods. That’s how it was considered, but it was the places we were going out at night, where we were spending time, where we were living. And it was just obvious to us that there’s an unmet demand for Millennial, probably to 25 to 25 year old age group. Most of D.C. has been historically developed for law firms, it’s been developed for big corporate use, which is good for certain segments of the market. But then when you talk about more creative, emerging areas, historic rehabs, there was very little of that product.
So, that’s really how we started buying, renovating old historic buildings. The first project that we bought and leased actually just opened this passed week to huge success. As an example of the type of project we had done, it was a 5,500 square foot old auto garage. We bought it and not had a Certificate of Occupancy that was valid since ’50s.
Mike: Oh, wow.
Dan: So you know, probably hadn’t had a dollar go into it since the late ’60s or even later. So we bought the building, rehabbed…
Mike: So talk about that. Who’s owned that for 55 years plus?
Dan: This area, H Street Northeast, was actually in MLK riots, was mostly burned down. So it was really one of the core shopping streets in the city and when they installed the train tracks, it was on the other side of the tracks. Slowly declined and then in the late ’60s, there were riots. Most of the buildings were burned down. A lot of these buildings had basic damage from the past. A little bit of money had been put in them to have them used. This was a convenient store that was open, two or three hours a day. The owner lived upstairs. He wasn’t selling much of anything.
Mike: Yeah.
Dan: Just owned the building and we bought it in 2010 and at this point, the price was probably at three or four times given what used to be a very edge network is now considered central.
Mike: Right.
Dan: And so we just went owner to owner in a lot of these properties. I mean, they were individual owners that had them for a few decades that were living, above. Not traditional developers, not sophisticated institutional buyers. And I think that’s also what made it interesting to us. You were really looking at the fabric of the neighborhood. You had to lease to local tenants because those were the people who understood the demand. National credit chains weren’t yet comfortable in those types of neighborhoods.
So we had to find the local sellers, work through the process with them, find local tenants. For this one, we actually financed a good chunk of the business to get them open in the space. It was one of the leading tenants in the neighborhood who now opened his second location. So, it really took us managing the acquisition, the financing, the leasing, the construction, the development, really all those components to have the outcome, which was really create an interesting development deal.
Mike: Right, right. That’s fascinating. I know there a lot of people who are listening to this that are imagining scenarios about where they live or where they lived in the past. Like I said, I used to live in the D.C. area and so I can appreciate that. And my wife lived in Manhattan. So we can appreciate a lot of these things you’re saying. So it seems like a big potential play is to continue to revitalize that existing area because it’s almost like a domino affect, right? Once somebody starts to do something, as long as other people start to revitalize the area, then it kind of lifts the values for everybody. Talk about that just general phenomenon.
Dan: I think, and that’s really been shown in the past 5 to 10 years in terms of pricing and focus. I mean, in 2005-2006, the kind of trend of urbanization going to areas of the city that were cheaper, restoring all the buildings and revitalizing neighborhoods. It was apparent it was happening but not on a grand scale whereas now you have big institutional players like Starwood Investing in Williamsburg, Brooklyn, which 5, 10 years ago was not an institutional neighborhood.
Mike: Right, right.
Dan: So you started to see, you know, a mass migration to urban centers in the U.S. and around the world, core pricing, become extremely prohibitively expensive. Now, the downtown San Francisco, New York, D.C., L.A. – it’s really not affordable for anybody who’s earning a normal amount of money in that market. And so the requirement is either I have to go way out or I can find a lower priced urban area that’s still connected to the city. And that’s where you’ve seen the growth of downtown L.A., the growth of Brooklyn, the northeast corridor D.C.
And every market there’s that neighborhood, that area with the old abandoned section of town that people just started buying, opening up restaurants, opening up bars. Not glamorous, not big chain development, kind of natural from that area. And I think it also shows the shifting dynamic towards more creative development that feels like it should be in that context, in that location with an operator who knows that area as opposed to the mass commercialization that ruled from the ’60s or ’50s to the late ’90s.
Mike: Right.
Dan: So it’s that broader shift, urban regeneration with more creative uses of space that I think started to bring a lot of growth in these pockets that surprised people, but it makes sense from basic economics of it.
Mike: Sure, sure. Now are you guys, I know you guys are kind of early… from your company’s lifecycle, are you guys spearheading each of these or are people actually bringing opportunities to you that need to be funded.
Dan: Sure. So we started out with us being the real estate developer and building the technology and working through securities issues. Mainly also in 2010, the idea of having a real estate owner crowd fund capital was very out there. Letting small investors into multi-million dollar assets was very unlikely to happen so we started our own transactions. And after we did a few of our own deals, we did the first crowdfunded deal in the U.S. for any investor from D.C., any resident of Virginia could invest in a single building we were developing for as little as a hundred bucks.
Mike. Wow.
Dan: So true accessibility for everybody. Then there was enough interest from other real estate companies that we realized we can’t scale with us buying and developing the assets. It’s too difficult. But we can scale as providing financing to the real estate companies.
So now what we do is we have a stable of developers that we, some come online, some come offline. We underwrite their companies, they start showing us deals. We then fund the deal with our own cash as a company and then put the deal up on Fundrise to let investors buy into it. So, it’s really is us curating and finding real estate companies and neighborhoods and deals that make sense to us and then making those available to individual investors.
Mike: Yeah. And I imagine, just as kind of a general rule of thumb, and I’ll just use an individual, single family house, which is what I primarily invest in. So the less work the house needs, generally the more risky it is. So, if it just needs paint and carpet, it’s not that risky. But if it’s a burnout, it needs everything. It’s obviously more risky. So that kind of ration of repairs needed to kind of the value of the property when you at least first purchase it, is kind of a good indication of risk. From what it sounds like the type of projects you’re working on, I imagine the repair to get it back, to get it to the state you ultimately want to get it into is the vast majority of the expense of the project, right?
Dan: Yeah. So we really focus on rehab renovation, development value [inaudible 00:14:07]. We’re coming in, closing with bank financing, they’re renovating, changing the asset and then once it stabilizes, they take us out in the deal. So we won’t… we make sure it’s top quality sponsorship. People with existing track records with, who have capability.
Mike: Right.
Dan: Make sure the assets are very good locations. But we’re willing to fund risk on the construction and development side.
Mike: Yeah.
Dan: One, because that’s our background, that’s what we’re comfortable with. And two, because the real demand for crowdfunding is when you can get double digit yields. And the only way you’re getting double digit on high quality real estate is if the asset is in transition.
Mike: Yeah.
Dan: So it’s been a mix. So generally the position of more funding, let’s say it’s a $10 million deal, so we’ll have a bank loan for 60% of the project cost, six million. That will be at, 4%, 5%. Then we go from, Fundrise goes from 60 to 80% in capital stack.
Mike: Okay.
Dan: For an equity, so second in repayment after the bank at normally to 10 and a 16% annual return and then the last 20% is equity from the sponsors. So, we’re in during the construction phase, during rehab, during development. Once it stabilizes, they refinance based on the new income stream or sell if it’s condos. And then we get taken out. We really are in that period where they’re heavily rehabbing, adjusting, retenanting, upgrading. And that’s what we enjoy. We like to be a part of the transaction.
Mike: Yeah, if you’re comfortable with it, it’s always a risk versus reward tradeoff, right? And if you’re comfortable with… a lot of people think, even the stuff that I do with rehabbing houses, just kind of the easiest form of real estate investing. People probably hear that and say no, maybe it’s notes are something else. But any of us that are professionals that have done what we do for a long time, a lot of outsiders see that as risky and you’re like, “I see anything other than it’s risky because it’s what I know,” right?
Dan: It’s what you know and that’s what we found that it’s a market that our family’s been in for a very long time, that we were doing ourselves. Within these core urban areas, within these neighborhoods with these dynamics, that we’re saying they’re too unknown for institutional scale. They’re a little too small, but they’re right in the wave of growth. The home prices have already boosted in those areas.
They make sense for us to fit and I think particularly the technology aspect of our business, the internet very well functions with small, medium enterprise and that’s the market that we’re funding, the midsize real estate sponsor, doing three to five deals a year, a couple partners. They have the cash to put one or two million bucks in, but it’s easier for them to raise the most from us as opposed to go to banks and…
Mike: Right.
Dan: I think technology should even the playing field on financing. And right now, if you’re a large institution it’s really easy to raise capital. I think the midsize of the market will have greater access to capital, particularly through crowdfunding.
Mike: Yeah. And one of the things that’s really fascinating and I know because I studied your website a little bit and you guys kind of hit on this in some of the videos you have, but it’s really an interesting phenomenon that people that are not real estate investors per se, that just have some money to invest. I just heard you mention that someone as little as $100, at least in this other project that you had, could invest.
It’s really the first time that people can kind of, not anonymously, but invest in small chunks of something that’s actually in their market that they can drive past and just say, I’m a part of that. That’s a really cool thing without actually taking on all the risk of doing an entire project. Maybe talk about that, the appeal of people who are potential investors in crowdfunding type platforms that can actually see a local project and know they’re impacting their community.
Dan: That’s really where we started from. We were building urban infill development projects in D.C. We had a famous local chef that we had leased the building to. It was a beautiful historical renovation. Community meetings, everybody knew about the project and it was strange to us that they can’t invest in the deal. They’re the ones that benefit from it being rebuilt. They live nearby. They intuitively understand the market because they bought a home, or they have some gut instinct about it. Why can’t they invest in real estate? That’s where we began.
And eventually after a lot of lawyers and security law, the way the rules are written now is if you have a million net worth or above, or $200,000 income or above, you’re bucketed as accredited, meaning you’re very likely regulated, it’s very easy to sell investments to those individuals. But the second that you want to offer to anybody below that threshold, which is 97% of the country, which is pretty much everybody.
Mike: Right.
Dan: You run into enormously difficult rules around filing documents, around reviews of materials that for the first, almost cost as a million dollars of legal to raise $325,000 in hundred dollar increments.
Mike: Wow.
Dan: So, we had to really just run the gauntlet to figure out how to make it possible. But that was very unnatural to us. If you think about people’s portfolios, people buy Google and Apple stock because they use the products. They know that business, maybe not the margins and the balance sheet but they feel comfortable because they use the product.
Mike: Right.
Dan: Real estate is a similar asset. It should be something that individuals inherently have an interest in investing. So I thought that overtime, you basically have a majority of the market that hasn’t been able to access this type of investment. Intuitively, people connect with it. There is that sense, I live nearby, I drive by it, I know it. We’re doing a project in Detroit, redevelopment of the old Tiger Stadium. Everyone in Detroit has been to a baseball game there.
Mike: Right.
Dan: Why aren’t those the people that are investing in part of redeveloping that project. So for us it goes beyond being a platform that’s just for institutional or high net worth investors that are already in real estate. It’s trying to expand real estate to a new market. In addition, who historically has been blocked out and ultimately start to change who the investors are and who’s writing the checks, you can change what gets built.
And I think the type of historic renovation tenants that I think are more connected with the local area, better greenscape, better walkability, those aspects that are in demand and often hard to finance into the deal, will be something that people will actually want to invest and support. It changes the dynamic also in the capital side when you change who the investors are.
Mike: Yeah. That’s fascinating. I think people generally want to participate in stuff that’s in their community. I mean, I know those things that I do inside of my little community that I’ll pay more for things there or I’ll frequent them more often just because I know it’s the owners there live in my community. And it’s just kind of this ecosystem that people are willing to support. I think it’s a real cool.
Dan: It’s, even… sometimes when we talk about this about this aspect of our business, people say well, you know you’re giving away money, it’s not for… these aren’t the best investments. But it’s the other way around. There’s been tons of data that have shown that local businesses support the economy in terms of dollars staying in the region better than national chains.
Mike: Sure.
Dan: These are actually more impactful, better, they’re able to better serve demand because they understand exactly that market. So I think it’s the other way around. They’re not as well understood by institutions so they throw a brisk number on them because they don’t get it. But the assets themselves, it’s not people giving away money, these are the projects that often make the most sense.
Mike: Right.
Dan: These are real investments. You’re just making it accessible to everybody and you’re focusing on projects that are serving that community, but that’s where the demand is. You’re serving that neighborhood then that means that you’re serving that specific market. So I do think, we hope to not finance traditional real estate deals but also projects. And that’s why we like the development and construction aspect. That deliver an improvement that actually change the dynamics of that area that they’re building in.
Mike: Sure. Sure. Maybe you can take a couple of minutes to talk about how the regulations are kind of shaping up because I know it’s like a constantly moving target and some of it is not necessarily that the regulations are changing. It’s just that they have been clarified somehow or some precedent has been set, right?
Dan: Sure. So we founded Fundrise in 2010. At that point the Jobs Act had not been passed. The Jobs Act was a new rule passed to simplify capital raising rules. So we started in 2010. At that point really the only ways to raise funding was through Regulation D, which limits your availability to accredited high net worth investors I mentioned or Regulation A, which is what we pioneered. We were the only platform and company to really use it for real estate. Took us 18 months of filing, almost a million of legal. Not an economic path but it was the only mechanism to sell to individuals retail investors.
So, that was the only choice at that point. As you can imagine, most people picked high net worth. Most investments were limited to high net worth. You couldn’t publically market them online. Then the Jobs Act passed in 2012. The main goal of the Jobs Act was to ease every rule around capital raising, not just related to crowdfunding. And so of course the SEC initially focused on the rules that dealt with the higher net worth investors because that’s easier to deal with, easier to please, less political risk.
So the first rule that took into place, took Regulation D which is limited to accredited investors and allowed you to market the deal publicly in addition. So previously, it had to stay within friends and family or existing network you have a preexisting relationship. That rule went into place September of 2013.
Now you could take a deal, market it online. It would limit that you could only sell to high net worth investors but it expanded your ability to market it. So that was a big change, not in terms, of who could now invest but in terms of marketability. The second big change that is just put into place that will be in place in June expanded Regulation A, which is what we use to be able to sell to individual investors, that took 18 months and cost a lot of money.
Mike: Yeah.
Dan: Expanded that rule to allow you as opposed to having to file with each state, we had to file with the SEC and District of Columbia and Virginia. As opposed to having to file in every state where you wanted to sell investments, you can now file once with the SEC, raise up to $50 million a year through this rule.
Mike: Okay.
Dan: And just have audited reporting. So that one, you still have a slow filing process that might take six months or so, but it eases and expands your ability to raise from individual investors to anywhere in the country to a larger amount and simpler reporting because it’s just with the SEC. So that was kind of the biggest next shift.
And then third major shift, which is the most drastic shift but still is not put into place is Regulation Crowdfunding. So it’s a specific rule called Regulation Crowdfunding that will allow you to take an offering, file it with the SEC, 21 days later you’ll be able to sell to an investor in the whole United States.
Mike: Wow.
Dan: No net worth minimum, so it would be some caps on how much they can invest. So that rule, as you can imagine, makes the SEC the most nervous, has the biggest profound shift, it’s not adjusting an existing rule, it’s implementing an entirely new rule. I wouldn’t expect it to be in place before the election. Unfortunately, it’s probably another two years away, maybe longer.
But when that’s in place, the speed upon which deals will happen for retail investors and every individual person will now have the ability to invest in private business whether that’s real estate, small business, solar energy, whatever it would be, will greatly expand investors access to investments and will fundamentally capital raising. So that one is the real revolution but the SEC is taking their time.
Mike: And it’ll give people the ability to invest their own money as they see fit.
Dan: That’s the plan. I mean, it’s been overregulated and overpoliced and regardless of which side of, politically you are, the way the rules have been written is if you’re wealthy, we don’t need to worry about it. You can deal with it yourself. If you’re not wealthy, we’re going to regulate it so aggressively that now nobody sells to retail investors. So, by over policing it and making the regulatory burden so high, it’s just a fact that nobody goes through that route and so thus, the only thing that individual investors can buy are stocks and bond funds.
Mike: Right.
Dan: Which is very limited, which is a small subset of what people…
Mike: Absolutely. Absolutely. So almost none of which is in your community.
Dan: None of which is in your community, none of which you can really touch. They’re all big organizations, they’re huge. You’re not connected to them. And so we think one the regulatory shift is going to bring a whole new type of investment that’s more about branding and marketing and connecting with people who are your investor base.
Mike: Sure.
Dan: You know, local coffee shop, whatever it’ll be. And second, I think people’s portfolios are going to drastically shift from 60% bonds, 40% equity, whatever the traditional mix is to maybe 80% commercial real estate, 5% local business and 3% alternative energy, whatever it would be. And so it’s going to bring a huge amount of capital to new sectors. And I think in particular, those sectors that are more consumer oriented or focused on Millennials or digital consumers will have a whole new marketplace to raise capital. I think it’s really a fundamental shift.
Mike: Yeah. Absolutely, absolutely. Awesome, I know we’re a little bit tight on time today. So why don’t you tell us how people can learn more and learn more about Fundrise and your company. Where should they go?
Dan: Sure. They just go to They can create an account for free. They’ll see new deals as they’re available. They can reach out to our support and ask any questions. But we try to be very transparent. The whole point is bringing access to commercial real estate where people previously didn’t have the ability to invest. So we’ve tried to make the site, we have an education section, very user friendly. And they can also find me on Twitter, Dan__Miller and message me. We always try to be available.
Mike: Awesome, awesome. Well, thanks so much. It’s really a fascinating space. And I know a lot of people are keeping an eye… if they’re not involved with it right now, they’re keeping an eye on it to see where things go because it’s obviously a hot topic and a hot area right now.
Dan: Yep. Thanks for the time. I really enjoyed it.
Mike: Yeah, yeah. Dan, thanks so much for joining us today. We’ll add a link for down below. But it’s, easy enough. So Dan, again, thanks so much for your time today. I appreciate you sharing your story and some information with us.
Dan: Thank you.
Mike: All right, have a great day.
Thanks for joining us for today’s podcast. To watch or listen to more great shows, please visit or visit us in the iTunes store. To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, great vendors, literally in your market and to socialize with other like-minded individuals, please visit the one, the only,
If you’re not yet a member, you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry. So get on over to
Thanks for joining us for today’s podcast. To watch or listen to more great shows, please visit or visit us in the iTunes store. To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, great vendors, literally in your market and to socialize with other like-minded individuals, please visit the one, the only,
If you’re not yet a member, you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry. So get on over to