RealtyMogul review: Real estate investing through crowdfunding
Moneywise.com / Moneywise.com
Just as crowdfunding has come to investing and borrowing, it has also made its way to real estate investing. RealtyMogul is a real estate crowdfunding platform where investors and real estate investment sponsors and borrowers come together to create mutually agreeable real estate investments. Overall, in this RealtyMogul review, we've found it easy to use and convenient.
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4.5
4.5
Commissions & fees4.5
Customer service4.5
Ease of use4.3
Diversification4.5
Due diligence4
RealtyMogul is an easy-to-use real estate investment platform that, thanks to its private REITs, allows both accredited and non-accredited investors to take part in potentially lucrative opportunities.
What is RealityMogul?
RealtyMogul is an online real estate capital marketplace that began in 2012. The platform was founded by Jilliene Helman and Justin Hughes. They aimed to disrupt traditional real estate funding by developing an online crowdfunding site.
Crowdfunding is the process of bringing together investors, borrowers, and investment sponsors to create new investments. In this way, it's considered a “peer-to-peer” arrangement, involving primarily individuals on both sides of the transaction (although RealtyMogul is also open to institutional participation).
Today, the platform claims more than 185,000 registered members. It has provided capital for more than 375 investments, with capital raised totaling more than $400 million. The platform arranges equity capital for commercial real estate. RealtyMogul is staffed by a team of professionals who have a mix of experience in real estate, finance, and technology.
RealtyMogul features
How does RealtyMogul work?
RealtyMogul enables investors to participate in a wide range of commercial real estate investments. Some examples include multi-family dwellings, office buildings, industrial sites, self-storage, retail and medical buildings.
When you invest, you typically do so by purchasing shares in a RealtyMogul limited liability company (LLC) that, in turn, invests into an LLC or Limited Partnership (LP) that holds title to the real property. Investing in this way minimizes overhead for the investment sponsors and provides access to more investment opportunities, as well as streamlined reporting of distributions and tax information through the platform.
RM Manager, LLC, which is a wholly-owned subsidiary of RealtyMogul, serves as manager of the RealtyMogul LLCs.
The term of specific investments depends on the investment. Equity investments typically range from three years up to 10 years. Equity investments generally pay distributions on a quarterly or semi-annual basis. These are just general rules, and it's important to understand the distributions on any investment are never guaranteed.
Invest in commercial real estate with RealtyMogulFor income tax purposes, an IRS form K-1 will be provided annually for each equity investment, reporting the results of that particular investment. Distributions from RealtyMogul's two REITs are reported on IRS form 1099.
RealtyMogul benefits:
- Ease of investment selection
- Quick and easy funding
- 24/7 investment monitoring
- Documents can be executed online
- Quarterly or semi-annual distributions for equity investments; monthly or quarterly distributions for REIT investments
- RealtyMogul provides more investment flexibility than real estate investment trusts (REITs)
- Investments typically do not require capital calls, which are requests for additional capital beyond the initial investment
- Individual investments are “pre-vetted,” which means the platform provides thorough underwriting to determine the viability of each investment
- Invest in both investments (accredited investors only) or two different REITs (all investors)
The income REIT
In competing with Fundrise‘s eREITs, RealtyMogul introduced its first REIT in 2016. Called The Income REIT, the benefits are that accreditation is needed, more asset diversification investing in individual properties, and much lower minimum investment requirement than with a private placement. The minimum amount to invest is $5,000, plus a fee of up to 3% of Equity Contribution and a 1% annual asset management fee.
According to their website, “Income REIT can invest in a variety of property types, including but not limited to, multi-family, office, industrial, self-storage, retail and medical office. The fund can invest in various commercial real estate-related equity and debt securities across these different property types.” So it will be a pool of various property types and not just one section or location around the country.
Unlike other private REITs that have long investment periods without redemptions, RealtyMogul states it will allow redemptions every quarter. But also noted in the offering circular, there are limits on the total amount of redemptions per year.
Invest in commercial real estate with RealtyMogulThe Apartment Growth REIT
In September 2017, RealtyMogul rolled out another REIT, the Apartment Growth REIT. Like the service's first REIT, The Apartment Growth REIT will be open to both accredited and non-accredited investors, allowing all investors to invest in the real estate market.
The focus of this second REIT is inequity only of multi-family nationwide, which is a particularly hot sector of the market. As RealtyMogul reports, “According to the U.S. Census Bureau's Housing and Vacancy Homeownership Report, the U.S. apartment market has experienced a strong recovery, as evidenced by the steady drop in vacancies and an average annual effective rent growth of 3.9% per year, between 2010 and 2015.”
RealtyMogul fees
To invest with RealtyMogul, you must make a minimum initial investment of $5,000. Annual management fees typically range from 1% to 1.25%, and you can also pay additional REIT fees.
You can make standard ACH transfers from your bank account for amounts up to $100,000. For amounts that exceed $100,000, you'll need to use wire transfers. Each investment that you fund will have a specific account number that the platform will use to make sure that the funds go directly into that particular investment opportunity.
RealtyMogul signup process
You start by creating an account. You must first create a password and have your email address confirmed. Then you must certify that you're an accredited investor, which is to say that you are a sophisticated investor with a net worth of at least $1 million — excluding your primary residence — or have an annual income of at least $200,000. (Note: If you want to invest in just the two REITs — see below — you don't need to be accredited.) After that, you will enter general information, and you're in.
RealtyMogul Dashboard: The dashboard enables investors to track all of the terms of their investment on the platform. This includes how much money they have invested, active transactions, and earnings on those investments.
RealyMogul alternatives
If you want more control over the properties you invest in, RealtyMogul is an excellent choice. And the platform still has different REITs you can invest in to help diverisfy your portfolio of real estate.
That said, RealtyMogul is just one of many real estate crowdfunding platforms out there. And some alternatives are superior depending on how much money you want to invest or what returns you're looking for.
| Highlights | Fundrise | Streitwise |
|---|---|---|
| Rating | 4.5/5 | 3.5/5 |
| Minimum investment | $10 | $5,000 |
| Account fees | 1%/year | 2% annual management fee |
| Private REIT | ✅ | ✅ |
| Reviews | Fundrise review | Streitwise review |
| Links | Sign up | Sign up |
Fundrise is our favorite alternative if you want to invest in real estate with little money since it only takes $10 to start. You get paid in quarterly dividends, and there's only a 1% management fee as well. And, there's a secondary marketplace for shares which helps increase liquidity.
Finally, Streitwise is a great alternative if you're interested in generating dividend income. It's paid over 8% in dividends since 2017, and the $5,000 minimum is the same as RealtyMogul.
Pros
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“Pre-vetted” investments: RealtyMogul has a thorough underwriting process that evaluates the property, location and the borrower or sponsor for each investment opportunity available on the platform. The vetting extends to background and criminal checks on the principals involved in the investments and includes the RealtyMogul underwriter stepping foot on each property to evaluate it in person.
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Simple investment process: There are no capital calls in which you will be required to provide additional capital over and above your initial investment. Instead of additional investment, your investment may be diluted if more money is needed or the transaction requires member loans at a high rate of interest (10%–15%). If member loans are necessary, your equity position in the investment would be subordinated to those member loans, and the loans would have to be paid back before any equity distributions are made.
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No capital calls: There are no capital calls in which you will be required to provide additional capital over and above your initial investment. Instead of additional investment, your investment may be diluted if more money is needed or the transaction requires member loans at a high rate of interest (10%–15%). If member loans are necessary, your equity position in the investment would be subordinated to those member loans, and the loans would have to be paid back before any equity distributions are made.
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Greater control than REITs: When you invest in a REIT, you are investing in a portfolio of real estate properties, but you have little information and even less control over the individual investments. With RealtyMogul you can invest in individual properties, including those close to your home. In fact, RealtyMogul allows you to be very specific with your real estate investments.
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Private REITs: The recently introduced Income REIT and Apartment Growth REIT allow non-accredited investors to invest in real estate.
Cons
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Accredited investor: You must have an annual income of at least $200,000 (or $300,000 for a couple) or a net worth of more than $1 million — and that doesn’t include the value of your personal residence. However, the recently introduced REITs are open to both accredited and non-accredited investors.
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Illiquid investments: There is no secondary market to sell your positions and must hold to maturity, which can typically be 3-7 years.
Summary
RealtyMogul offers a unique opportunity to invest in real estate that's less involved than buying a property outright on an individual basis. Still, it is much deeper in scope than investing in real estate through real estate investment trusts (REITs). It's an opportunity to invest in real estate through a variety of close-to-home investment opportunities.
The disadvantage is that you must be an accredited investor to take part in many of the platform's deals. However, RealtyMogul's REITs have a much more open playing field.
Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.
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