Have you ever heard the advice that the true path to wealth is through real estate?
For many Americans, real estate makes up a huge percentage of their net worth. Buying a home is the American dream and monthly mortgage payments build equity. It's still wealth building but as a byproduct of needing a place to live.
If you want to diversify and invest in an asset class with a strong track record, real estate is a historically reliable way.
But it's hard to find good deals, especially if you restrict yourself to your local market. It's hard to buy outside of your market without a support system. And finally, it's hard to manage properties especially if you hope to scale.
There's a whole crop of crowdfunded real estate platforms that will allow you to invest in real estate without buying individual properties.
One of the newest entrants is a company called Rich Uncles.
NOTE April 16, 2019: Rich Uncles's BRIX REIT “fundraising has exceeded expectations and we now have a significant amount of purchasing power ready to deploy.” As such, they are temporarily suspending the sale of new shares of BRIX REIT, Inc. and will be deferring capital inflows until they announce their next property acquisition, which is expected to occur in the next thirty days.
If you are considering deploying your own capital, I suggest working with another crowdfunded real estate platform if you do not wish to wait 30+ days for the BRIX REIT to re-open.
What is Rich Uncles?
Rich Uncles is a real estate investment platform that offers REITs with unique investment strategies. These strategies are available from larger brokerages like Vanguard and Fidelity.
Who are the Rich Uncles?
The “Uncles” are Ray Wirta, Founding Investor, and Harold Hofer, the Chief Executive Officer. Ray Wirta is the Chairman of CBRE Group (NYSE: CBG), a publicly-traded Fortune 500 company that is the world's largest commercial real estate services and investment firm. You may recognize the logo underneath a lot of highway billboards but they are huge. They have 80,000 employees and a market capitalization of nearly $17 billion!
Harold Hofer is the CEO of Rich Uncles. He's an experienced real estate expert who has $2 billion in transactional experience. In the last thirty years, he's sponsored many real estate deals with a variety of situations and setups.
Founded in 2012, the company's official name is BrixInvest, LLC (they have the dba “Rich Uncles”). The stated goal is to make commercial real estate more accessible to individuals. They do this by offering REITs with low minimums. One fund has a $500 minimum while the Student Housing REIT has a minimum investment of just $5. You do not have to be an Accredited Investor.
The two biggest funds are the RW Holdings NNN REIT with ~$145 million assets and the Rich Uncles Real Estate Investment Trust I with ~$147 million assets.
Real Estate Investment Strategies
Rich Uncles has two funds – the Rich Uncles NNN REIT and the Rich Uncles Student Housing REIT. The names summarize their approaches.
The Rich Uncles NNN REIT specializes in investing in commercial properties that leverage an NNN (“triple net”) lease structure, with an average remaining lease term of 8 years. They limit purchase debt to 50% of the portfolio and focus on single-tenant properties leased by creditworthy tenants.
They list the properties owned in each REIT. This can give you a good idea of their investment strategy. They own properties like a 24 Hour Fitness in Las Vegas and a 3M facility in DeKalb, IL. These are large commercial spaces leased to companies you've heard of before. The National fund focuses on Triple Net (hence the NNN) leases and they acquire the properties with 50%+ cash down.
The Rich Uncles Student Housing REIT specializes in student housing. These are 150-bed minimum, 90% occupancy rates within a one-mile walking distance to an NCAA Division I universities with at least 15,000 enrolled students. One of their latest investments was the Stadium View Suites near Iowa State. It is a 518-bed housing unit with 99% occupancy.
It's hard to find on the site but the NNN REIT has yielded a 7% annualized return. The Student Housing REIT has yielded a 6% annualized return to date. Both have made their distributions on schedule monthly and have yet to miss a payment. That said, past performance is not indicative of future returns. 🙂
Their level of disclosure on the fund holdings is OK. Each listing will read like a mini-brochure and be light on specifics, but it does provide insight. It gives you a good taste of what the fund is doing though.
Sign Up Process
Some other crowdfunded real estate platforms let you look at investments without registering. Rich Uncles requires you to register, though it's completely free.
When you sign up, there's a drop-down that asks you for your investment objective. You can pick from Retirement Planning, Cash Flow, Portfolio Diversification, or Commercial Real Estate Investing. From there, you fill in typical registration information (name, email, phone number, password, country, and state).
From here – you select an account ownership type. Once you complete this step, you have an open account and can start looking at the properties they hold.
If you continue then you're starting into the sign-up process for investing – individual, joint, trust, entity, or retirement – and they provide explanations for each. If you want to invest through a retirement plan, you'll have to set up a Self-Directed retirement account separately. I chose Individual.
From here, you can pick the two available investments:
While there is no accredited investor requirement, there are income and net worth requirements. I'm not sure why these exist but they do.
|Minimum requirement net worth||$70,000||$0|
|Minimum required individual income||$70,000||$0|
|Minimum required individual income||Any||10%|
For the Rich Uncles NNN REIT fund – if you have less than $70,000 in total annual income, you need a net worth of more than $250,000. If you want to invest in the Student Housing fund, you have to attest that your investment doesn't constitute more than 10% of your total net worth.
I selected the Student Fund with its $5 minimum.
You can invest with as little as five bucks, which gets you a single share and opt for automatic investments. You can collect dividends as cash or opt to have them reinvested. After this, you have to provide account information, including identity and SSN, plus funding sources to get your money in. In a few minutes, you're done!
Rich Uncles' Fees
Rich Uncles doesn't charge any transaction fees or commissions when you buy shares in their REITs. Many publicly-traded REITs, such as those at Vanguard, don't charge transaction fees or commissions/loads. Many of the crowdfunded real estate platforms don't charge transaction fees either.
When you sell the shares, there is a fee based on how long you've held the shares:
- Owned less than one year – 3% administrative fee
- Owned 1 – 2 years – 2% administrative fee
- Owned 2 – 3 years – 1% administrative fee
- Owned 3+ years – no administrative fee
This is not uncommon and many other platforms won't even let you sell before the deal ends (for individual deals).
While there aren't any transaction fees, there are fees that the REITs will pay that will reduce your returns. To know what all these fees are, you have to review the offering circular of that particular REIT.
For example, in the Brix Student Housing REIT, the fees are on page 18 of the circular (it was a $50,000,000 maximum raise):
- Organization and Offering Expenses – Up to 3% of gross proceeds reimbursed to the sponsor.
- Acquisition Fee – 3% to the advisor for each acquisition the REIT makes.
- Asset Management Fee – 0.1% monthly fee of the total investment value of the assets (book value).
- Financing Coordination Fee – Any financing outside of mortgage, the coordination fee is 1% of the financing.
- Operating Expenses – They cover operating expenses related to the services to the REIT, such as rent, employee costs, utilities and IT; not to exceed 2% of average invested assets or 25% of net income (this gets a little complicated so read the circular if you want to know the full details).
- Independent Director Compensation – independent directors get 1,000 shares of common stock for each board meeting or committee meeting they attend, 200 shares for each property review and appoval.
- Disposition Fee – 3% to the advisor for each asset the REIT sells.
- Subordinated Participation Fee – This is a performance fee is a little too complicated to explain in a single bullet, the basic idea is that if the returns are above a certain amount then the advisor gets a fee that shares in that upside.
- Liquidation Fee – Advisor gets 30% of the increase in resultant value per share compared to the Highest Prior NAV per share (this is similar to the participation fee, but trigger on a sale or merger).
So how does this compare with others?
At first glance, there sounds like a lot of fees. But is this a case of Rich Uncles showing you how the sausage is made?
Whenever anyone buys or sells a property, there are fees. Everyone pays them. Vanguard pays them. Public Storage pays them. Fundrise pays them. Rich Uncles is enumerating these on their own.
Fees vs. Vanguard
This is not an apples-to-apples comparison, but let's see anyway.
When you review the prospectus of the Vanguard Real Estate Index Fund (VGSLX), there are annual fees of 0.26%. Vanguard's fees are so cheap because they don't acquire the property. Vanguard is buying other companies that buy companies. These similar costs become integrated into the returns so you never see them.
Vanguard's 0.26% annual fee is cheap compared to ~1.27% (0.1% compounded monthly for 12 months) because Vanguard's fund is huge.
Fees vs. Fundrise
Fundrise is better comparison and in reviewing the offering circular for a $50,000,000 National eFund, I found similar named expenses:
- Organization and Offering Costs – Approximately $500,000 (1%) reimbursed to the sponsor.
- Asset Management Fee – an annualized 0.85% – 1.0% fee of the total investment value of the assets (NAV) paid quarterly.
- Disposition Fee – 1.5% to the advisor for each asset the REIT sells where the manager is acting as the developer or involved in the sale.
- Quarterly Development Fee – 5% to the manager of the total development costs, excluding property (similar to an acquisition fee).
Rich Uncles seems to have more named parties involved – advisor vs. manager – but Fundrise has slightly lower fees.
About Public Non-Traded REITs
Rich Uncles offers public non-traded REITs – they are publicly available but they are not traded on any exchange. You have to treat investments like these are illiquid because there's no market you can sell them. If you want to sell (redeem) your shares, you can only do it with Rich Uncles.
If you owned the shares for less than three years, then there will be a 1-3% administrative fee associated with the sale.
Also, there's some trickiness in calculating the NAV of a fund whose underlying assets are real estate. If, for example, you are buying shares of a non-traded REIT at $5 a share and the NAV is less, then you're paying a premium. That premium is effectively a fee because you're paying $5 for something worth less than $5.
It's less opaque than other options and so FINRA put together this fact-sheet about non-traded REITs that you should review.
Something to be aware of.
Rich Uncles Alternatives
Until Rich Uncles opens back up, I recommend these alternatives available to all investors (not just accredited ones):
Fundrise is one of the oldest crowdfunding real estate investing platforms for non-accredited investors. They have an eREIT that bundles their investments but they don't have as narrow a focus as Rich Uncles. They do have a strategy, outlined in their offering documents, and a mere $10 minimum. We have a full review of Fundrise.
Streitwise is an alternative that focuses on commercial real estate. They're relatively new but they have a strong track record in that short time, anticipate paying out 8-9% dividends in 2021. They also have a $5,000 minimum and accessible to all level of investors.
I find their investment strategy to be fascinating. It is hyper-focused and offers a rate of return that is comparable to other platforms.
Whereas a platform like RealtyMogul will let you invest in individual properties, it requires you to be an accredited investor. You are buying into a fund on Rich Uncles so you do not need to be an accredited investor.
Fundrise is comparable but their offering isn't as laser-focused. The Rich Uncles Student Housing REIT is laser-focused on what they want – it has to be a mile away from a 15,000+ student campus with at least 150 beds. That's specific and I like that.
They're worth a look if you want to get involved in real estate with this investment strategy.