In this RealtyMogul review, we’ll explain what RealtyMogul is, how it works, and the benefits and drawbacks to jumping on the real estate crowdfunding train.
Have you considered investing in real estate? If you’re like a lot of people, you’re enticed by the idea, but not ready to make a big commitment.
We’re landlords, and let me tell you, it’s a big undertaking.
First, you have to save for your down payment and shop for the right property. Then, you close the deal, get the place ready, and find the perfect tenants. But your work doesn’t end there – now you’re on-call, responsible for every leaky faucet and drafty window.
Don’t get me wrong – a rental property can be an excellent investment for the right person. In fact, our properties have been some of the best investments we’ve made. But, just because you’re not in that place right now doesn’t mean you can’t reap the benefits of investing in the real estate market.
Real estate crowdfunding platforms like RealtyMogul and Fundrise are growing in popularity, and with good reason. They offer a viable alternative to traditional real estate investing that any investor with a moderate risk tolerance and a long-term horizon can get on board with.
So, if you’d like to invest in real estate without the hassle of being a landlord, RealtyMogul may be a good spot to start. Let’s take a look at how it works!
RealtyMogul at a Glance
- Crowdfunding platform for commercial real estate investing in the United States
- More than 175,000 investors to date with $400 million invested
- More than $100 million in investor disbursements
- Minimum investments as low as $1,000
- Loan and equity investing
- Founded by Jilliene Helman and Justin Hughes in 2013
- Headquartered in Los Angeles with offices in Newport Beach, Salt Lake City, and NYC
What is RealtyMogul?
RealtyMogul is a crowdfunding platform for commercial real estate investing in the US. Think of it as an online marketplace for real estate investments.
With traditional real estate investing, you save for a down payment, shop for a property, get a mortgage, make a big purchase, and become a landlord. With RealtyMogul, the process is much different. You create an online account and shop their website for investment opportunities. You’ll find properties like apartment complexes, office buildings, self-storage facilities, mobile home parks, and even retail centers. All of the properties have been thoroughly vetted through RealtyMogul’s strict due diligence process.
You can choose to invest in an individual property (if you qualify – more on that later), or in a pool of multiple properties. Either way, what you’re really doing is purchasing shares in a LLC that holds the property titles.
Once you’ve made your choice, the process is pretty simple. You sign the required documents (all online) and turn over the investment dollars. The cash is then held in a U.S. bank until the property or properties you’ve invested in are funded. If the amount is under $100,000, you can use ACH bank transfer to send the money to RealtyMogul. More than that, and you’ll need to do a wire transfer.
There are a few different ways you can invest:
- Real estate investment trusts (REITs)
- Individual properties
- 1031 exchanges
The REITs are the most accessible, so we’ll focus on them in this review. We’ll also talk a bit about the individual property investments and how they’re different from REITs.
RealtyMogul Investment Options
RealtyMogul Real Estate Investment Trusts (REITs)
RealtyMogul’s two REITs are limited liability companies whose purpose is to invest in a diverse portfolio of commercial real estate investments. I say diverse because they include equity and loan investments in a variety of property types across the US.
When you invest in a REIT, you get exposure to a bunch of different commercial properties. This diversification is a sound investment strategy that’s known to reduce risk. In this way, REITs are a bit like ETFs.
You can invest in a REIT using a self-directed IRA – that’s good news for your taxes and your retirement savings. You can transfer funds from an existing account or open a self-directed IRA with RealtyMogul.
When you choose the REIT route through RealtyMogul, you have two options: MogulREIT I and MogulREIT II.
- Public, non-traded REIT investing in diverse property types across the US
- $1,000 minimum investment
- Monthly income in the form of distributions
- 8% annualized distribution rate (based on the December 1, 2018 purchase price)
- The fee structure is a bit confusing. Organizational and offering costs are capped at 3% and there’s a 1% annualized monthly management fee. Performing loans incur a fee of 0.5%, and non-performing loan a fee of 1%. But RealtyMogul states that other operating expenses may be incurred.
As of March 2019, MogulREIT I has 4,600 investors, a total asset value of $291 million, and includes 18 properties.
- Public, non-traded REIT investing in apartment buildings across the US
- New – started in January 2018
- $1,000 minimum investment
- Quarterly income in the form of distributions
- Goal of long-term capital appreciation
- 5% annualized distribution rate (so far, based on a purchase price of $10)
- Fees are not clear-cut. RealtyMogul states that organizational and offering costs won’t exceed 3% and that they’ll pay their manager a 1.25% annualized fee monthly. However, they acknowledge that other operating expenses may be incurred.
As of March 2019, MogulREIT II has 1,300 investors, a total asset value of $139 million, and includes 7 properties.
Being able to invest in individual properties is one of the biggest reasons to invest through RealtyMogul. Unfortunately, these investments aren’t open to everybody.
The first thing to get out of the way about individual property investments (also called private placements) through RealtyMogul is that they are only open to accredited investors.
And what’s an accredited investor? To qualify, you’ll need an annual income of $200,000 ($300,000 per couple) over the last 2 years, OR a net worth of $1 million, excluding the value of your primary residence. That obviously excludes the majority of the population, but don’t forget that non-accredited investors can still invest in the REITs discussed above.
OK, so when you invest in an individual property, you’re investing in one commercial property or a small group of commercial properties. There’s a variety of property types and locations to choose from, and you can browse the options on the RealtyMogul site.
Individual property investments are not liquid; typical timeframe is 3-7 years. Minimum investment varies between $15,000 and $50,000. The long-term goal of these investments is capital appreciation and income.
The Benefits of Investing in RealtyMogul
People interested in gaining exposure to the real estate market will be drawn to RealtyMogul because it gives you the benefits of real estate investing without the hassle.
You won’t need to come up with a 20% down payment. You won’t need to apply for a mortgage or shop for the best rate. You won’t have to meet with real estate agents and tour numerous properties, either. And, the best part – you won’t have to search for tenants or field phone calls about leaky pipes.
All you’ll need to do is create an online profile and choose the investment option that works best for you. If you select one of RealtyMogul’s REITs, you’ll be investing in a portfolio of properties, which means more diversification than investing in just one. And unlike buying a rental, which is a major purchase, you can get started with a REIT for only $1,000.
Whether you choose to invest in an individual property or a REIT, you’ll be establishing a passive income stream, helping to grow your wealth over time.
RealtyMogul Benefits at a Glance
- Convenient access to high-quality, thoroughly vetted commercial real estate investments in one place
- Entry to the commercial real estate market with as little as $1,000 for REITs
- Easy online transaction – even legal docs are signed online!
- Source of passive income
- Can use it with a self-directed IRA
RealtyMogul has a lot of attractive features, but it isn’t without its drawbacks. First, I’ll talk about the negatives specific to RealtyMogul, then a couple of things to consider when investing in real estate in general.
You might notice that RealtyMogul has fewer investment opportunities available than some of their competitors. This might be a good thing if it’s because of their strict due diligence criteria, but some people may find fewer choices limiting.
Speaking of limitations, the individual property investments are reserved for accredited investors (i.e., people with big bucks). The good news is that the REITs are accessible to anyone with $1,000 to spare.
RealtyMogul’s fee structure is a little bit confusing. On their website, the REIT sections discuss organizational/offering fees being capped at 3%, a monthly management fee, service fees for loans within MogulREIT I, and “other operating expenses.” So, it isn’t crystal clear what the typical overall fee would look like.
As with most types of investing, there is some risk involved. The hope is that property values will rise over time, but there’s no guarantee that it will play out that way.
You can’t be sure that you’ll earn the historical distributions, and you can’t confidently bank on capital appreciation. Yes, real estate tends to appreciate over time, but we can all think of instances when it tanked, too.
The other thing is that real estate investments, more than most other types, are not liquid. That means you’re not able to cash out quickly if you decide you need the money. This, paired with the risk factor, makes real estate investments a poor choice for anyone who isn’t comfortable with a long-term horizon.
Why Invest in RealtyMogul?
Crowdfunding platforms like RealtyMogul are a great way to add real estate to your investment portfolio without the commitment and hassle of buying a property on your own. You get exposure to real estate without the responsibilities of being a landlord.
Who Should Invest in RealtyMogul?
Anyone interested in real estate but not in being a landlord – If you’d like to reap the benefits of real estate investing but don’t want to buy your own rental property, a crowdfunding option like RealtyMogul is a good fit for you.
Investors looking for low minimum investment options – Individual property investments are limited to accredited investors, but RealtyMogul’s REITs are open to anyone who has $1,000 to invest.
Long-term investors – If you’re in it for the long haul and don’t have plans for your funds in the short or medium-term, real estate investing could be a viable and lucrative option.
Who Shouldn’t Invest in RealtyMogul?
- Anyone seeking a liquid investment – Real estate investing is a long-term game, and RealtyMogul’s investment options are not liquid. If you might need your cash back in the short-term, these aren’t the investments for you.
- Anyone uncomfortable with risk – Just like the stock market, there are no guarantees in real estate investing. If you’re risk-averse, you should look for more low-risk investments.
RealtyMogul: Final Thoughts
If you want to include real estate in your investment portfolio but don’t want to buy a rental property, a crowdfunding platform like RealtyMogul is worth considering. Even people who already own rentals might enjoy the diversification available through RealtyMogul’s REITs or the ability to invest in individual commercial properties.
That said, the illiquid nature of the investment and the lack of clarity about fees might turn some people off. If you’re considering RealtyMogul, make sure you understand what you’re getting into and are comfortable with a longer-term investment.
Do you invest with RealtyMogul? Share your thoughts below!