Are you looking to get into real estate but don’t have a huge lump sum to hand?
The RealtyMogul real estate crowdfunding platform is an investing platform that enables you to gain exposure to the commercial real estate sector and its unique investment opportunities. Investments are made exclusively from an online dashboard and are open to both accredited and non-accredited investors.
According to the company, investors have received $172 million in profits and have financed more than $2 billion in property value. The company also boasts 200,000 registered members. However, its short track record means that its long-term performance is currently unknown.
Keep reading our RealtyMogul review to find out more about investing in commercial real estate on this platform.
RealtyMogul was founded back in 2012 by current CEO Jilliene Helman and Justin Hughes. This FinTech company focuses on investing in commercial real estate options across the country. Based in Los Angeles, California, more than $400 million of equity capital has been deployed and the company has a portfolio valued at over $2 billion.
Commercial real estate has been notoriously difficult to get into unless you either knew the right people or had a huge bank balance to finance new projects.
Its focus on high return targets means that investors could receive as much as 15% on their investments per year. However, these figures are for private placement investors. Its REIT (real estate investment trust) investments offer returns closer to 4% to 8%.
The big benefit of RealtyMogul is the investment process takes place entirely online and requires no legwork from you.
Most reviews on RealtyMogul praise it as an option for getting into commercial real estate. On the other hand, the amount of fine print makes it tough for less experienced investors to use the platform.
Let’s take a look at how you can get started with RealtyMogul.
Where Does RealtyMogul Source its Investments?
RealtyMogul works directly with developers. The developer submits a deal for consideration and the company’s real estate team examines the terms of the deal and the likelihood that the investment will deliver a profitable return.
According to the company, thousands of property deals are submitted to it every year and they only accept 1% of deals.
Who Can Invest with RealtyMogul?
While every potential investor—both accredited and non-accredited—is welcome to invest on the platform, non-accredited investors are limited in what they can invest in.
Accredited investors have full access to every deal within the RealtyMogul marketplace, whereas non-accredited investors are only eligible to invest in REITs. This lack of access to standalone commercial real estate and deals on individual properties is a big downside of the platform.
There are two types of investments at RealtyMogul, nontraded public REITs and private placements.
Its REITs work like this:
MogulREIT I – This public nontraded REIT is registered with the SEC and invests in commercial real estate equity and debt assets. Property types include self-storage, office, industrial, and retail. Pays monthly dividends.
MogulREIT II – This real estate investment trust invests primarily in equity investments that include multifamily apartments. Dividends are paid quarterly. Dividends are usually lower than MogulREIT I, but the company claims this is due to a focus on the long-term capital appreciation in share prices.
Private placements are exclusive to accredited investors and focus on diversified funds and opportunity zone eligible investments. Due to their nature, they aren’t registered with the SEC and don’t provide the same protections for investors.
RealtyMogul Fees Every asset class comes with its own fees. You are charged based on the investments you hold. There are no account fees or minimums, but to invest you need a minimum of $5,000.
Here’s a breakdown of their fees:
Private Placement – Differs by investment but averages out at 1%.
MogulREIT I – 1% of your total equity value.
MogulREIT II – 1.25% of your total equity value.
When compared to other similar offerings, RealtyMogul’s fees are considered average. Make sure you factor the fees into any investment you make.
Although accredited investors can certainly invest in either the MogulREIT I or the MogulREIT II, most will find that RealtyMogul’s private placement offerings present a higher earning potential. Their portfolio of properties is constantly changing as opportunities present themselves, but it generally contains office buildings, apartment buildings, and other types of commercial properties.
Investors take on more risk with this type of investment. Since these single properties are unregistered securities offerings, the owners of the real estate properties aren’t held to the same disclosure standards as SEC-registered ones. Your investments will be illiquid, which means you’ll essentially be locked in for the duration of your investment.
While it’s true that you’ll have to do your own research before investing in these commercial properties, fortunately, there is plenty of information provided in the RealtyMogul listings. A quick glance will tell you the property name, location, asset type, target IRR, target return on Cost or target Avg Cash on Cash, and who the property is managed by.
Additional information can be found by clicking on the “View Details” button underneath each listing, but you will need to be registered for RealtyMogul before you can access this.
Regardless of what type of investment offering you’re considering, you’ll want to give yourself the best chance at turning a profit. While individual investments offer the most earnings potential, they do so with an added risk. On the other hand, REITs might not offer the highest potential earnings, but they do provide a sense of consistency and security.
As of 04/30/2020, Realty Moguls’ “Income REIT” offered investors an annualized rate of 6%. Of course, past results do not guarantee future performance, but this return rate—which is calculated net of investment fees—seems promising. When investing in “The Income REIT,” you can expect to receive distributions on a monthly basis (although this is never guaranteed).
As of 01/01/2018, Realty Mogul’s “Apartment Growth REIT” offers investors an annualized rate of 4.5%. Unlike the aforementioned REIT, “The Apartment Growth REIT” releases distributions on a quarterly basis. As always, neither the annualized rate nor the distributions are guaranteed.
If you’re looking at housing properties, industrial properties, or any other type of individual investments, the numbers vary by investment offering. Realty Moguls lists many of their recent individual properties on their website. We recommend taking a look at these, which should give you a rough idea of what to expect from your investment.
We glanced at their recent properties and immediately noticed there were a lot of variations between the deals. Whereas some had hold periods as short as 1.1 years, others lasted for up to 6.3 years. The actual IRR varied as well, with the most successful properties producing an IRR of 51.1%. Contrarily, their worst-performing property had an actual IRR of -4.3%!
Share Repurchase Program
The biggest issue you’ll run into while using RealtyMogul is the lack of a secondary market. Fortunately, if you’ve chosen REITs as your preferred investment type, you might be able to sell your shares back to RealtyMogul if you really need the cash. However, this comes with a few limitations.
Firstly, RealtyMoguls doesn’t guarantee that they’ll always buy back your shares; buybacks are “subject to availability of capital.” Secondly, RealtyMoguls will only pay full price for your shares if you’ve held them for an extended period of time. If you’ve recently purchased shares and have changed your mind, prepare to instantly lose a percentage of your investment’s value.
For shares that you’ve held:
Less than one year, RealtyMoguls will reimburse you for 0% of your original investment.
More than one year but less than two, the company will buy back your shares at 98%.
More than two years but less than three, RealtyMoguls will buy back your shares at 99%.
More than three years, the company is willing to buy back your shares at full price (100%).
RealtyMogul Vs. Publicly-Traded REITs
Assuming you’re a non-accredited investor, RealtyMogul can only offer you one investment type: a public, non-traded REIT. While investing with this real estate company can offer some advantages (such as a consistent cash flow, monthly/quarterly distributions, and low management fees), there are other options available.
You can purchase a publicly-traded REIT that’s listed on the stock exchange from a wide range of real estate investment platforms. Even general trading platforms like Robinhood will allow you to invest in REITs. Depending on the platform you use, minimum investment requirements may be non-existent! You’ll also benefit from increased liquidity and won’t be tied down for a specific investment period.
That said, publicly-traded REITs don’t offer the same benefits—like a predictable distribution rate on a monthly or quarterly basis—as RealtyMoguls does. We always recommend doing the proper research prior to making any investments.
Who Should Avoid RealtyMogul?
RealtyMogul might have opportunities for REIT investments, debt investments, and preferred equity investments, but that doesn’t mean that the platform’s a good fit for everyone. The overall lack of liquidity, high investment minimums, and fees that vary between investing options make the platform a better fit for more experienced investors. That’s not to say that less experienced investors can’t use RealtyMogul; they’ll just likely find more value in more beginner-friendly alternatives.
Is RealtyMogul Right for You?
Most reviews on RealtyMogul claim that this is an intriguing commercial real estate investment option, and we have to agree. The downsides are the relatively high minimum investment and the fact that you need to be an accredited investor to gain access to the most promising real estate opportunities (private placement investments).
However, it’s a start for a notoriously closed-off area of the real estate sector. At Modest Money, we believe that this is an excellent real estate investing platform if you want to invest in the commercial real estate markets.
Jeremy Biberdorf is the founder of Modest Money. After working many years in the website marketing industry, he decided to take on blogging full time and also get his finances headed in the right direction. Also check out his contributions to Equities.com and Benzinga.