Investing in general can be a tricky landscape to navigate. The stock market has seen its share of ups and downs over the last couple of years, and crypto investing, while potentially lucrative, can be a volatile gamble for average investors. There are other, safer options you can utilize to help your money make money, of course — things like high-yield savings accounts, bonds, or low-risk funds — but these less risky investments don’t typically offer the high returns many investors seek.
The drive to find a good balance between risk and reward has led many investors to take an alternate route via real estate investing.
Thanks largely to matured start-ups reaching mass adoption like Airbnb and Vrbo, there has been an explosion in real estate investing nationwide as buyers snatch up properties for short-term rentals in hot markets, which has led to a shortage of inventory in these markets. Competition is now extremely tough for properties in many areas, making it even harder to land the right type of investment.
While short-term rental properties are extremely popular options for investing, many investors would prefer passive investment options in real estate.
That is where platforms like RealtyMogul come in. RealtyMogul allows you to invest your money passively in vetted commercial real estate properties that have the potential to generate income and grow in value.
To see if this real estate investment platform is right for you, continue reading our comprehensive review below.
What is RealtyMogul and who is behind it?
While perhaps not as well-known as platforms like CrowdStreet or DiversyFund, RealtyMogul is one of the earlier entrants into the hot market of crowd sourced real estate investment platforms.
The site was founded in 2012 by Jilliene Helman and Justin Hughes as part of the Microsoft/TechStars Accelerator event in Seattle, and was officially launched in 2013.
Helman, who has underwritten over $5 billion of real estate and acts as the CEO of the company, sits on RealtyMogul’s board. She is responsible for the company’s strategic direction and operations, and has plenty of experience with these tasks, thanks to her prior experience as a Vice President at Union Bank, where she spent time in Wealth Management, Finance and Risk Management.
Hughes is the co-founder of RealtyMogul and is a licensed real estate professional in California. Prior to helping launch RealtyMogul, Hughes ran an independent consultancy in Los Angeles that managed on-line communities and built web presences.
Helman and Hughes launched this platform with the idea that it would bring investors and real estate investment sponsors and borrowers together in order to create real estate investment opportunities that were mutually beneficial for both parties.
On the surface, the platform works similarly to many of the other real estate investment platforms. Investors buy “shares” into commercial real estate projects that are sold on the marketplace. This process allows developers to “crowdsource” the funds they need to complete their commercial project(s) from many investors who want a decent return on their invested capital and like the prospects of the project.
Investors who use RealtyMogul are able to choose from a wide range of individual commercial real estate investments. This could include projects like multi-family dwellings, office buildings, industrial sites, storage units, and retail or medical buildings — or any mix of other commercial projects, depending on what needs funding.
Prior to being allowed access to the RealtyMogul marketplace, each project is vetted to ensure the individuals behind the deal, and their project, meet the rigorous standards outlined by the company. A tenured group of real estate veterans with contracts across the US both seek out deals for the platform and vet deals submitted for inclusion.
According to RealtyMogul, they review thousands of deals each year and less than 1 percent of those end up on the marketplace.
There are other options for investing in commercial property via RealtyMarket, too. In addition to the private investments listed on the platform’s market, accredited investors can also opt into real estate investment trusts, or REITs, and 1031 eligible private placement investments on this platform.
REITs are a popular choice among real estate investors because they allow you to invest in companies that own, operate, or finance income-producing properties — which can result in much higher returns than other types of investments. We’ll talk more about these types of investments below.
Features and Benefits
There are a wide range of benefits for investors, but perhaps the largest one is that it offers investors multiple avenues for investing in commercial real estate. Investors who use this platform get access to a variety of both public, non-traded REITs and private placements, which allows both accredited and non-accredited investors to take advantage of what RealtyMogul has to offer.
This is a significant perk for smaller investors, who may not be able to meet the laborious requirements for accreditation that are required by other platforms. It can be nearly impossible for smaller retail investors to meet the accreditation requirements set by the SEC, and that can put other platforms out of reach.
If you’re not sure why accreditation would be out of reach for smaller investors, here’s why: the SEC requires accredited investors to meet one of the following to be officially accredited:
- Individuals: Must have income of more than $200,000 per year for each of the last two years with expectations to exceed that threshold for current year.
- Spouses: Must have joint income between spouses of more than $300,000 per year for each of the last two years, with expectations to exceed the threshold in the current year.
- A net worth exceeding $1M, excluding your primary residence, either individually or jointly with your spouse.
- An investment on behalf of an entity with at least $5M in assets or an entity in which all the equity owners are accredited investors.
These accreditation requirements make it tough for small retail investors to take advantage of public, non-traded REITs, which are subject to oversight by the SEC.
But that’s where platforms like RealtyMogul (or DiversyFund) differ. They offer investors the option to buy into private market offerings, which are projects offered by individual borrowers that need funding. It also offers two different public, non-traded REITs, which gives investors even more options.
Another great feature of RealtyMogul is the vetting process. Rather than focussing on riskier projects in hopes of higher returns, RealtyMogul looks for safer “value-add”deals, particularly in multi-family housing. In most cases, the properties listed on the platform already have cash flows to help fund them, but could use a cash boost from private investors to help generate higher returns.
RealtyMogul REIT Offerings
RealtyMogul has two different REITs available to investors: the MogulREIT I and the MogulREIT II.
- MogulREIT I: According to RealtyMogul, the MogulREIT I is a “public, non-traded REIT making debt and equity investments in commercial real estate properties diversified by investment, geography and property type.” This REIT’s primary focus is on providing regular income to investors. To do this, it rigorously evaluates investment opportunities to find ones that can support the REIT’s distribution target.
The goal of this REIT is to help investors earn passive income by investing in a range of investments across property types and geographies. By diversifying the types of properties in the REIT, it helps to reduce risk and maximize returns for investors. This REIT pays out to investors on a monthly basis.
- MogulREIT II: The MogulREIT II is also a public non-traded REIT. The main difference between the MogulREIT I and II is that MogulREIT II focuses on longer-term appreciation, and in turn, only pays out dividends to investors on a quarterly basis.
The MogulREIT II generally invests in common and preferred equity investments in multifamily apartments. The historical dividends for MogulREIT II are lower than MogulREIT I, but that’s because, according to RealtyMogul, it aims for “significant value appreciation” in its share prices over time.
Access for non-accredited investors
While private placements are limited to accredited investors, both the MogulREIT I and II are available to both accredited and non-accredited investors alike. This means that investors have a choice of what they want to put their money into. In many cases, REITs are limited to accredited investors, so having two REITs available for non-accredited investors is a substantial perk.
Through the RealtyMogul platform, investors have the opportunity to invest in real estate opportunities online through a private, secure website. Investors can browse investments, review due diligence materials and sign legal documents securely online. Once invested, investors have access to an investor dashboard, giving them 24/7 access to monitor their money at work.
1031 exchange eligible properties
RealtyMogul also offers 1031 exchange eligible properties to investors, which helps cut down on costs associated with buying and selling properties. A 1031 exchange is a procedure that allows the owner of an investment property to sell it and buy like-kind property all while deferring capital gains tax.
By using RealtyMogul, you can find and invest in properties eligible for this type of capital gains tax deferment. This helps cut down on tax penalties incurred from buying and selling investment properties.
The benefits of using this exchange are as follows:
- You can defer capital gains taxes on the sale of your property, and invest in cash flowing properties.
- You can ensure certainty of closing and avoid property management headaches.
- You can diversify your portfolio with a broad range of geography and property types.
As touched on above, the deals on this platform tend to be lower risk than what you’d get with some of the other real estate crowdfunding platforms. While no investment is without risk, the upside of using RealtyMogul is that there is a lot of due diligence that goes into vetting the investment opportunities on this platform.
We’ll get into more on the safety measures in place for this platform below, but what you need to know is that generally, you’ll encounter investments with lower risk.
The option to auto-invest
Not all platforms offer the option to auto invest, but RealtyMogul does. After the initial investment into one of the REITs, you can auto-invest as little as $250 per month into your chosen REIT to continue building your investment on a monthly basis.
The Share Repurchase Program
If you aren’t happy with your REIT investment on this platform, or if you need access to your capital and can’t wait out the term of your REIT, you have the option to opt into the Share Repurchase Program.
This program allows shareholders to sell their MogulREIT I and MogulREIT II investments back to RealtyMogul for a reduced price after a year. One thing to note, though, is that these repurchases are “subject to availability of capital,” according to RealtyMogul.
If you want to sell back your REIT shares to RealtyMogul, here’s what you’re looking at on the repurchase price:
- Less than one year: No repurchase allowed
- 1 to 2 years: 98% repurchase
- 2 to 3 years: 99% repurchase
- 3 or more years: 100% repurchase
Average Return to Investors
The average return varies by the type of investment you make. That said, the good thing about RealtyMogul is that they provide clear data and information on average returns since inception.
Here’s how the ROIs (return on investment) look per product:
- MogulREIT I: The minimum initial investment amount for this type of REIT is $5,000 and the return is a 6% annualized rate of return.
Dividends on this REIT are paid monthly, so what you get in return for your investment will depend on how much you invest. It’s important to remember that the dividends are paid out monthly, and the total you receive is 6% per year.
If you want to know more about the historical returns for this REIT, you can find the monthly distribution information broken down by share here.
- MogulREIT II: As with the MogulREIT I, the minimum initial investment amount for the REIT II is $5,000. The return is 4.50% annualized.
Dividends on this REIT are paid quarterly, which means that you’ll get dividends equal to one-quarter of the 4.5% annualized rate for each quarter.
If you want to learn more about the historical returns for the MogulREIT II, you can find the monthly distribution information per share here.
- Private placements: The average return information on private placements isn’t readily available. According to RealtyMogul, the average return on private placements can range from 0% to 15% annualized — which is admittedly a pretty wide range.
That variable rate of return is due mostly to the fact that individual properties vary widely from one another. What you stand to earn on your investment will be affected by a wide range of factors, including the total amount invested, the length of the investment, the type of project, the risk associated with the project, and of course other macro factors that deal with the health of the economy in general.
Any type of investment you pursue will have some drawbacks, and that’s true for RealtyMogul as well. The potential drawbacks of using this platform include:
- Accreditation requirement for private placements: If you want to invest in private placements as a non-accredited investor, this isn’t the right platform for your needs. You have to be accredited to invest in RealtyMogul’s private placements, but you do have the REIT options if you want to pursue them.
- A high minimum for investments: RealtyMogul requires you to invest at least $5,000 in its REITs and other investment opportunities, which means that you need to have a lot of spare cash on hand to invest via this platform. If you’re short on funds, or just aren’t ready to take the plunge, you may want to opt for an alternative platform.
- Fees: We’ll talk more on these fees in the section below, but you should note that there are fees associated with using this platform.
Cost Associated With RealtyMogul
As mentioned above, there are some fees to pay when using this platform.
The fees you may encounter when using this platform for private placements include:
- A technology services fee for private placements.
- A 1% administrative services fee for private placements.
REIT fees include:
- Operating fees of up to 3% of equity raised from REIT investors.
- Asset management fees of 1% annualized, which is based on the average investment value.
- A disposition fee of up to 2% of the contract sales price for each sold asset
- An undisclosed promoted interest fee.
- A servicing fee for performing investments, which amounts to 0.5% of the principal balance and accrued interest.
- A special servicing fee for non-performing assets — which is 1% of the original value.
These fees can be costly depending on what you invest in, how it performs, and how much money you have invested in the platform. So, keep this in mind and be sure to do the math of what your investment will cost before you pull the trigger.
How are RealtyMogul’s Investments Sourced?
RealtyMogul’s investments come from two places: 1.) directly from borrowers, who submit deals to be considered and vetted by the platform; and 2.) via an in-house team that finds the investments that may fit its platform and market.
The potential deals that are presented to RealtyMogul are vetted to gain insights into things like the potential partner’s background, their experience, their references, etc. Background and criminal checks are also conducted to identify any pending litigation or items of concern.
Any and all assets that were previously acquired by the potential real estate partner company are then examined and compared to the scope of the proposed project. RealtyMogul also consults references to find out more about the potential partner(s) before any investment opportunities are listed on the marketplace.
How are the properties vetted
The quality of the property is obviously a huge point of consideration before accepting or rejecting it onto the marketplace.
RealtyMogul evaluates the property in 3 ways before coming to their determination. These are:
- Physical state of the property. The current physical condition of the property is assessed as well as the business plan or capital expenditure plan to renovate the property.
- Income generated and occupancy relative to market. RealtyMogul thoroughly evaluates the tenant population, the vacancy and rental rates of the asset, and then benchmarks these figures against comparables in the local market.
- Site visit. A RealtyMogul representative visits the property ALWAYS. This is a core tenant of RealtyMogul’s due diligence.
Who Is This Platform For?
This platform caters to a wide range of investors because it offers opportunities for both accredited and non-accredited investors. That said, while you can invest in the opportunities offered by RealtyMogul, you’ll have to have enough spare cash to do so.
The minimum investment on this site is $5,000, which means it’s geared toward investors who are both able to come up with the minimum requirement and unafraid of making larger investments. That can be limiting in many cases, as smaller or novice retail investors are welcome, but may not be able to meet the requirements for the minimum investment.
Otherwise, it’s a great way for investors to find individual projects to fund or to take advantage of what the REITs offer. If you can meet the minimum investment requirement, there’s likely an opportunity for you to invest on this site.
Is RealtyMogul Safe?
As we noted above, RealtyMogul does a deep dive into the backgrounds of the potential partners and the projects they’re presenting. The focus with this platform is on safer investment opportunities, so if you’re looking for a “safe” real estate investment opportunity, chances are good that the ones on this platform have been thoroughly vetted.
In addition to the vetting process, investors are also offered deal-specific information so that they can perform their own due diligence on the investment opportunities offered on the site, which adds another layer of protection to the mix.
RealtyMogul also works to protect the privacy and confidentiality of information transmitted through its platform. Some of the central features of its security program include:
- Internal and external review of public and non-public sites and services.
- The use of specialized technologies such as firewalls and encryption.
- Rigorous multi-stage testing of the operability of products and features and updates for known vulnerabilities.
- Monitoring of systems infrastructure to detect weaknesses and potential intrusions.
How RealtyMogul Differs From the Competition
We’ve pitted RealtyMogul against the largest and most popular crowd sourced real estate platforms on the web to give you an idea of how they stack up against the competition on some key metrics.
|Platform||Fees||Minimum Investment||Annual Returns|
|DiversyFund||$0||$500||11 – 18%|
|Crowdstreet||0.50% – 2.50%||$25,000||17.1%|
|RealtyMogul||0.50% – 3.0%||$5,000||up to 15%|
We should also note that the Share Repurchase Program is unusual for these types of companies and investment products. It’s not typically easy to get out of a longer-term investment once you’re locked in, but this platform offers a way for investors to do that with minimal loss after one year.fdiver