- Review: Realty Mogul
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Just as crowd funding has come to investing and borrowing, it has also made its way to real estate investing. Realty Mogul is a real estate crowd funding platform where investors and real estate investment sponsors and borrowers come together to create mutually agreeable real estate investments. Although we found a few flaws in the system, overall it is easy to use and convenient. Here’s our full review.
What is Realty Mogul?
Realty Mogul is an online real estate capital marketplace that began in 2013. The platform was founded by Jilliene Helman and Justin Hughes. Their aim was to disrupt traditional real estate funding by developing an online crowd funding site.
Crowd funding 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 (though Realty Mogul is also open to institutional participation).
Today, the platform claims more than 20,000 investors, borrowers and sponsors. It has provided financing for more than 300 properties, with loans totaling more than $700 million. The platform arranges residential debt products, as well as both equity and debt products for commercial real estate. Realty Mogul is staffed by a team of professionals who have a mix of experience in real estate, finance and technology.
How Does Realty Mogul Work?
Realty Mogul enables investors to participate in a wide range of real estate investments. Some examples include multi-family dwellings, office buildings, industrial sites, self storage, retail, medical buildings and hospitality establishments. They will even enable you to participate in single-family properties that are bought for the purpose of being rehabilitated and flipped. Just about any property can be invested in, as long as it is not used as a primary home or as a secondary residence.
When you invest, you typically do so by purchasing shares in a Realty Mogul 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 through the platform.
RM Manager, LLC, which is a wholly owned subsidiary of Realty Mogul, serves as manager of the Realty Mogul LLCs.
The term of specific investments depends upon whether it is a debt or equity investment. Loan investments are generally six to 12 months, while equity investments are anywhere from three years up to 10 years. Equity investments generally pay distributions on a quarterly basis, while debt investments pay monthly. These are just general rules, and it’s important to understand the distributions on any investment are never guaranteed.
For income tax purposes, an IRS form K-1 will be provided for each equity investment, reporting the results of that particular investment. Income from loans will be reported on IRS form 1099.
Debt investments. When investing in loans, you will either purchase a whole loan — which is actually secured by real estate — or what is known as a platform note. These notes are borrower payment-dependent promissory notes from Realty Mogul. They are unsecured, limited-recourse loans that correspond with the underlying mortgage loan originated on the website.
If you choose to be the sole investor on a whole loan, you will be responsible for the cost of any foreclosure in the event of a default.
Realty Mogul benefits:
- Ease of investment selection
- Quick and easy funding
- 24/7 investment monitoring
- Documents can be executed online
- Quarterly or monthly distributions
- Realty Mogul 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 an initial underwriting to determine the viability of each investment
- Invest in both loans and equity investments
Features and Pricing
In order to invest with Realty Mogul, you must make a minimum initial investment of $5,000. 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.
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 substantial financial strength, well able to withstand a potential loss on your investment position. After that, you will enter general information, and you’re in.
Realty Mogul 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.
Browse Investments. From the Realty Mogul dashboard you can easily research available investment opportunities. By clicking the “Investments” tab at the top of the page, you will have relevant information available about each investment, including:
- Current funding
- Estimated return
- Type of property
- Estimated holding period
- Minimum investment
This will give you the information you need to be able to select the best investments to meet your goals.
MogulREIT I (New)
In competing with Fundrise’s eREITs Realty Mogul has introduced a REIT themselves. Called MogulREIT I, the benefits of a REIT is no accreditation is needed, more diversification at a lower amount needed than investing in individual properties, and typically lower investment requirement than a private placement. Though non-accredited investors must have net worth and annual income greater than $25,000. The minimum amount to invest is $2,500 and the REIT will have an annual fee capped at 3% which makes this fund costly and no bargain.
According to their web site “MogulREIT can invest in a variety of property types, including but not limited to, multi-family, office, industrial, self-storage, retail, medical office, and hospitality. 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, Realty Mogul states the will allow redemptions on a quarterly basis. Though also noted in the offering circular, they have limits on the total amount of redemptions per year.
- "Pre-Vetted" Investments — Realty Mogul has a preliminary 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 principles involved in the investments.
- Simple Investment Process — When purchased individually, real estate investments can be quite complicated, especially commercial properties and properties purchased that are rehabbed and flipped. But Realty Mogul makes real estate investing almost as simple as investing in paper assets, the way you would on an investment brokerage platform.
- No Capital Calls — Other than for foreclosure costs on whole loans (but not platform notes), there are no capital calls in which you will be required to provide additional capital over and above your initial investment. In lieu of an 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 percent to 15 percent). In the event that 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.
- 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 Realty Mogul you can invest in individual properties, including those close to your home. In fact, Realty Mogul allows you to be very specific with your real estate investments.
- REIT (New) — The recently introduced MogulREIT I allows non-accredited investors to invest in real estate.
- 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. Though the recently introduced MogulREIT is for non-accredited investors.
- Customer Service — We contacted Realty Mogul to get clarification on some questions about their service. We went through their customer support email did not get a response. We followed up with more emails and three phone calls, all of which went unanswered. Not sure if this was our specific situation or a chronic issue.
Realty Mogul offers a unique opportunity to invest in real estate that’s less involved than buying property outright on an individual basis, but it is much deeper in scope than investing in real estate through a real estate investment trust (REIT). It’s an opportunity to invest in real estate through a variety of close-to-home investment opportunities.
The disadvantages are that you must be an accredited investor, which is to say that if you’re a small investor, you cannot participate. And as disclosed above, customer service seems to be lacking on the site, which could become a serious issue if your inquiries had to do with a specific investment you have money in.