Rich Uncles Review 2021 – Combining Crowdfunding and Commercial REITs

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Rich Uncles Using a crowdfunding platform to raise capital is a popular new concept in real estate investing, including Real Estate Investment Trusts (REITs).
Commissions & Fees - 8.5
Customer Service - 8.5
Ease of Use - 8.5
Diversification - 8
Amount of Deals - 7.5
Due Diligence - 8

8

Rich Uncles' REIT allows non-accredited investors a chance to take advantage of investment opportunities for a low minimum of $5. However, given the long-term nature of these plays, it's not for traders looking for quick profits.

Crowdfunding makes property funding easier and faster than going through the traditional routes of finding bank financing or investors with large amounts of capital who are interested in specific opportunities. It also opens up real estate investing to people who have only small amounts of money to invest.

Rich Uncles was started to give everyone the chance to take part in REIT investing. The company began with an offering that required a minimum of only $500. But now Rich Uncles has introduced a REIT that requires only $5.

Rich Uncles Features

Minimum Investment$5
Account FeesNone
Time Commitment0 Months
Accreditation Required
Private REIT
Offering TypesDebt, Equity, Preferred Equity, Direct Ownership
Property TypesCommerical, Residential, Single Family, Foreign Investors
Regions ServedCA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SC, SD, TX, UT, VA, VT, WI, WY
Secondary Market
Self-Directed IRA
1031 Exchange
Pre-vetted
Pre-funded
  • Liquidity — The Rich Uncles National and Student Housing REITs provides a share redemption program that can be accessed through your shareholder dashboard. You have the option of selling your shares back to Rich Uncles. This aspect of their offering was developed in order to meet the market’s demand for a real estate investment product that did not follow the ebb and flow of the traditional stock market but still provided a level of liquidity traditional commercial real estate can’t match. In this sense, Rich Uncles’ model adds liquidity to a previously illiquid product.
  • Long-Term Investment — When you invest, you are committing to being part owner of many commercial real estate properties. Real estate is a long-term investment. When the fund reaches its cap of investor capital — typically 4–7 years — a fund liquidation event takes place and investment proceeds are distributed. You get your value back — what your shares are worth at the time, plus profits from the proceeds of the sale of all the buildings owned by the fund.Rich Uncles is considered an “open-ended” fund, meaning there is no set liquidation date. It is up to the principals of Rich Uncles to determine the appropriate time and circumstances for portfolio liquidation.Rich Uncles has their shares revalued by an independent third party appraisal firm on an annual basis, which allows their investors the chance to benefit from increases in property value over time. In December 2017, Rich Uncles' California REIT (which closed in 2016)saw a 6.6% increase in share value. The National REIT increased by 0.5% in offering price per share.
  • 50% Cash Equity Ownership in All Owned Properties — Rich Uncles limits the mortgage debt for the National REIT by buying properties with 50% cash down payments, which means they carry 50% cash equity ownership in their entire real estate portfolio. The Student Housing REIT has a higher debt limit, at 75%.
  • Dividend Reinvestment Option — You can choose to have your monthly dividends automatically reinvested and compound your ownership.
  • No Broker Commissions and No Investor Fees — Because Rich Uncles doesn’t use brokers, they do not pay commissions, instead choosing to use crowdfunding to find investors, which reduces their overhead and increases the percentage of returns they can distribute to their members.
  • “Triple-Net Leases” — For the National REIT, Rich Uncles buys commercial properties where tenants are responsible for paying all property-related expenses, including taxes, insurance, and maintenance.
  • Availability — Rich Uncles NNN REIT is currently available to residents of: CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SD, TX, UT, VT, WI, WY. The Student Housing REIT is available to investors in all 50 states, as well as all around the world.

What Is Rich Uncles?

According to co-founder Harold Hofer, Rich Uncles gives small investors the opportunity to “invest alongside the chairman of the world’s largest commercial real estate company and a handpicked team of experts that know the world of real estate inside and out.”

Rich Uncles' founding investor is Raymond Wirta, chairman of CBRE, a global real estate services firm. Rounding out the management team is CEO Harold Hofer, a lawyer who has participated in real estate transactions, as a principal and as a broker, valued in excess of $2 billion in his 30-year real estate.

To understand Rich Uncles’ product offerings, it’s important to understand the difference between a traded REIT and a public non-traded REIT, Rich Uncles being a public non-traded REIT.

A real estate investment trust, or REIT, is a corporation that takes capital from many different investors and uses it to buy income-producing real estate. In general, a REIT is an entity that:

  • combines the capital of many investors to acquire or provide financing for real estate investments;
  • allows individual investors to invest in a professionally managed, large-scale diversified portfolio of real estate;
  • pays distributions to investors of at least 90% of its annual REIT taxable income; and
  • avoids the “double taxation” treatment of investment income, because a REIT is not generally subject to federal corporate income taxes on the portion of income distributed to its stockholders.

Shares in public REITs are available to any investor through the stock market, can be purchased from any registered investment broker and are considered to be liquid — the shares trade on the stock market exchanges, and therefore can be bought and sold quickly. There are hundreds of public REITs on Vanguard, Fidelity, Schwab and other brokerage houses from which you can choose.

Rich Uncles' offerings are classified as public non-traded REITs. The distinction is they are “public” to the extent they are registered with the SEC, so the public can view their offering, but they do not trade on the open market as do the public REIT shares you purchase from an investment broker.

Typically, the sponsor of a public non-traded REIT has an in-house dealer-manager that is responsible for marketing shares to FINRA-licensed broker-dealers and SEC-regulated investment advisors, which results in substantial fees. These fees typically include:

  • 5% to 7% sales commissions paid to the broker-dealer for soliciting the investment,
  • 2% to 3% commission paid to the dealer managing the sales effort, and
  • 1% to 2% paid to the broker-dealer for costs associated with a due diligence review of the offering.

All these commissions and reimbursements mean approximately 8%–12% of the cost of the typical non-traded REIT is spent on broker-dealer and dealer-manager costs, leaving only 88%–92% of investment dollars being placed into actual real estate.

Rich Uncles, LLC, was founded for “a single purpose — to make real estate investment easier and less expensive for the small investor.”

Instead of using the typical broker-dealer distribution channel and paying advisory intermediaries, Rich Uncles uses crowdfunding and the internet to market their REIT directly to investors.

Rich Uncles believes that with the ease and transparency of the internet, the company can deliver a real estate product that has roughly 10% more of the investment amount actually being invested in real estate rather than being paid to others in the form of commissions and reimbursements.

Rich Uncles’ platform provides photos and details about the properties in each REIT. While you don’t pick specific properties to invest in — there are currently two active REITs that hold these properties and you invest in the REITs themselves — you can get a good feel for the portfolio holdings by reviewing the details of the individual properties online.

Rich Uncles Alternatives

HighlightsFundriseCrowdStreetStreitwise
Rating9/108/107/10
Minimum Investment$500$25,000$5,000
Account Fees1%/yearNone2% annual management fee
Private REIT

How Rich Uncles Works

Rich Uncles provides an online platform for investors to buy shares of its single-tenant commercial property REIT, called the Rich Uncles National REIT, or residential real estate through its Student Housing REIT.

The National REIT's main holdings are office and industrial properties, as well as some retail. The collected rent is distributed to shareholders monthly as dividend income. The Student Housing REIT is focused on commercial properties built specifically for student housing.

The National REIT

Rich Uncles acquires and holds commercial properties that meet specific criteria to reduce risk and provide reliable rental income.

Specifically, for the NNN REIT, they seek single-tenant properties:

  • Located in primary, secondary and certain tertiary markets;
  • Where construction is substantially complete to reduce risk associated with new construction;
  • Leased on a “triple net” basis where the tenant is responsible for the payment of taxes, insurance, and maintenance;
  • Leased to tenants with strong financial statements including investment-grade credit quality; and
  • Subject to long-term leases with defined rental rate increases.

The NNN REIT requires a minimum investment of $500.

The Student Housing REIT

Rich Uncles recently introduced a new REIT that makes the platform more like your “crazy rich uncles.” That's because the investment minimum for the new offering is only $5. This truly democratizes investing in multi-family real estate.

Known as the Student Housing REIT, this product focuses on properties that:

  • Were built specifically for student housing;
  • Are within a one-mile walking distance of major NCAA Division I universities that have more than 15,000 enrolled students;
  • Have a minimum capacity of 150 beds;
  • Feature 90% rental occupancy rates; and
  • Represent a broad geographic diversification.

Rich Uncles Pros & Cons

Pros



Low Minimum
—The minimum investment of $5 opens it up to many more people than most commercial real estate crowdfunding platforms.

No REIT Expenses
—Typically, public-traded REITs pay subordinated performance fees equal to 15% of the amounts by which asset sale proceeds exceed the amounts paid to purchase shares, and a return of their invested capital plus a 6% cumulative, non-compounded annual return on invested capital. Rich Uncles charges none of these customary fees.

Monthly Dividends
—Like a dividend-paying stock, Rich Uncles' REIT provides steady monthly dividend income (under normal circumstances). You can choose to receive your dividends in cash or reinvest them.

You Make Money or Rich Uncles Doesn’t Get Paid
—Unlike your typical portfolio manager or broker who collects his monthly management fee or commissions whether he makes money for you or not, Rich Uncles’ business model is performance based. The first 6.5% of profits is paid out to shareholders — Rich Uncles makes money only if the investments deliver — and their share is 40% of profits once the investment exceeds the 6.5% hurdle.

Truly Passive Real Estate Alternative
—A Rich Uncles REIT is a truly passive real estate investment. You invest in the REIT and Rich Uncles does all the legwork and paperwork associated with owning, leasing and managing commercial properties, paying you cash dividends on a monthly basis.

No Accreditation Needed
—You don’t need to be an accredited investor. Rich Uncles asks only that you have a combined family income of $75K or a net worth of at least $250K. Suitability standards differ slightly from state to state, but richuncles.com walks investors through the requirements of their state of residence.

High-Quality Tenants
—For its National REIT, Rich Uncles invests only in single-tenant commercial properties with existing long-term leases. They don’t buy vacant buildings and find tenants. They don’t invest in distressed properties and rehab them. They acquire only three types of properties — office, retail and industrial — which are already leased to high quality tenants.

50% Equity Reduces Real Estate Mortgage Risk
—For its National REIT, Rich Uncles acquires properties with only 50% equity. That would be like you putting a 50% down payment when you buy your home.

Geographical Diversification
—Rich Uncles’ strategy is to acquire properties across the country, thereby reducing the risks of any one market by diversifying their holdings geographically.



Cons



Investment Liquidity
—Once you make an investment, you are pretty much committed to the investment for the term. There is currently no secondary market to sell your investment to others. (However, the company notes that they have never denied a share repurchase request.)

Long-Term Investment
—While some investors have turned to non-traded REITs to sidestep stock market risk, it’s important to understand you give up some liquidity at the same time. Real estate is longer-term investment. You don’t really know what your shares are worth until the very end when the property sells, or Rich Uncles conducts its annual asset appraisal and adjusts share value accordingly.

Monthly Dividends Aren't Guaranteed
—Rich Uncles’ 50% equity model greatly diminishes the chance of foreclosure on any of their holdings, and their tenant screening process ensures credit worthiness, but there is still a chance tenants will fail to pay their rent, which would mean there is no rental income to distribute.









Summary

Similar to Fundrise, which Uncles' REITs give investors access to real estate deals without the high dollar commitment typically needed, without being an accredited investor and without paying the high front-end load fees typically charged by REITs.

Rich Uncles’ business model is an investor’s dream in the sense that, unlike brokers who get paid commission whether they make you money or not, Rich Uncles is incentivized to make money for you. The company is entitled to profits only after the REIT delivers a return of 7.0% to shareholders.

Purchasing shares of Rich Uncles' REITs involves some risk, including the fact that Rich Uncles is a new company with a limited track record. As with any investment, you should carefully read the prospectus prior to making your investment decision.

Ruth Lyons

Trading three decades of financial publishing experience in the corporate world for a life of personal and financial freedom as a freelancer in 2012, Ruth is passionate about helping others take control of their personal finances and to become aware and educated on their options as self-reliant individuals. Disenfranchised with the high cost and lackluster performance of her IRA, college savings and other retirement accounts handled by a full-service broker, Ruth moved her retirement money to a self-directed IRA in 2015. Ruth holds an MS in Finance from Johns Hopkins Carey School of Business (1991) and a Business Management degree from University of Maryland (1984). You can follow Ruth on: Twitter

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8 Comments

  1. Rich Uncles is such a fraud! I lost over 30% on my account. Because of COVID19 I lost so much money on this investment. I would never trust this company again. My friend told me about this company he himself only invested a small amount and I told him how much I invested. He never even mention to be careful and invest only small amount. This investment was a terrible experience.

  2. I lost 26% in one year “trying out” RichUncles and have just closed my account. Luckily I only put in a small amount for this try out. Simultaneously, I have made 9.5% with Fundrise over the same time period.

    I was suspicious about a company with such a dumb name. I should have known better than to invest in such a joke.
    Rich Uncles’ BRIX REIT Facing Insolvency
    May 30, 2020 by Jason Hall

    https://www.fool.com/millionacres/real-estate-investing/articles/rich-uncles-brix-reit-facing-insolvency/
    Excerpt:
    Online real estate investing platform Rich Uncles recently disclosed the brutal impact the COVID-19 shutdown has had on its properties. BRIX REIT, the real estate investment trust (REIT) that owns student housing properties, a 24 Hour Fitness, and a property leased by Starbucks (NASDAQ: SBUX), has seen its rents essentially dry up overnight, and a recent appraisal of its assets has resulted in enormous loss of value.
    Independent valuation erases massive value

    Initially founded as RW Holdings Student Housing REIT with an initial value of $5 per share, BRIX REIT has struggled in recent months. Most recently, the implications of the coronavirus pandemic on much of its real estate has resulted in enormous loss of value.

  3. Rich Uncles is a fraud. Today received an email from the company saying my investment is worthless. They blame covid 19 and student housing yet provide no reasoning as to why they could not convert the properties to some other use, only that tenants filed bankruptcy and no cash flow from students so investment is worthless. They have never paid an income dividend only return of capital in the 3 years I’ve been an investor and have had SEC problems, operational problems, crooks as executives, etc. Ponzi scheme at best.

    1. Same thing happened to my lady. Tried to close account in May was told could not because of Covid-19. Rich Uncles received a PPP loan.

  4. This company should not be trusted with your personal information. I had entered my information correctly into the system but have received multiple emails for other people. Come to find out, not only am I getting emails for the wrong people but other people are receiving my 1099. When I asked how this could happen I was informed addresses were entered manually into a spreadsheet to send out 1099’s. The customer service rep then laughed when I advised that there seemed to be a security risk here, sending tax documents to random addresses (I’m in TX but somehow my tax documents ended up in California? I’ve never even visited CA much less lived there) and emails to incorrect email addresses for customers. It was already a security risk but laughing at your customer when they are letting you know about it is ridiculous. DO NOT do business with this company if you expect your information to be handled securely, it will not be.

  5. I’ve been using their service for half a year. So far so good with the monthly dividend payments. It’s also nice that :” About 1/3 of your dividends are expected to be shielded from ordinary income tax thanks to property depreciation deductions. ”
    But what pisses me off is that they don’t bother getting in touch with their clients to at least defend their position with their SEC issue that they are having. I found out about this through a different real estate investing review site:
    “Rich Uncles’ independent auditor, Anton & Chia, was charged with civil fraud by the SEC in December.”

  6. Ruth, in the section that mentions the ‘PROs’, I think you may be referring to the wrong item in point #1. The REIT DOES charge performance fees once the performance crosses over the return threshold. You may have confused the ‘no commission’ charged by outside B/Ds with the performance fee that is being charged. One has nothing to do with the other. The REIT does charge a 3% Dealer/Manager fee, along with high acquisition fees and disposal fees of properties. There are REIT expenses for sure. I hope this is helpful.

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