Rich Uncles Review - Commercial Real Estate Investing for Small Investors
Interested in real estate investment but not ready to purchase an entire property? Real estate crowdfunding platform, Rich Uncles, may be for you.
- Non-accredited investors
- Open to foreign investors
- Tax savings
Not only is there a low minimum initial investment requirement, but you are also not required to be an accredited investor to participate. Those are the two biggest barriers to real estate crowdfunding investing for smaller investors, but Rich Uncles has overcome both obstacles.
What’s even more exciting is that Rich Uncles doesn’t involve any broker/dealer costs. That means you as the investor, earn even higher returns on your money.
Based in Costa Mesa, California, Rich Uncles was launched in 2012. It’s a real estate crowdfunding platform operated by two individuals. Ray Wirta is the founding investor, and Harold Hofer serves as Chief Executive Officer. They’re Uncle Ray and Uncle Harold.
Ray is the chairman of CBRE Group, Inc , a Fortune 500 and S&P 500 company that’s also the world’s largest commercial real estate services and investment firm. In 2015, CBRE Group had total revenues of $11 billion, as well as 75,000 employees in over 450 offices worldwide.
Harold is a seasoned real estate expert who has been involved in $2 billion worth of real estate transactions. He is also a graduate of the UCLA School of Law. He has sponsored real estate funds for individual investors in the form of limited partnerships (LPs), limited liability companies (LLCs), and real estate investment trusts (REITs).
Together, the two “uncles” have created a real estate crowdfunding platform for the small investor. You can invest in a portfolio of income producing commercial real estate for as little as $500.
That’s completely consistent with the platform’s stated purpose: to make real estate investment easier and less expensive.
Rich Uncles has a Better Business Bureau (BBB) rating of A+ (on a scale of A+ to F), and has been BBB accredited since September, 2014.
Rich Uncles investments are real estate investment trusts, or REITs. A REIT is a corporation that combines capital from a group of investors, to buy and operate income producing property. It can be thought of as a mutual fund for real estate, since it gives investors a low-cost way to invest in commercial real estate.
One of the major advantages with REITs is the way they’re taxed. They avoid double taxation, that applies to corporations, because the REIT itself generally does not pay income taxes. What’s more, REITs are required to pay out 90% of their income to their investors. That makes them the perfect vehicle to generate and distribute income. That income is distributed as dividends to the individual investors in the REIT.
Still another advantage of REITs is that they provide an opportunity to invest in a portfolio of properties. In this way, they allow an investor to spread his or her investment across multiple properties. But rather than holding stocks or bonds in the fund, they instead hold interest in various properties.
One particular advantage of Rich Uncles is that they don’t pay commissions and fees to “middleman.” With most REITS, those fees can represent 10% of the fund’s income. Since Rich Uncles doesn’t pay it, it means more revenue to the investor. Instead of using just 90% of the proceeds for investment, Rich Uncles will use 97%, with the remaining 3% paying for organization and offering costs.Great for small investors to break into real estate
Rich Uncles currently offers three different REITs:
Rich Uncles Student Housing REIT, Inc.
This is a REIT that invests in purpose-built student housing for university student living environments. The portfolio is expected to generate a 6% annualized dividend yield.
The properties are generally located within one mile walking distance of a major NCAA Division I university, with a minimum of 15,000 students enrolled. Each property has a 150-bed minimum capacity, with a 90% rental occupancy rate.
Rich Uncles NNN REIT, Inc.
In this REIT, Rich Uncles invests in commercial properties with high quality single tenants. Properties invested in include commercial, retail, and industrial properties. Properties are located in primary, secondary, and certain tertiary markets in Florida, Georgia, Maine, Pennsylvania, Ohio, Texas, Nevada, Virginia, North Carolina, and Arizona.
They’re leased on what is known as a triple net basis. That’s where the tenant is responsible for the payment of property taxes, insurance, and property maintenance, over and above the basic rent payment.
These property leases are long term in nature, and contain defined rental rate increases to ensure future profitability. Occupying tenants have strong financial positions, which also includes investment grade credit levels. The weighted average annual return is projected at 7.44%.
Rich Uncles Real Estate Trust I.
This REIT is similarly designed to produce steady income for investors. But it’s also expected to produce future property value appreciation, providing both income and growth.
Property types and tenant requirements are similar to those for the NNN REIT. Leases are also set up on a triple net basis. Properties are primarily retail, commercial and industrial. Most are located in California, plus a small number in Texas. The weighted average return is projected at 6.79% per year.
Investor residency requirements: Investors in Rich Uncles can be foreign based, as well as U.S. citizens and residents.
Income distributions: Dividends are distributed to investors on a monthly basis. The specific amount of the distribution is determined by the board of directors, and will depend on cash availability, as well as projected cash requirements. Income payments will begin in the first month of investor participation. The investor will receive a prorated payment for that first month, and then monthly thereafter. Income received through distributions will generally be taxable. However, some portion of the dividends may be nontaxable, since it represents depreciation taken on the real estate owned in the REIT. You will receive IRS Form 1099 reporting your dividend income each year.
Limited liquidity: Rich Uncles REITs are not as liquid as other types of investments. Your shares may be redeemable each month through the Share Repurchase Program, but will be subject to limitations and fees.
Rich Uncles Fees: There are no fees paid by the investor in connection with Rich Uncles REITs which is another major advantage of this investment.
States where Rich Uncles is available: Rich Uncles is available to investors in the following 24 states: California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Missouri, Montana, New Hampshire, Nevada, New York, South Carolina, South Dakota, Texas, Utah, Virginia, Vermont, Wisconsin, and Wyoming.
Signing up for Rich Uncles: You don’t need to be an accredited investor. That’s good news since accredited investor status comes with some stiff financial requirements, that are well beyond the financial resources of the average person.
Customer support: Rich Uncles can be contacted either by phone, email, or through the online contact form.
One of the basic advantages of Rich Uncles is that it’s available for investors at just about any level. But why would you want to invest with Rich Uncles in the first place?
There are two basic reasons:
- Adding real estate to your portfolio provides a level of diversification that’s not available with paper assets, like stocks and bonds.
- Real estate has shown impressive investment results in recent decades.
To the first point, we all know diversification is important. And what you diversify into matters. One of the advantages with real estate is that it tends to work largely independent of paper assets, like stocks and bonds. It’s possible for real estate to be rising in value, while paper assets are falling. This is particularly true of properties producing generous income returns.
But there’s also some evidence real estate has been outperforming stocks in recent decades:
The chart above shows that real estate has easily outperformed the S&P 500 since 2000. The real estate performance is based on REITs.
That kind of performance shouldn’t be ignored by investors, particularly small investors who are looking for above average returns on their money.
And once again, since the REITs Rich Uncles invests in payout 90% or more of their income in dividends, they’re a perfect investment vehicle to generate regular income for investors.
- Open to non-accredited investors: You don’t need to be an accredited investor to participate in Rich Uncles. This is a serious departure from most real estate crowdfunding platforms.
- $500 minimum initial investment: Most real estate crowdfunding platforms require a minimum investment of $5,000.
- Open to foreign investors: Rich Uncles is available to non-U.S. investors, as well us U.S. citizens and residents.
- Tax savings: At least some of your dividend income will not be subject to income tax, since it represents depreciation expense on the properties owned in the REITs.
- No fees: The investor pays no fees to the REIT.
- No hassle: It’s investing in real estate without getting your hands dirty, or fielding tenant calls in the middle of the night. The REITs handle all the management details, and you collect your monthly income.
- Long-term deals: As is the case with all real estate crowdfunding investments, the particular deals you're investing in are long term in nature. Your funds will be tied up for a considerable amount of time, and you will not be able to actively trade within your account. There is only limited ability to sell your shares early through the Share Repurchase Program, and that isn’t guaranteed.
- It's risky: As is the case with all real estate crowdfunding investments, neither your principal nor investment returns are guaranteed, nor are they insured by any federal agencies.
- Limited availability: Rich Uncles is not available in all states.
- Only allows self-directed IRAs: Rich Uncles REITs must be held in very specialized self-directed IRA accounts.
Question: Why is Rich Uncles better than buying a piece of property and owning it directly?
Answer: Buying any real estate in most markets is an expensive proposition. Since it is investment property, you will need a large down payment, typically 20% or more of the purchase price. You will also have all your money tied up in a single property. With Rich Uncles, you’ll be invested in a portfolio of properties, giving you solid real estate diversification. It’s also the simplest form of real estate investment. You make your upfront investment, then receive your monthly dividend payment.
Question: How is commercial real estate a diversification from stocks and bonds?
Answer: Stocks and bonds tend to move in tandem, especially when interest rates rise. Both can fall at the same time. Since the properties held in the Rich Uncles REITs are each income producing in nature, and rented to high quality tenants under advantageous circumstances, they can outperform stocks and bonds during bear markets. It’s also a way of adding inflation protection to your portfolio, since real estate tends to rise in value consistent with inflation.
Question: What do I have to do to qualify as an accredited investor?
Answer: There are two basic requirements, and you must meet at least one of them:
- You must have an income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expect the same for the current year, OR
- You must have a net worth in excess of $1 million, either alone or together with a spouse, and that amount cannot include the value of your primary residence. Most investors don’t meet either requirement, which is why the fact that Rich Uncles doesn’t require you to be an accredited investor is so important.
Question: What do you mean by saying Rich Uncles REITs aren’t liquid?
Answer: Rich Uncles REITs are private REITs. That means they don’t trade on public exchanges. If you buy into one, you won’t be able to call up a broker, and sell your position quickly. Each share is an investment in a portfolio of commercial property, which is not a particularly liquid investment. However, distributions of proceeds may be made periodically as properties within each portfolio are sold off.
Question: Is Rich Uncles the only real estate crowdfunding investment available?
Answer: Not at all. In fact, there are quite a few, as the number of crowdfunding platforms have suddenly grown. Other popular real estate crowdfunding platforms include Fundrise, PeerStreet, Realty Mogul, and ArborCrowd.
Before investing in a real estate crowdfunding platform, you should check out several, to determine which will work best for you. Once again, Rich Uncles has a big advantage in that it does not require that you be an accredited investor, and most real estate crowdfunding platforms do.
If you’re a small investor, and you’re interested in adding commercial real estate to your portfolio, Rich Uncles is one of the better platforms to consider. The minimum investment of just $500, combined with the fact that you don’t need to be an accredited investor, make it a natural choice for small investors.
And by adding commercial real estate to your portfolio, you’ll provide your investments with a valuable diversification away from pure paper assets, and into the ultimate tangible asset–real estate. In addition, Rich Uncles does a superb job of vetting both properties and tenants, to provide a portfolio of high quality commercial real estate investments.
If you’d like more information, or you’d like to sign up for the service, visit the Rich Uncles website.