People are constantly in the search for means and areas to invest some money in with hopes of getting good returns. For those thinking of venturing into real estate investment, a review of Rich Uncles will reveal its features and its problems.
Rich Uncles offers to allow everyone to be part of the REIT investment community. Whether as a credited or unaccredited investor, they offer a REIT that requires a minimum of only $5.
Too good to be true, right?!
Stay with me through this Rich Uncles review as we clear our doubts, see the problems, and answer our questions.
What is Rich Uncles?
Rich Uncles is a real estate crowdfunding platform founded by Raymond Wirta, Chairman of CBRE, and Harold Hofer a lawyer who is worth over $2billion.
The idea behind the name was that it would offer an average investor the opportunity to invest together with their “Rich Uncles” who were knowledgeable in real estate.
The aim was to make real estate investment easy and inexpensive for all investors whether accredited or not. The cost was lower because of the power of the internet.
Some corporations are either traded REIT or public non-traded REIT, and Rich Uncles is reviewed as a public non-traded REIT (Real Estate Investment Trust). This means that though they are public – registered with the SEC, so the public can view their offering; however, they do not trade on the open market.
Usually, the fees are so significant because the sponsor of a public non-traded REIT has an internal dealer-manager whose job it is to market shares to FINRA-licensed broker-dealers and investment advisors regulated by the SEC.
Broker-dealer and dealer-manager costs take up roughly 8%–12% of the cost of the typical non-traded REIT. So, only about 88%–92% of investment dollars are eventually used in actual real estate.
Since Rich Uncles, LLC aims to review and make real estate investment easy and inexpensive, they use crowdfunding and the internet to market their REIT directly to investors. This entirely eliminates the cost of the typical broker-dealer distribution channel and paying advisory intermediaries.
The effortlessness and transparency of the internet will deliver a real estate product that offers the addition of about 10% of investments put into real estate investments.
What Features Does Rich Uncles Offer?
This basically answers the question “Why would I want to invest with Rich Uncles?”
Low minimum investment
Rich Uncles started with an offer that required at least $500. However, they have introduced a REIT that requires only $5. Meanwhile, some other online real estate investment sites accept a minimum investment of $500 – $25,000.
Based in Costa Mesa, California, the Rich Uncles is a triple net lease (or NNN) fund. This helps to reduce the expenses of the investors since the tenants are responsible for the property’s expenses. This includes taxes, insurance, and maintenance.
They also operate 45 revenue-yielding properties in 14 states, plus 19 retail properties like gas stations and Walgreens drug stores; 14 office complexes for companies like Costco and engine-manufacturer Cummins Inc. And, 12 industrial tenants, including a global distribution hub for manufacturing conglomerate 3M.
The company took a conscious effort to curb the problems of external or asset management fees and acquisition fees. As an investor, you simply pay a 3% initial fee on shares that you want to buy. This 3% is to cater to the operating costs of Rich Uncles.
The invested amount is the remaining 97% of your money.
Share Cost and Dividend Payments
The estimated cost per share may vary based on the conditions of the market. However, it was set at $10.27. You get the dividends monthly, or, you may decide to reinvest.
The annual dividend was put at $0.7 by Rich Uncles for 2020.
Rich Uncles accepts both accredited and unaccredited investors. According to the SEC, an accredited investor is one who has a net worth of more than $1 million or a yearly income of the past two years of a minimum of $200,000 for individuals. And, $300, 000 for a couple that files a joint tax return.
Rich Uncles require a net worth of a minimum of $250,000, or a gross annual income of at least $70,000, and a net worth of at least $70, 000. This does not include the value of the investor’s home and cars.
The Student Housing REIT is available to all investors in all 50 states and all around the world. However, the Rich Uncles NNN REIT is reviewed to be currently obtainable for residents of CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SD, TX, UT, VT, WI, WY.
Share repurchase agreement
Rich Uncles offers a share buyback agreement to ease the problems of investors who want to take cash out earlier than planned. However, withdrawals in a year of the first investment pay a 3% fee, which would reduce to 2% within two years and 1% within three years.
Although the company may stop repurchasing if it doesn’t have enough cash reserves.
Before you decide to invest check the Rich Uncles prospectus for a full review of the Rich Uncles.
How Does Rich Uncles Work?
Rich Uncles creates an opportunity for investors to review and buy shares of either its single-tenant commercial property REIT, called the Rich Uncles National REIT; or residential real estate through its Student Housing REIT.
The National REIT
The main holdings of The National REIT’s are office and industrial properties and some retail. To reduce problems and provide a steady rental income, Rich Uncles National REIT acquires and holds commercial properties that meet certain conditions.
They collect rent and share it with shareholders as dividend income monthly.
The NNN REIT usually goes for single-tenant properties:
- where construction is substantially complete to reduce the risk associated with new construction. Properties located in primary, secondary, and certain tertiary markets;
- Leased on a “triple net” base where the tenant pays for the taxes, insurance, and maintenance;
- Leased to tenants with solid financial statements with investment-grade credit quality; and
- Subject to lasting leases with definite rental rate increases.
The NNN REIT requires an investment of at least $500.
The Student Housing REIT
The Student Housing REIT offers a minimum investment of $5 mostly for residential multi-unit housing. This is not common as most real estate crowdfunding platforms offer at least between $1,000 – $5,000.
The Student Housing REIT aims to buy student housing within a one-mile walking distance of popular NCAA Division I universities. They offer constant cash flow since the market for college education and student housing is evergreen.
Real estate crowdfunding is a preferable way to own properties like that, rather than owning them physically. This would eliminate the stress and hassles of maintenance.
These properties purchased in the Student Housing REIT have at least a 150 beds capacity. Plus, a 90% rate of rental occupancy.
The Student Housing REIT represents a wide-ranging geographic diversification.
What Are Rich Uncles Pros & Cons?
Here’s a review of the benefits and shortcomings of the Rich Uncles REIT
|Pros of the Rich Uncles REIT||Cons of the Rich Uncles REIT|
|Low minimum investments||Investment liquidity|
|There are no REIT expenses||Long-term investment|
|They provide monthly dividends||Monthly dividends aren’t guaranteed. This is a serious shortcoming of Rich Uncles.|
|You make money or Rich Uncles doesn’t get paid|
|A Rich Uncles REIT is a truly passive real estate alternative|
|There’s no accreditation needed|
|You get high-quality tenants|
|They provide geographical diversification|
|They provide a 50% equity that reduces real estate mortgage risk|
Rich Uncles’ business model is what every investor hopes for. A system where the company only gets its profits after the REIT distributes a return of 7.0% to the shareholders. This would surely encourage Rich Uncles to review their strategies to make money for you.
They also make provisions for accredited and unaccredited investors to invest in an easy and affordable company.
Considering that Rich Uncles REIT is a new company, there are some problems you may face.
You should know that in September 2019, Rich Uncles paid a $300,000 settlement to the SEC for 2017 violations that had to do with how they advised and advertised to their investors about its former fund’s selection.
Rich Uncles try to put this problem behind them. However, it’s something worth noting if you intend to be an investor.