October 6, 2018

Rich Uncles Review: Is It Good?

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Do you shy away from investing in real estate because it's expensive and complicated? It can be. But Rich Uncles set out to make it less expensive and less complicated. Its mission is to give anyone who wants to try real estate investments a chance.

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Rich Uncles is a public non-traded REIT. In other words, the shares aren't traded in the public market. They rely on crowdfunding to fund real estate projects. This makes it easier on potential property owners to secure financing, rather than going through the traditional bank financing channels. It also makes it easier for the "Average Joe" to invest in real estate. Rich Uncles funds real estate projects, collects the rent, and distributes the rent via dividends to shareholders each month.

Rich Uncles cuts out the broker or middleman. They claim this means a larger portion of your investment is placed in the REIT and less goes towards fees.

Is this the answer for the "little guy" to invest in real estate? Keep reading to find out more.

What Is a Traded REIT?
REITs are portfolios of properties that corporations or trusts purchase with funds from a pool of investors. You purchase shares of real estate, which the corporation or trust uses to create the real estate portfolio. Investors typically invest in office buildings, apartment complexes, and shopping malls. You don't get to pick and choose the real estate investments the REIT invests in - you provide the funds and the REIT chooses the proper portfolio.

You buy REITs on the stock market from a broker. You can buy and sell the shares at any time. You can use any broker to purchase them too.

How Does Rich Uncles Work?

Rich Uncles is the opposite of a traded REIT. They are a non-traded REIT. Right off the bat, you should know that this equates to an illiquid investment. They are public because they are registered with the SEC. In other words, any investor can view the offering. You can't buy shares on the stock market or through a traditional broker, though.

Instead, you buy shares from an in-house manager, aka Rich Uncles. Rich Uncles markets the shares on the internet and then uses crowdfunding to sell the shares. By cutting out the "middleman," Rich Uncles claims to invest 10% more of your funds directly into the investment rather than into fees.

Signing Up for Rich Uncles

Signing up for Rich Uncles is easy. You provide your name, phone number, and email address. For now, you choose how you want to take ownership of the investment (individual, joint, trust, entity, or retirement). Next, you'll choose the type of REIT - National or Student Housing.

Before you can decide this, you need to know the requirements. In order to qualify for National REITs, you need a net worth of at least $70,000 and minimum annual income of $70,000. You don't need a minimum net worth or income to invest in Student Housing. However, you must prove that the amount you invest doesn't total more than 10% of your total net worth.

Finally, you choose the dollar amount you want to invest ($500 minimum for National REITs and $5 minimum for Student Housing) and choose how to receive your dividends. You can choose to reinvest or be paid as cash (deposited in your bank account).

The final step requires providing your personal identifying information, including your Social Security number for tax reporting purposes. You'll also provide your bank's routing information for the purchase of the shares.

National REITs vs Student Housing REITs:
Rich Uncles offers two types of REITs. National REITs are for completed commercial properties that have strong financials. They generally have long-term, triple net leases.

Student Housing REITs fund multi-family housing units within 1 mile of major universities. The units have a maximum of 150 beds and 90% occupancy rates.

What Are the Fees?

Rich Uncles claims they invest 97% of the sale of shares. If you invest $10,000, they use $9,700 to invest in REITs. The remaining 3% helps cover the costs to run Rich Uncles. Before you fund your account, make sure you read the prospectus provided so you have a clear understanding of your actual fees.

Reasons We Like Rich Uncles

  • You don't need to be an accredited investor. Many real estate investment companies require investors to be "accredited." This means an annual income of at least $200,000 for the last two years or a net worth of at least $1 million. Rich Uncles has more flexible rules regarding who can invest, opening up the Student Housing REITs to the "average investor."

  • You can start investing with just $500. If you meet the requirements for National REITs, you can invest with as little as $500 (at around $10 per share). If you invest in Student Housing, you can invest with as little as $5 per share.

  • You may receive monthly dividend payments from the rental revenue. Rich Uncles pays dividends from creditworthy tenants on a monthly basis. There is no guarantee that rent will be paid or that you will receive monthly dividends, which is a part of the risk of the investment. Before you choose a specific investment, make sure you read the fine print in the prospectus.

  • You may pay less in dealer/broker fees. Rich Uncles doesn't have to cover broker commission costs. This enables them to charge you lower fees, putting more of your money directly in the investment.

  • Rich Uncles tries to invest in recognizable tenants. Clicking on their list of properties, you'll see names like Walgreens, 3M, and Harley Davidson, just to name a few.

  • Rich Uncles does all of the work for you. As a generally small investor, you reap the benefits of investing in real estate as passive income. Rich Uncles finds the properties, prepares the lease, collects the rents, and manages the properties. You collect dividends when they are available just by providing an investment.

  • Rich Uncles tries to purchase properties with 50% equity. This helps to lower the risk of default. Property owners with significant amounts of equity typically remain in good standing, compared to those who have little money invested and can walk away from the property without a large loss.

  • Rich Uncles diversifies the portfolio geographically. Currently Rich Uncles purchases properties throughout 24 states. This helps diversify your risk should one area experience a downturn. If you have money invested in properties in other parts of the country that aren't affected by the downturn, it may help minimize your losses.

  • Rich Uncles focuses on commercial real estate. Commercial tenants have triple net lease terms. This means they are responsible for the property taxes, insurance, and maintenance. The burden is therefore not placed on Rich Uncles, which would otherwise take away from your returns.

  • Rich Uncles offers a Share Repurchase Program. Generally, non-traded REITs are illiquid. You keep the shares until the designated time frame, which could be many years down the road. But Rich Uncles does offer a way out with their Repurchase Program. Make sure to read the disclosures carefully, though, as the program is subject to certain fees.

Reasons You May Want to Look Elsewhere

  • The investment period is long. Just as we discussed above, you are in the REIT investment for the long haul. It could be as long as 7 years. If you want out, you will lose a portion of your investment. Your greatest return on investment often comes when the property sells. If you can't hang in there that long, you may lose out on many of the benefits of investing in a non-traded REIT.

  • Your monthly dividends aren't guaranteed. Many investments don't have a guaranteed return. That's a part of the risk of investing. The highlight of non-traded REITs, though, is the monthly dividends. While Rich Uncles vets the properties carefully, there's no way to protect themselves from defaults and foreclosures 100% of the time.

  • You have no say in which properties your money gets invested. The only choice you have is the type of REIT you invest in - National or Student Housing.

How It Compares

Fundrise: Both Fundrise and Rich Uncles don't require you to be an accredited investor. Fundrise does require a minimum $500 investment, but that's similar to the National REIT offerings by Rich Uncles. Fundrise pays dividends quarterly versus Rich Uncles' monthly payouts.

Bottom Line

At the very least, before you decide to invest with Rich Uncles, you'll want to read their prospectus. We also recommend discussing the option with your financial advisor. Rich Uncles is registered with the SEC, but with non-public traded investments, there are no third parties overseeing the investments.

As with any investment, proceed with caution and with the advice of a professional. While you won't receive a guarantee of positive returns, you'll have the benefit of solid financial advice at your disposal.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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