(Disclaimer: I’m an investor, not a financial advisor, and this is just my own view. Before making any investment decisions, speak with your own financial advisor.)
We looked at risk, withdrawal fees, limits, and targets in part 1 of this article. We shall contrast skin in the game, the minimum investment, organizational costs, etc., in part 2. Then we’ll make our final judgments.
4) Having Skin in the Game:
Here, all three websites fall much too short. Most fund sponsors will contribute at least 10% of their funds (and some even more). This is a terrific method to connect their interests with yours because they stand to lose money if you do. There are concerns regarding alignment because each of the three sites invests far less money.
The finest fund, Fundrise, has contributed $200,000 to it. (However, it is only 0.4 percent) Note that if you count the “distribution support” as an investment, they have made a total investment of $633,050.
Rich Uncles put $200,000 into their own fund. Currently, this is about 0.1 percent. Furthermore, this percentage will gradually decline if they succeed in raising $1 billion.
Right now, RealtyMogul.com is the biggest underperformer. It has made a startlingly little investment of $2500 in its fund (0.05 percent ).
All are, in my opinion, much too low.
5) Minimum Investment:
Here, all three websites perform admirably. They are far less than the $5000 to $500,000 minimums certified investors are accustomed to seeing on other websites.
Fundraise: $1000
Rich Uncles: $500
RealtyMogul.com: $1000
6) Administrative Costs:
The winner, in this case, is Fundrise, which has a percentage point less than the competition. They cap their administrative costs at $1 million. That amounts to a 2 percent fee deducted from your return on a $50 million fully funded fund.
Rich Uncle and RealtyMogul.com charge a third extra. According to its prospectus, RealtyMogul.com may charge investors up to $1,500,000. If they completely fund $50 million, that equals an expense of 3%.
Rich Uncle will deduct a 3 percent marketing/organizational fee when you make your initial contribution. They are permitted to raise up to $1 billion, though. If they are successful, management claims they anticipate that when they reach an undetermined “tipping point,” the percentage of this fee will start to decline.
7) Starting To Put Money To Use Right Away:
Both Rich Uncles and RealtyMogul.com will accept your investment at any moment.
Before now, Fundrise has only ever accepted payments during relatively brief and occasional windows that follow the purchase of a new property. However, they can now accept investments at any moment, thanks to the launch of their three new REITs. The information on all of the websites is now consistent.
8) More Risk Of Investor Dilution:
Investor dilution affected Fundrise’s first two funds, which I discussed in this piece. This, in my opinion, dramatically raised the risk for investors in addition to diminishing rewards. The only ones still open are their most recent three funds, which are no longer affected by this.
Rich Uncles and RealtyMogul.com have never experienced this problem. As a result, the information on all websites is now consistent.
9) Other:
This story was distributed to all three sites, and a chance for comment was provided. They stated the following:
Rich Uncles:
Most nonaccredited investors do not have the experience or investment sophistication to fully understand the high risks associated with the investment strategies of the other platforms, so Rich Uncles is the only sponsor with an investment product tailored to the level of risk appropriate for them.
RealtyMogul.com:
To let more investors access commercial real estate and the possibility of reliable, alluring returns, we established our income REIT, MogulREIT I. We have worked hard to fulfill that promise since the REIT’s founding in August 2016 and have declared an 8 percent (annualized) payout each month through the end of the year. Offering shares directly to investors online without charging them exorbitant broker selling commissions is one of the reasons we’re able to achieve this. But things don’t stop there. When compared to other online REITs, our REIT stands out because we make it available through a third-party broker-dealer (North Capital). Because of the regulations in place to assure investor protection, we operate in a regulated environment.
Fundrise:
We at Fundrise invented the eREITTM because we think it is a true innovation far superior to any publicly available real estate investment today. Our goal has always been to provide everyone with a simple, affordable means of potentially earning higher, more reliable asset returns. We developed the eREITTM concept and seeing others adopt it has served to verify its advantages further. We anticipate that many others will follow in our footsteps. We never stop striving to innovate, provide fresh opportunities for our investors, and further our purpose.
In conclusion:
The best website for you will rely greatly on your unique circumstances because no site can win on every debate.
First, if you’re a unique investor, your decision is relatively straightforward:
a) The only choice you have is Rich Uncles if you only have $500 to $999 to invest.
b) The only website that offers a 90-day grace period for getting your money back if you’re extremely hesitant (and have at least $1,000) is Fundrise. Therefore, this may be the most significant element for you.
Most investors will, however, need to consider all the other elements as well to make their decision. Taking a collective look at them:
In the majority of comparisons (investment strategy risk, shortest withdrawal vesting timeline, limits/targets), Rich Uncles came out on top.
It didn’t perform as well in terms of fees and skin in the game (second place) (third-place). However, I don’t think any sites have enough at stake for this to be a useful comparison. Their current rates are higher at 3 percent (versus 1.5 to 2 percent with the others). Its advantages will likely outweigh its disadvantages for the majority of investors.
RealtyMogul.com lost to Fundrise for second place. It has the quickest vesting schedule for withdrawals and the lowest expenditure fee at 1.5 percent (versus 2 percent and 3 percent for the others).
Closely behind RealtyMogul.com in the third position. It has an advantage over Fundrise because its SEC registration sets extremely tight restrictions.
Diversify?
One other thing: You might not have to choose between two options.
It might make sense for you to invest in all three funds if you have at least $2500 and feel comfortable owning any of the three. The broadest range of investment methods and pricing structures will be available to you.
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Come join us! Email me at mark@dolphinpi.us to find out more about our next real estate investment.