If you want an investment alternative to the stock market, Rich Uncles offers Real Estate Investment Trusts (REITs) with nationwide exposure to commercial real estate opportunities.
The idea behind Rich Uncles is to make investing in real estate simpler and more affordable. Traditionally, pension funds and high net-worth individuals could invest in commercial real estate but Rich Uncles has made it accessible to non-accredited investors.
For just $500, you can gain exposure to the real estate sector without the hassles associated with buying an investment property yourself.
By cutting out broker/dealers, Rich Uncles claims to save investors as much as 10% compared to traditional REITs. And by purchasing commercial real estate properties with quality tenants, predictable monthly cash flow is more likely.
Where Rich Uncles shines also is its conservative use of debt to buy properties, so the risk exposure to a Fed rate hike from interest rates rising is lessened. While lower debt reduces upside potential, so too does it lower downside risk, which is appealing to more conservative investors.
Table of Contents
- Rich Uncles Spotlight
- Why Choose Rich Uncles?
- How Much Can I Expect To Earn?
- Rich Uncles Highlights
- How Rich Uncles Works
- How Do REITs Work?
- What Due Diligence Does Rich Uncles Perform?
- Where Are Rich Uncles Properties?
- Why Commercial Property?
- Rich Uncles At A Glance
- Rich Uncles Pros and Cons
- Rich Uncles Account Types
- Rich Uncles Fees
- Rich Uncles Summary
Rich Uncles Spotlight
|RICH UNCLES SPOTLIGHT|
4.5 out of 5 stars
via Rich Uncles secure site
Why Choose Rich Uncles?
Rich Uncles lowers the barrier to entry for ordinary investors to gain exposure to real estate, a sector that has generated market-beating returns during the first couple of decades of this century.
Investors with exposure to stock and bond markets historically had few places to turn if they wanted alternative investments to feature in their portfolios. Commercial real estate in particular was virtually inaccessible to most ordinary investors because purchase prices are often in the tens of millions of dollars.
Along with Fundrise and some other real estate crowdfunding platforms, Rich Uncles has taken advantage of legislative changes to open the doors of commercial real estate investing to the general public.
No longer do you need to be an accredited investor earning $200,000 annually or with a net worth in excess of $1,000,000 – excluding a primary residence – to gain exposure to real estate.
The attraction to the real estate sector is obvious. Rich Uncles cites this chart from NCREIF.org which demonstrates that between 2000-2016, real estate growth of 144% outshone the returns of the S&P 500 which were 55%.
Stock market investors may dispute the claim that real estate beats the stock market when it comes to performance. If you were to compare the two over a longer time period, stock market returns are hard to beat.
But that doesn’t take away from the major aim of Rich Uncles and other crowdfunding private real estate platforms, which is to open up a new category of investing hitherto inaccessible to most everyone except the very rich.
How Much Can I Expect To Earn?
Over a 5 year period, Rich Uncles projects that your money will grow by about 50% based on a 7% annual dividend reinvested and 2% appreciation in property values.
Rich Uncles is not a get rich quick scheme by any means. The company uses comparatively little debt to finance purchases. Where many property buyers will use as much as 80% or even 90% debt to finance purchases, Rich Uncles employs just 50% debt.
The more leverage used, the more returns are amplified. But equally, when investments go sour, the greater the losses that accrue.
HOW LEVERAGE WORKS
Imagine a property costs $1,000,000 and you used $100,000 of your own cash to buy it and borrowed $900,000 from the bank.
If the property value declined by just 10% from $1,000,000 to $900,000, your entire cash investment, the equity, would be wiped out.
In essence, you would have lost 100% of the money you invested.
On the flipside, if the property value rose just 10%, you would end up almost doubling your money after factoring in interest costs because the property would appreciate to $1,100,000 and you could pay back the bank $900,000 plus interest and keep the rest – almost $200,000 – for yourself.
HOW MUCH DEBT DOES RICH UNCLES USE?
As you can see, the game of excessive leverage is a high stakes game of risk and reward. And the good news for conservative investors is that Rich Uncles takes a more conservative route when it comes to the use of debt.
Instead, the maximum leverage or debt exposure is just 50%, a comparatively modest level among real estate investors.
What this means is you aren’t going to receive account statements that make you think you’ve won the lottery, but equally your investment is more cushioned from property price changes in the event of an economic downturn.
If you were to invest $10,000, Rich Uncles projects that you could earn as much as $15,652 over a 5 year period based on a 7% annual dividend reinvested and 2% annual property price increases.
With an average investor committing approximately $30,000, the projected payoff is $46,955 over a 5 year period.
Rich Uncles Highlights
- Minimum Net Worth: $250,000 (or $75,000 salary)
- Diversification: Nationwide (with few states as exceptions)
- Term Length: 4-7 years (though technically indefinite)
How Rich Uncles Works
Sign up, choose how you want to get paid, provide your social security number, and in the time it takes to boil a cup of tea, you could be invested in commercial real estate!
Getting started with Rich Uncles takes no more than 5 minutes from our experience.
To review the Rich Uncles website, you will need to sign up with your email address and create a password.
If you like what you see, you can quickly follow the steps, which begins by deciding how you wish to invest.
Rich Uncles supports individual, retirement, joint, trust and entity account types.
You’ll be quizzed about how you want to take ownership of your dividends too, whether as cash into your bank account or reinvested monthly.
Then you will be asked to provide your social security number or business EIN, review the legal terms, connect your bank account and sign documents online.
From start to finish, we found the process intuitive, simple, and fast with no hiccups along the way, whether connecting to a bank account, providing authorization or executing documents.
How Do REITs Work?
REITs are investment vehicles that pool investors’ capital with a view to gaining exposure to a broader real estate basket than would be possible if investors purchased separately.
REITs are commonly used to purchase commercial and large residential properties, including office, industrial, and retail spaces.
REITs generally fall into three categories:
When you invest with Rich Uncles, you are buying shares in a private equity REIT (as opposed to a publicly traded REIT).
What Due Diligence Does Rich Uncles Perform?
While the step by step of precisely how Rich Uncles conducts its vetting process is not outlined, the standard steps include:
|Research||Performed By Rich Uncles|
|Preliminary title report||✅|
|Interior & exterior inspection reports||✅|
|Tenant payment history & lease details||✅|
|Detailed financial pro forma & return estimates||✅|
|Visualizations of income, appreciation, and total returns||✅|
|Property valuation & comparables||✅|
|Major repair cost estimates, if applicable||✅|
Where Are Rich Uncles Properties?
Based on the Rich Uncles prospectus, a snapshot of the properties in the Rich Uncles I portfolio is featured below and shows heavy exposure geographically to California and to the retail sector.
|Chevron Gas Station||California||Retail|
|Chevron Gas Station||California||Retail|
|Island Pacific Supermarket||California||Retail|
According to its prospectus, Rich Uncles had spent approximately $137,000,000 acquiring properties as of June 30, 2017.
Other properties owned by Rich Uncles have broader nationwide coverage with states featured including:
- CA, CO, CT, GA, HI, ID, IL, IN, KY, LA, MT, NH, NV, NY, SD, TX, UT, VT, WI, WY
Why Commercial Property?
Commercial property tenants are subject to triple-net lease terms that transfers the obligation of taxes, maintenance, and insurance to the tenants.
The advantage of commercial properties is that brand name tenants, such as Chase Bank, FujiFilm, Wyndham, Harley Davidson and Williams Sonoma, are clients and they are less likely to default on rental payments than would be the case for a residential tenant.
Rich Uncles focuses on a wide range of commercial properties, including retail, office, and even gas stations.
Another attractive feature of Rich Uncles REITs is nationwide locations that provide geographic diversification.
Plus, they act as an inflation hedge and offer an investment opportunity that is uncorrelated with the stock market.
|Commercial Property Features||YES/NO|
|Cash flow from day one||✅|
|Uncorrelated to stock market||✅|
|Investment portfolio diversification||✅|
|Buy with leverage||✅|
Rich Uncles At A Glance
Rich Uncles is a REIT so you don’t own property per se but rather shares in an entity that owns the property. No 1031 exchanges are permitted.
|Property Type||Commercial Property|
|Do You Own Property?||NO|
|Term Length||4-7 years
(average, not guaranteed)
Rich Uncles Pros and Cons
Rich Uncles has a low minimum to get started and pays monthly dividends which is attractive for investors seeking regular cash flow but fee transparency is a bit murky and, while middlemen are cut out, it’s not entirely clear what the total annual cost of fees is as a % of your overall investment.
|Rich Uncles Pros||Rich Uncles Cons|
|✅ Low Investment Minimum: You can get started for just $500.||❌ Illiquid Investments: Rich Uncles will repurchase shares monthly but also states that “you must be prepared to hold your shares for an indefinite length of time” which suggests liquidity is limited.|
|✅ Monthly Dividends: Cash dividends are paid each month from rental income.||❌ Geographic Exposure: While Rich Uncles has broad (though not full) nationwide coverage, heavy exposure to the retail sector is noteworthy in some investment offerings, such as Rich Uncles I.|
|✅ Non-Accredited Investors Permitted: You don’t need to have the income and net worth requirements of an accredited investor to gain exposure to commercial real estate.|
|✅ Comparatively Low Debt Exposure: Rich Uncles limits debt exposure to 50% in order to lower the leverage associated with any purchase.|
|✅ Nationwide Coverage: To maximize portfolio diversification, Rich Uncles features properties mostly nationwide.|
|✅ Non-U.S. Residents: U.S. residents as well as foreign investors are eligible to invest with Rich Uncles.|
|✅ Hands-off Investing: Unlike some online real estate portals, such as Roofstock, which requires you to buy a property and has associated responsibilities, Rich Uncles will source, own, manage, and operate properties.|
|✅ Triple-Net Lease Terms: Rich Uncles operates triple-net lease terms with tenants so they are responsible for tax payments, insurance, and maintenance.|
|✅ Highly Rated Tenants: Rich Uncles leases to well respected tenants, including major corporations and respected brand name firms.|
|✅ Zero Standard REIT Fees: Typical REIT fees are eliminated with Rich Uncles for lower overall expense ratios because Rich Uncles relies on technology and online marketing to lower traditional capital acquisition costs.|
|✅ A+ Rating: Better Business Bureau awards Rich Uncles an A+ rating.|
Rich Uncles Account Types
Rich Uncles Fees
Only two types of fees generally affect investors, Share Repurchase Fees and Organization & Operational Expenses. If an investment goes really bad, a liquidation fee may apply.
Share Repurchase Fees
The longer you hold your shares the better off you will be. If you buy shares of a Rich Uncles REIT and sell those shares back within three years of initial purchase, you will be subject to a 1-3% fee depending on the duration of your holding.
If you hold your shares for less than a year, you will incur the maximum repurchase fee of 3%. Holding shares for more than one year but less than two will result in a repurchase fee equal to 2%. And holding for more than two years but less than three years will result in a 1% repurchase fee.
When you buy shares, 97% of your money is used to buy real estate while the remaining 3% is used to pay Rich Uncles, LLC for managing the REITs.
Although 3% is taken out immediately, you still receive dividends on 100% of your invested amount.
Given that the most recent Rich Uncles launch has been a $1 billion offering, the likelihood of a liquidation fee being applied is low.
Nevertheless, it is technically possible that a liquidation event could occur from the sale of properties, a public listing, or a merger with another company.
In such a scenario, investors may be subject to a 30% fee on the increase in share value at that time.
Some other fees are charged by the advisor, Rich Uncles LLC, to the REITs (e.g. Rich Uncles NNN REIT) but none are passed on to investors, and Rich Uncles LLC has waived them since inception.
Rich Uncles Summary
Rich Uncles earns high marks for making it easy for any investor worth $250,000 or earning at least $75,000 a year to gain exposure to a geographically diversified portfolio of commercial real estate.
For just $500, you can get started and earn passive income monthly with the added attraction that Rich Uncles commits to delivering 7% in annual dividends to investors.
Whether an individual, married, or looking to invest as part of an entity or trust, Rich Uncles makes all options available and promises to save you 10% by cutting out middlemen, such as a broker-dealer who would otherwise solicit investments and sales teams earning commissions.
However, Rich Uncles loses a few points when it comes to transparency, both with respect to fees and vetting of properties. Although the company is SEC registered, no third party oversight is in place that we could determine to spotlight total fees because it is not a publicly traded REIT, so it is best to consult a financial advisor to ascertain the suitability for your own circumstances.