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Realty Mogul Review for Real Estate Crowdfunding Investors

Realty Mogul review of returns and fees uncovers some complaints around the real estate crowdfunding site

I’ve reviewed several real estate crowdfunding sites on the blog and have invested my own money on a few. One thing I’ve learned is that there is no single model for how crowdfunding platforms are run.

That means understanding exactly what you’re getting on each real estate investing site is crucial to making the right decisions.

Since few real estate crowd platforms are large enough to offer all the deals you’ll need to build a diversified platform, I’ve found the best route is to have accounts on a few platforms to get access to more deals.

My goal through these reviews is to reveal the benefits and limitations of each crowdfunding site for real estate investors. You’ll be able to compare platforms, understand what you get for your investment and make an informed decision on which to invest.

Today, I’m reviewing Realty Mogul, one of the oldest real estate crowdfunding websites.

Check out these other reviews of real estate crowdfunding and platforms:

What is Realty Mogul?

Realty Mogul is a real estate crowdfunding platform offering debt and equity investments in real estate projects. The company also offers its Mogul REITs, funds investing in individual properties and paying out regular distributions.

Realty Mogul is one of the few real estate crowdfunding sites open to non-accredited investors as well as the wealthy. Most platforms are only open to investment by people with annual incomes above $200,000 or net wealth above $1 million (accredited investors).

The platform was one of the early adopters into real estate crowdfunding after passage of the 2012 JOBS Act. It lists over 140,000 investors with $300 million invested and $65 million paid out over its history.

It seems the site has slowed down over the last few years though and has suffered from the increase in competition from other platforms. I’ll get further into this later on but I think a lot of it has to do with the way investments are structured on the website.

Instead of investing directly in real estate, investors on Realty Mogul are investing in an LLC company owned and managed by Realty Mogul, which then makes equity and debt investments in properties.

How to Invest on Realty Mogul?

There are three ways to invest on Realty Mogul; directly in debt or equity real estate investments or through the Mogul REIT fund.

Non-accredited, individual investors are only allowed to invest in the REIT fund. The Mogul REIT includes ongoing investments the portfolio managers make in real estate equity and debt investments. Investors put money in the fund and get rights to distributions made by the managers.

Unlike shares of REITs you can buy through other investing accounts, the Mogul REIT is not tradable. That means the portfolio manager sets the price of shares and you may not be able to sell your shares immediately. The REITs are owned and completely controlled by Realty Mogul. It is up to the company how much they distribute to investors, if at all, and the value they assign to the shares.

realty mogul review for real estate crowdfunding investors

realty mogul review for real estate crowdfunding investors

Unlike other real estate crowdfunding platforms, you aren’t directly investing in properties when you invest on Realty Mogul.

Equity investments in real estate deals are actually an investment in an Realty Mogul LLC which then invests in the properties. Debt investments are in an unsecured note issued by Realty Mogul that is tied to the performance of the original real estate loan.

This kind of investment structure is different from a direct investment and carries with it unique risks.

Your debt investment is not secured by property. That means you may have very few rights in the event of a default on the original loan. I haven’t invested on Realty Mogul so can’t speak to the returns on deals but it seems that the company controls more of the process than other platforms which only act as connectors between developers and investors.

The biggest risk in this kind of investment structure is that your investments are also tied to the success of the Realty Mogul platform. To my knowledge, investments aren’t held in a bankruptcy remote entity so any trouble at the platform could affect returns.

LLCs are “pass through” entities so are not taxed at the corporate level but pass all costs and earnings through to members (investors). You will receive a special K-1 tax form each year that will show the how much you need to report in depreciation and distributions. This means your taxes will usually be lower initially because of limited cash flow and depreciation expense but then will be higher later.

Realty Mogul Fees and Minimum Investment

realty mogul review and complaintsThe company lists no fee range in its FAQ but does give fee ranges in the individual investment pages. Reading through some of the property offerings, I found most to charge around 2% with a 1% annual fee on the Mogul REIT.

The minimum investment on Realty Mogul is often an initial minimum and then a minimum for each property deal.

IRA accounts require a $10,000 minimum initially and then the per-deal minimum which usually ranges from $1,000 to $5,000 per investment. RIA accounts require a $25,000 initial minimum and then per-deal minimums.

Regular accounts generally only require the minimum investment for individual deals, starting at $1,000 per investment. The REIT requires a $1,000 minimum investment.

Realty Mogul Returns

It’s difficult to estimate Realty Mogul returns for past or prospective investments versus my previous survey of average real estate crowdfunding returns. Of the 110 investments that have paid final distributions, the company lists returns for real estate debt investments while returns for equity deals are found in the original offering docs.

REIT returns will depend on the net asset value (NAV) set by the portfolio manager as well as the distribution, also the discretion of Realty Mogul. The REIT has recently been distributing $0.0667 monthly, paid out on a quarterly basis, which equates to an 8% annual return on the published $10 NAV.

Realty Mogul Complaints

Real estate crowdfunding is still a new way to invest and platforms are experimenting with different structures and rules. I understand that and I’m sure Realty Mogul is trying to offer some benefits through its unique structure. When I invest in real estate, I prefer a direct investment rather than one managed by the real estate platform.

Since investors don’t get a direct ownership in real estate deals, rather shares in the Realty Mogul LLC that invests in properties, investment carries risks that the company will run into problems as well as property-related risks.

I couldn’t find any reporting obligations of the LLC manager and not having invested before, it’s impossible for me to assess what kind of transparency investors get on their investment. The manager is an ‘exempt reporting advisor’ which means they aren’t required to register with the SEC but may still report to FINRA.

 

REIT redemptions are only allowed on a quarterly basis and the discretion of Realty Mogul. I haven’t heard of any liquidity problems with the fund and I imagine it just buys back offered shares rather than wait for a buyer. Ultimately though, it’s not a market transaction but one at the discretion of the fund manager.

The Mogul REIT may be able to bring something to the table by investing in smaller deals and more flexibility than a publicly-traded REIT. I’m not sure if this would make up for the higher fees compared to the Vanguard REIT ETF (for example) which charges a 0.12% expense ratio and is diversified across 158 REITs and thousands of properties.

Other Crowdfunding Platforms Like Realty Mogul

Realty Mogul was one of the first real estate crowdfunding platforms to launch and did well in the early years after the JOBS Act. I don’t see as many open investments on the platform as in years past which might just be increased competition or investor preference for other investment structures.

Most other real estate crowdfunding platforms only allow investment by accredited investors so there is still the draw to Realty Mogul for non-accredited investors though they are confined to the REIT investment.

For real estate debt investments, I prefer PeerStreet for its lower fees and transparency. Investments are made directly in the real estate loans rather than a promissory note issued by the platform and returns range from 6% to 12% depending on terms.

You will have to make your own decision whether to invest on Realty Mogul or not. I found the investment structure and other Realty Mogul complaints to be just a little too much versus RealtyShares and some of the other real estate crowdfunding platforms. That’s just my opinion and you may see benefits I missed.

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