RealtyMogul is a popular crowdfunded real estate platform that lets you invest in commercial and multifamily properties with (relatively) small amounts of money. It is possible to earn competitive dividends on the platform, but be prepared for a relatively long-term commitment.
How RealtyMogul Works
RealtyMogul invests in commercial and multifamily properties across the United States. Unfortunately, these property types are usually too expensive for most individual investors.
But these properties have a low investment minimum when you use real estate crowdfunding.
Instead of buying a physical property, you purchase shares of public non-traded real estate investment trusts (REITs) or individual properties. The investment platform manages the property, collects monthly rent payments and distributes profits to investors.
Accredited and non-accredited investors can start investing with only $5,000. Qualified investors can access private placements and 1031 exchanges.
Investors can earn recurring dividends that are competitive with stock market investments. But one tradeoff for the competitive investment returns is having to make a long-term investment commitment.
Investors should plan on holding your shares for at least 12 months – before that period RealtyMogul will not repurchase them. After 12 months, an early redemption fee will apply if you sell your stake before holding it for three years.
There are several investment options:
- Real estate investment trusts (REITs)
- Individual properties
- 1031 exchange
This platform offers more investment choices than most competing platforms.
Who Can Invest?
RealtyMogul is open to non-accredited and accredited investors at least 18 years old who live in the United States.
While this crowdfunding platform is one of the few open to most investors, your investor status determines your investment options.
Non-accredited investors will only be able to invest in the MogulREITs that hold a portfolio of properties that RealtyMogul manages. Other platforms have a similar policy.
Accredited investors with a qualifying net worth or annual income can participate in individual deals and swap existing rental properties with a 1031 exchange to reduce investment taxes.
You must meet one of these qualifications to be an accredited investor:
- A liquid net worth of at least $1 million (excluding the value of your primary residence)
- An annual income of least $200,000 for the last two years ($300,000 for couples)
The minimum initial investment for the REITs is $5,000. One-time subsequent investments are $1,000 but monthly auto-investments are only $250.
Individual property investment minimums vary by offering but expect to invest at least $25,000. However, most offerings require $35,000 (as of June 2021).
It’s free to join RealtyMogul but you pay investment fees on your invested cash. The annual asset management fee is 1% of your portfolio value.
Other miscellaneous fees vary by types of deals to buy, sell or maintain a property. For example, some equity deals (where investors get an ownership stake) have different fees than debt-type deals where investors lend money and collect interest.
Here are some of the fees you can expect:
- Organization, offering and other operating expenses: Up to 3% of the share purchase price
- Asset management fee: 1%
- Disposition fee: 2% (equity assets only)
- Servicing fee: Up to 1.0% (debt, fixed income and preferred equity assets only)
The fees vary by investment offering and these fees are for the MogulREIT I. These expenses are similar to other platforms.
The redemption policy depends on whether you invest in a MogulREIT or an individual property.
MogulREIT I and MogulREIT II
There is a minimum 12-month holding period for the REITs. You must hold the shares for at least three years (36 months) to avoid an early redemption fee.
|Holding Period||Redemption Penalty|
|1 year or less||Cannot sell|
|1 year but less than 2 years||2%|
|2 years but less than 3 years||1%|
|3 years or more||0%|
You can request to sell your shares quarterly. However, as crowdfunded real estate is highly illiquid, your buyback is subject to capital availability.
If there isn’t enough free cash to buy your shares, you may have to hold them for a while longer.
You might be unable to sell your shares during a market downturn or real estate panic when many people desire to sell their positions to invest their cash in other assets.
It can be harder to redeem shares of individual properties. These offerings have a target holding period.
In most cases, investors are unable to sell their shares until the manager decides to liquidate the fund. The liquidation date can be earlier or later than the anticipated investment maturity date.
The platform has several investment options that can cater to many investment strategies. Pursuing multiple strategies with one platform is a leading reason to consider RealtyMogul versus similar platforms.
Investment focus: Dividend income
Initial investment minimum: $5,000
Annualized dividend: 6.00%
Dividend distribution frequency: Monthly
Non-accredited and accredited investors can invest
The first of two REIT options is MogulREIT I. It’s the better option to receive a higher dividend payout.
The other REIT (MogulREIT II) is growth-focused. As a result, it has a lower annual dividend yield but can earn more one-time profits by selling properties for a profit.
Its $5,000 initial minimum investment is reasonable but can be higher than competing platforms.
This fund invests in these property types:
Multifamily assets are approximately 57% of the portfolio of properties as of June 2021. The REIT also invests in commercial properties across the United States.
The other MogulREIT only invests in multifamily properties if you want to avoid commercial real estate.
This REIT awards a monthly dividend you can reinvest or receive cash distributions.
As of April 30, 2020, the annualized dividend yield is 6%. The historical yield is between 6% and 8% since the fund’s inception in 2016.
This 6% dividend yield is slightly lower than the historical S&P 500 index fund return but there’s less market volatility. The yield can also be higher than REITs that trade on the stock market and blue-chip dividend stocks.
Investment focus: Long-term growth with multifamily properties
Initial investment minimum: $5,000
Annualized dividend: 4.50%
Dividend distribution frequency: Quarterly
Non-accredited and accredited investors can invest
The second REIT option is MogulREIT II that only invests in multifamily properties in the United States. Again, it can be the better choice if you are willing to earn a smaller dividend in exchange for potentially better investment gains in the future.
This REIT holds multifamily properties with long-term growth potential.
The fund takes a “value-add” approach by making capital improvements that can:
- Increase the rent payments for tenants
- Reduce operating expenses
Investors earn quarterly dividends from the tenant rental income. In addition, the fund’s net asset value (NAV) can increase with appreciating property values that may sell for a profit.
The fund pays quarterly dividends with an annualized 4.5% distribution yield. This rate is competitive with most public REITs trading on the stock market.
You may prefer MogulREIT II’s portfolio if you only want to invest in multifamily property. Another benefit is avoiding the day-to-day price volatility of real estate stocks.
Investment focus: Multifamily and mixed-use
Initial investment minimum: $25,000
Annualized dividend: Varies
Dividend distribution frequency: Varies
Accredited investors can invest
Directly investing in individual properties is another unique feature of RealtyMogul. Being able to handpick your investment portfolio instead of relying on a REIT fund manager adds more flexibility for experienced real estate investors.
The investment minimum starts at $25,000 but can be higher. Many offerings require $35,000 for instance.
Despite the relatively high investment amount, these offerings are a convenient way to invest outside your local real estate market.
Unfortunately, only accredited investors can invest in individual properties with RealtyMogul.
The number of open offerings fluctuates but there are usually a few properties available at a time. There might be times when there are zero available offerings similar to buying local properties.
The offerings can be for multifamily or commercial real estate. Most are for multifamily properties.
It’s essential to read the offering documents before investing to calculate the potential investment returns of private placement deals.
Each offering includes these details:
- Property type (multifamily, office, retail)
- Estimated holding period
- Estimated first distribution
- Targeted investment returns
The offering brief also itemizes the planned upgrades and estimated costs. Investors can also see the comparable property values and monthly rental incomes for nearby properties.
In addition to seeing the property details, RealtyMogul lists the investment history of the sponsor. Choosing a deal sponsor with a history of profitable investments can increase the likelihood that the offering will succeed in favorable market conditions.
While investors get plenty of information, it’s still important they perform their due diligence on the potential property and its real estate market. This additional research can explore potential risks and decide if the offering is a good fit for an investment portfolio.
Are there any capital calls?
Standalone deals may also require future capital calls if the deal sponsor needs additional funds due to high expenses and poor cash flow.
The good news is that capital calls rarely happen, according to RealtyMogul.
Investors who currently own investment property may exchange like-kind properties and minimize their capital gains taxes.
RealtyMogul is one of the rare crowdfunding platforms supporting 1031 exchanges.
Qualified investors can contact the service to begin this transaction.
The tax treatment for RealtyMogul investments can be similar to other assets.
These REITs will receive a 1099-DIV tax form similar to a stock market investment.
Individual offerings will receive the more complex Schedule K-1 instead of a 1099-DIV by April 1. Debt-structured deals can receive a 1099-INT when receiving at least $10 interest income.
Is RealtyMogul Safe?
RealtyMogul is a legit way to invest in crowdfunded commercial and multifamily real estate. The platform registers with the US Securities and Exchange Commission (SEC), similar to other crowdfunding platforms and stock brokerages.
Either MogulREIT earns recurring dividend payments. It’s also possible to profit when selling the shares for more than the original purchase price if the portfolio’s net asset value increases.
As this asset class requires a long-term commitment, you should only invest cash that you won’t need to access soon. The early redemption penalties can erode potential investment gains.
Potential RealtyMogul Risks
There are several risks that can spark investment losses or reduced dividend distributions.
Some examples include:
- Tenants stop paying rent
- Monthly rents reduce due to negative market conditions
- Property value declines
- The property sells for a loss
- Expensive property repairs and upgrades
- Property loss or damage
A general real estate market downturn can cause RealtyMogul to suspend share buybacks. This means you won’t be able to sell your REIT shares quarterly and individual offerings may exceed their target holding period.
As the investment portfolio may not be as extensive as real estate stocks, a single property failure or diminished returns can have a greater effect on the overall investment performance.
The other real estate crowdfunding platforms share the same risk factors.
RealtyMogul Pros & Cons
Here is a summary of the positives and negatives of this investment platform.
- Many investment opportunities
- Accepts accredited and non-accredited investors
- Invests in multifamily and commercial properties
- Earn monthly or quarterly dividends
- Long-term holding periods
- Only accredited investors can access individual properties
- Investment minimums are relatively high
- Investment fees can be confusing
Here are some of the other platforms that can substitute or supplement a RealtyMogul portfolio.
Why we like it: $1,000 minimum investment, several REIT options
Fundrise is open to accredited and non-accredited investors. Its investment minimum is $1,000 but the platform doesn’t offer individual offerings.
The service invests in multifamily and commercial properties.
Advanced portfolios are available with a $5,000 account balance that focus on a specific investment strategy such as high dividends or long-term growth.
Why we like it: Invests in commercial properties and has a lower minimum investment
Streitwise invests in office buildings and mixed-use retail and office properties with its 1st Streit Office REIT. It’s the platform’s only investment option.
Accredited and non-accredited investors can invest. The current investment minimum is $2,522 (June 2021).
The REIT’s last dividend is 8.4% which can be higher than RealtyMogul’s current yields. However, individual offerings for accredited investors may yield more.
Why we like it: Individual properties and managed funds for accredited investors
CrowdStreet is only open to accredited investors. Qualified investors can invest in single properties and managed funds.
Commercial and multifamily offerings are available for additional asset diversification.
The minimum initial investment is $25,000 for properties and funds.
Here are some common questions for potential investors.
Is RealtyMogul a good investment?
RealtyMogul can be a good option if you’re willing to invest for at least 12 months, but preferably three years to avoid early redemption fees.
One benefit of the long-term investment commitment is earning an above-average dividend that’s higher than most stock market investments.
The MogulREITs can invest in multifamily and commercial properties with a lower investment minimum than buying standalone properties you self-manage.
Accredited investors can also benefit from the individual offerings that can be easier than self-managing properties or access other real estate markets.
Can you make money by investing in crowdfunding?
There are two ways to make money with crowdfunding:
- Dividend income
- Properties sell for a profit
But you can lose money with a REIT if expenses exceed tenant income or properties sell for a loss.
When can you sell RealtyMogul investments?
You can sell MogulREIT shares at least 12 months after the purchase date. Investors can request to sell their shares quarterly and the service buys back up to 25% of the fund’s outstanding shares.
Private placement offerings cannot sell until the deal sponsor liquidates the project. Each offering has a target holding period, usually between four and six years.
What are RealtyMogul’s fees?
Investors can expect an annual 1% asset management fee for all investments.
The REITs and private placements can have separate add-on fees to acquire, maintain and sell properties.
RealtyMogul is one of the best ways to invest in crowdfunded real estate to earn passive income from commercial and multifamily real estate. You can earn competitive dividends but be ready for a long-term investment commitment.