Rich Uncles Review – Get Your Feet Wet in REITs
This post may contain affiliate links, which means I may receive commissions when you click these links, at no cost to you (sometimes you may also get something in return). Please understand that I have experience with all of these companies (as in I have invested my own money), and I recommend them because they are helpful and useful, not because of the small commissions I make if you sign up. Please read my disclaimer for more info.
Get into real estate says everybody. By far the most popular way to do that is Real Estate Investment Trusts or REITs (pronounced “reet”).
What is a REIT – A Simple Explanation
To put it as simply as I can, a Real Estate Investment Trust (REIT) is where you let somebody else manage a real estate investment portfolio where you buy shares in and in return you get paid a dividend. Of course, there’s more to it and if you want to understand the mind numbing details check this explanation from Investopedia. REIT’s in general are considered illiquid, meaning if you need your money back in a hurry it’s not as easy as liquidating stocks or withrawing from your savings (more on this later).
If you read the definition from Investopedia above, you will see that you can invest in either a public traded REIT or a public non traded REIT (let’s forget about the private REIT for the moment since chances are that’s not available to mad investors such as you and I).
A public traded REIT is an ETF (or mutual fund) that you can buy and sell just like any other stock from your broker or whatever trading platform you use.
A public non-traded REIT is open to the public but not traded in a national stock exchange.
The focus of this review is Rich Uncles which is open to the public, but does not trade in a national stock exchange. REIT based ETF’s are not a bad option, but if you really think about it, since it is a stock, it will be subject to the volatality of the stock market and investor sentiment. We diverify into real estate because we want to get away from that sh*t.
We All Need a Few Rich Uncles
For regular investors, the best way to get your feet wet is to use a crowdfunded real estate platform such as Rich Uncles. There are many others which I hope to cover in future blogs, but I chose Rich Uncles for a few reasons:
- No management fees or account fees
- Low minimum (starting at $5, yep that’s no typo, you can start with $5)
- Easy to use platform and only 2 REIT’s to choose from
- Up front about annual returns and early withdrawal penalties
These reasons make Rich Uncles an excellent choice for beginner investors getting started in crowdfunded real estate investing.
How Does Rich Uncles Work
Rich Uncles does a great job of explaining how things work in the graphic below. For anybody new to real estate investing and REITs this is very much appreciated.
The primary way investors get a return is through a monthly cash dividend. There can also be a capital appreciation component when you liquidate your investment.
Keep in mind that REITs and real estate in general are not considered liquid investments.
How Do I Get My Money Back
Here’s something I really like about Rich Uncles. Unlike some of the other platforms out there, they are upfront about how you can get your money back and the early withdrawal penalty. Most other sites have this buried in the fine print or offering circular (usually several hundred pages long) where most people wouldn’t find it.
So the primary way you get money back is through monthly dividend income.
Remember I said earlier that REIT’s are generally illiquid? Well, yes and no. With Rich Uncles if you want your money back early, you can sell back your shares through their monthly share repurchase program.
Let’s use a simple example to illustrate how this works.
Let’s say you invested $1,000 in January 1, 2019 and you want to withdraw your capital early. We will assume you invested in the BRIX REIT which has an annualized dividend of 6%.
Scenario 1
Withdraw $1000 on Mar 31, 2019 (3 months)
Principal = $1,000
Monthly dividend = $15 ({[$1000*6%]/12 }*3)
Early withdrawal penalty = $30 ($1000*3%)
Gain/Loss = $30 loss if you withdraw in 3 months
Scenario 2
Withdraw $1000 on Nov 30, 2019 (11 months)
Principal = $1,000
Monthly dividend = $55 ({[$1000*6%]/12 }*11)
Early withdrawal penalty = $30 ($1000*3%)
Gain/Loss = $25 gain if you withdraw in 11 months
Scenario 3
Withdraw $1000 on Dec 31, 2020 (24 months)
Principal = $1,000
Monthly dividend = $115 ({[$1000*6%]/12}*23)
Early withdrawal penalty = $20 ($1000*2%)
Gain/Loss = $95 gain if you withdraw in 24 months
If you don’t care about the math, here are the key points:
- To avoid a penalty, do not withdraw your principal before 3 years
- To avoid a loss of principal, wait at least 6 months before making a withdrawal
Two Investment Options
One of the things that make Rich Uncles really easy for anybody starting out in REITs is you only have 2 options to choose from, each with clearly defined objectives.
Personally, I have no preference on which one to invest in. The NNN REIT has a better return, but it’s only 1% more so that’s not really a decision making factor. The BRIX REIT since it focuses on student housing and residential properties may do better during an economic downturn. With the NNN REIT since the focus is commercial, it will probably do better in good economic times. Give Rich Uncles a call. I did, and the account manager I spoke to gave me some good detailed information on their objectives and strategy for the two options.
If you are struggling to decide, invest an equal amount in both. If you are not investing enough capital to do that, then pick the BRIX REIT.
Actual Performance
I started with Rich Uncles in October 2018 by investing $500 in the BRIX REIT (it was called Student Housing at the time). I waited for a month to see my first dividend come through and then added $500 to the NNN REIT.
March 2019 Performance Update
It’s been around 5 months on both REITS and here’s what my account looks like.
For the NNN REIT, the share price has appreciated slightly and I have received $8.08 in dividends so far. If I do the math, that works out to an annualized return of 7%, exactly as promised. The share price for this REIT is recalculated at the beginning of the year and the $5.47 gain works out to 1%.
If I look at the transactions page, I am able to see exactly how much was paid out every month. Note that your first dividend will be prorated.
The BRIX REIT has given me a total dividend of $6.47 which works out to an annualized return of 6%, again as projected/estimated.
Watch this space where I will post updates periodically so you can see if the trend continues.
Getting Started with Rich Uncles
Getting started with Rich Uncles is quick and easy. The steps are:
Step 1: Create an account
Step 2: Select an account type
Step 3: Select an investment option. If you want to invest in both, just pick one at account creation and you can always add the other REIT afterwards to the same account. As mentioned above, the minimum to get start is $5 for the BRIX REIT and $50 for the NNN REIT. So If you are investing less than $50 to start with, the only available one is the BRIX.
Step 4: Determine how much you want to start investing with and go through the remaining steps to connect your bank account, transfer funds and complete your investment.
As always, my recommendation is to start off with a small amount, let’s say $50 in each REIT, watch the dividends come through for a month or two, get familiar with the platform and then decide how much more you want to invest.
Don’t forget, REIT’s and real estate in general are considered illiquid. With Rich Uncles, plan to have your investment tied up for at least 3 years.
Summary
From what I have seen so far, Rich Uncles has delivered what they have promised and made it really easy to do. It’s worth repeating what I mentioned at the start on why I like Rich Uncles, especially if you are beginner investor getting started in crowdfunded real estate investing:
- No management fees or account fees
- Low minimum (starting at $5, yep that’s no typo, you can start with $5)
- Easy to use platform and only 2 REIT’s to choose from
- Up front about annual returns and early withdrawal penalties
So do I recommend Rich Uncles? Yes, if you are good with a long term investment where a withdrawal before 3 years will incur a penalty of 3% in year 1 and dropping to 1% in year 3. The good news is if you really need to take your money out and you can wait at least 6 months the dividends should offset the early withdrawal penalty.
QUESTIONS, COMMENTS, THOUGHTS, IDEAS?
Have you tried investing in REITs? Got any questions or opinions? Let me know in the comments below. I would love to hear any feedback or questions you have.
Interesting review… have you tried any other similar platforms and what are you thoughts?
Hey Jean, thanks for the comment, this is the first REIT I tried. I plan to review a few more soon. Let me know if there’s any that you are curious about. As for real estate investing in general, I am big fan of Groundfloor. Check my review here.