Rich Uncles has two private REITs with distinct investment strategies. Both REITs are open to investments from all investors, but COVID-19 has strained both of them.
- Low investment minimums
- Its NNN REIT has no external manager, thus no complicated fee structure
- Both of Rich Uncles REITs were drastically impacted by the COVID-19 outbreak.
Bankruptcy Protection 5/ 10
Deal Flow 2/ 10
Deal Transparency 4/ 5
Diversified Fund Options 2/ 5
Due Diligence 6/ 10
Ease of Use 8/ 10
Fees & Commissions 8/ 10
Investment Minimums 5/ 5
Investor Resources 8/ 10
Leadership 4/ 5
Non-accredited Investor Offerings 5/ 5
Platform Financials 3/ 5
Skin in the Game 5/ 5
X Factors 4/ 5
Total 69 / 100
What is Rich Uncles?
Rich Uncles is a real estate crowdfunding platform formed by real estate industry veterans Ray Wirta and Harold Hofer, who were both executives at CBRE Group (NYSE: CBRE). The concept behind the name is that it enables the average person to invest alongside their "rich uncles" who know how to make money in real estate. They wanted to make direct real estate investment easy and affordable for all investors (including non-accredited investors) by leveraging the power of the internet to keep costs down.
Rich Uncles currently manages two public, non-traded real estate investment trusts or REITs:
- The RW Holdings NNN REIT is internally managed and focuses on acquiring and owning office, industrial, and retail real estate leased to creditworthy tenants under triple-net agreements.
- BRIX REIT, which hired RW Holdings NNN REIT as its advisor in February, focuses on acquiring and owning purpose-built student and multifamily housing as well as quick-service restaurants, convenience stores, and fitness centers.
Because RW Holdings is self-managed and owns an advisory division, it can launch new REIT products in the future and earn fees on behalf of its REIT investors.
Both REITs are open to non-accredited investors and have low minimum investments, making them accessible to most beginning investors.
Summary: Is Rich Uncles a good investment?
While Rich Uncles makes its REITs accessible to all investors, especially beginners, due to the low minimums, they have different risk profiles.
The NNN REIT acquires properties leased to credit-worthy tenants under long-term, triple-net agreements. Those agreements supply the REIT with predictable rental payments that it uses to support a monthly dividend. Further, many of these facilities are mission-critical to its customers because they serve as key office or industrial locations, which helps reduce the REIT's risk.
BRIX REIT, on the other hand, focuses on acquiring properties targeting the needs of younger people. This fast-growing demographic provides the REIT with lots of room to expand. However, the spending ability of this age bracket tends to be highly sensitive to changes in the economy. That has certainly been the case during the COVID-19 outbreak of 2020, which forced several of its tenants to temporarily close their doors, impacting the REIT's ability to collect rent. Because of these factors, this REIT has a much higher risk profile compared to the NNN REIT offering.
Rich Uncles pros and cons
- Available to non-accredited investors.
- Low investment minimums, starting at $100.
- The NNN REIT pays a monthly dividend.
- The NNN REIT is unique in the crowdfunding space in that it has no sponsor. It acquired that entity, as well as the fintech behind Rich Uncles, in 2019, making it internally managed with no external advisor collecting fees.
- Diversification via a portfolio of properties.
- A redemption plan that enables a REIT investor to sell some of their shares before maturity.
- The NNN REIT has one of the most investor-friendly structures among public, non-listed REITs.
- Very open and transparent management team.
- Investors can't invest in individual properties.
- The REITs can suspend redemptions and dividends during a market downturn, which was the case for both during the COVID-19 outbreak of 2020.
- The REITs have a limited operating history (NNN formed in 2016 and BRIX in 2018) and thus haven't experienced a real estate market downturn until recently.
- The COVID-19 outbreak impacted both REITs and was particularly devastating to the BRIX REIT.
Is Rich Uncles legit? How strong is it?
Rich Uncles is a legitimate company formed by real estate industry veterans. However, it's worth noting that the Securities and Exchange Commission (SEC) conducted an investigation into the company's sales and advertising practices in 2017. It settled with the SEC in 2019. One of the outcomes was that the NNN REIT acquired its external advisor and merged two of its affiliated REITs.
Rich Uncles regularly files reports with the SEC for its REITs. Those reports keep investors apprised of their financial performance as well as other important information, such as dividend declarations, property acquisitions, and redemption suspensions.
Rich Uncles' performance
The NNN REIT had grown its net asset value (NAV) from its $10 per share offering price (which commenced on July 20, 2016) up to $10.27 by the end of 2019. The REIT had also paid a monthly dividend since its inception at an annualized rate of $0.70 per share, or a 7% yield on its initial offering price.
However, as has been the case with many commercial real estate investments, the COVID-19 outbreak has impacted the REIT. Some of its tenants have withheld rent, which forced the company to reduce its dividend to a 3.5% yield on the initial offering price and the NAV to $7.00 per share.
The BRIX REIT, on the other hand, had paid a 6%-yielding dividend on its $5.00 per share NAV from its inception in 2018 until March of 2020. However, the REIT has been devastated by the COVID-19 outbreak. Many of its tenants stopped paying rent, with its largest filing for bankruptcy.
Because of that, the REIT's NAV plummeted to $0.32 per share following a review of its property values. BRIX is currently evaluating its options, which could include the wind-down of the REIT.
Rich Uncles' management
While Ray Wirta remains the Chairman of Rich Uncles, each REIT has a separate CEO, both of whom have extensive experience in commercial real estate. Aaron Halfacre leads the NNN REIT. His former positions include president at RealtyMogul, CIO of Campus Crest, and senior leadership positions at Cole Real Estate Investments, BlackRock (NYSE: BLK), and Green Street Advisors.
Bill Broms, meanwhile, leads BRIX REIT. He formerly founded and led Realty Dividend, an investment company focused on net-lease assets and multifamily properties. He also held senior leadership positions at Cole Real Estate Investments and Realty Income Corporation (NYSE: O).
These executives bring a wealth of experience and industry knowledge to Rich Uncles' REITs. Each executive has an extensive track record of acquiring and managing real estate throughout the cycle. That experience will help them navigate these entities through the industry's inevitable ups and downs.
How Rich Uncles works: How are investments sourced?
Each REIT follows a separate, well-defined strategy.
The NNN REIT uses the capital raised from investors via its crowdfunding platform to acquire single-tenant net lease (STNL) assets that it leases to credit-worthy tenants via long-term agreements. It invests in a diversified portfolio of commercial real estate classes, including retail, industrial, and office. Its investment committee uses a strict set of criteria to evaluate potential acquisitions by the REIT. These include:
- Location-specific attributes such as traffic counts, ingress and egress, proximity to population centers, and demographic indicators.
- Credit-related attributes, such as evaluating the credit quality of the tenant (the REIT has leased 50% of its portfolio to investment-grade tenants).
- Term, which includes base lease term, option periods, and contractual rent increases.
- Market fundamentals, such as lease and price rates per square foot of several comparable assets as well as replacement cost, land value, and the cap rate compared to other assets in the market.
BRIX REIT, meanwhile, focuses on two property types:
- Student or multifamily housing near large universities.
- Single properties net leased to well-known quick-service restaurants, convenience stores, and fitness center brands. Current tenants include Starbucks (NASDAQ: SBUX) and 24-Hour Fitness.
Who can invest in Rich Uncles?
Rich Uncles launched with the idea of making real estate investing accessible to all investors. Thus, accredited and non-accredited investors can invest in its REITs as long as they have a net worth of at least $250,000 or gross annual income of at least $75,000 and a net worth of at least $75,000. Additionally, their investment in the REIT cannot exceed 10% of their net worth.
BRIX REIT targeted younger investors who are just starting. Not only has it offered a lower minimum of just $100, but it also focuses on acquiring properties that serve the needs of Generations Y and Z, providing this demographic group with the ability to own the real estate that matches its lifestyles. However, this REIT has suspended new investments due to the COVID-19 outbreak and is at risk of insolvency.
What is the minimum Rich Uncles investment?
Each of Rich Uncles REITs have separate minimums:
- The NNN REIT has an initial $500 investment.
- The BRIX REIT has suspended new investments.
What are Rich Uncles' fees?
The RW Holdings NNN REIT is an internalized company, meaning it has no external manager and therefore doesn't pay any advisory or sponsor fees. While it does have general and administrative costs like other companies, it doesn't pay the typical fee of 3% of the gross offering proceeds to an external advisor or sponsor.
Meanwhile, the NNN REIT is currently deferring the collection of management fees earned from BRIX REIT. Though, in the future, the REIT will pay up to 3% of its gross offering proceeds to cover organizational and offering expenses. It could also pay fees for acquisitions, asset management, financing coordination, property management, and leasing commissions to its external manager.
Rich Uncles returns: What should you expect?
Both Rich Uncles REITs typically pay a monthly dividend. At the time of this review, the NNN REIT had just reduced its payout from a 7% yield on its initial $10.00 per share NAV to 3.5%. It also reduced its NAV to $7.00 per share. Thus, investors have lost about 30% of this initial investment minus dividends.
BRIX REIT, meanwhile, had also paid a monthly dividend, which it initially set at a 6% yield on its $5.00 per share NAV. However, the company suspended its dividend in early 2020 due to the impact the COVID-19 outbreak had on its tenants' ability to pay rent. It also dramatically reduced its NAV to just $0.32 per share, resulting in a devastating loss for investors.
When (and how) can you sell Rich Uncles investments?
Investors in the NNN REIT can request a share repurchase directly from the Rich Uncles website. However, they'll pay a fee based on how long they've owned shares.
Here's how the REIT structures its repurchase plan:
|How Long Have You Owned Shares?||Percentage of the Net Asset Value You'll Receive|
|Less than one year||97% of the most recently published NAV per share.|
|At least one year, but less than two||98% of the most recently published NAV per share.|
|At least two years, but less than three||99% of the most recently published NAV per share.|
|At least three years||100% of the most recently published NAV per share.|
The BRIX REIT had a similar repurchase plan. However, it suspended the program due to the impact the COVID-19 outbreak had on its tenants' ability to pay rent and, therefore, on its NAV.
Going mobile: Is there a Rich Uncles app?
While Rich Uncles does not currently have a mobile app for investors, it does have a mobile-optimized website for both of its REITs.
Rich Uncles risks: Is Rich Uncles safe to invest with?
Investing in commercial real estate can be risky, which has been evident to investors in Rich Uncles' REITs. The NNN REIT has experienced a 30% decline in its NAV in the wake of the COVID-19 outbreak, while the BRIX REIT has experienced a near total loss. Because of that, the entity could end up winding down operations, and investors in BRIX REIT are almost certainly going to suffer substantial losses.
However, the NNN REIT remains a viable investment option. While some of its tenants have struggled due to the COVID-19 outbreak and have withheld rent, most properties continue to perform as expected.
Still, it is a riskier option than many of the large, publicly traded REITs focused on single-tenant net lease properties since they have greater scale and access to capital. Because of that, investors might want to consider those alternatives before buying shares of this offering from Rich Uncles.
Disclosure: Matt DiLallo owns shares of RW Holdings NNN REIT and BRIX REIT.
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