Quite a few of my friends have been telling me about real estate investing websites like Realty Mogul, Fundrise and Roofstock. After hearing about them for so long, I finally decided I needed to take a look for myself to see if they could help me diversify my investment portfolio.
I knew these companies were focused on real estate investing, but I didn’t know how each worked in detail. If you’re like I was before investigating these companies, I’ve compiled the information I found to help you decide if real estate investing through these companies is a good idea for your situation.
What is real estate investing?
Real estate investing can take many forms depending on your goals, how you want to invest in real estate and the service you use. You could invest in real estate locally by buying properties and renting them out, purchase a real estate investment trust (REIT) investment through your brokerage firm, or turn to an online service that helps you find real estate to invest in.
Investing in real estate online is a relatively new concept that several companies are currently exploring. Some companies allow you to invest in portions of individual properties while others focus on forming REITs and other investment vehicles that group several properties together for you to invest in.
Each of the following online real estate investment companies works in very different ways. Here’s what you should know before you consider investing.
As always, make sure you read all of the prospectuses for any investment prior to investing. If you need help understanding an investment better before investing, consult your financial advisor or another professional that can help you.
What Is RealtyMogul?
Realty Mogul is a real estate investing website that focuses on commercial real estate and allows you to invest in one of two ways.
If you’re an accredited investor, you can invest in individual property offerings. If you’re not an accredited investor (and I’m definitely not), you can only invest in Realty Mogul’s REIT options.
While joining Realty Mogul is free, investing is not. The fees vary depending on the investment you choose. If you are an accredited investor and invest in a particular property, the fees are detailed in the property information.
If you’re not an accredited investor and choose to invest in a REIT, the fees are disclosed in the REIT’s prospectus.
The Income REIT charges a 1% asset management fee, a fee of up to 3% of equity contributions paid from the proceeds of the sale of shares, disposition fees, promoted interest fees as well as servicing and special servicing fees.
The Apartment Growth REIT charges a 1.25% asset management fee, a fee of up to 3% of equity contributions paid from the proceeds of the sale of shares and disposition fees of up to 2% of the contract sales price of each property sold.
If all of these fees sound confusing, they definitely are to the average investor. There are potentially quite a few fees you may have to pay. If you don’t understand them, consult with a financial advisor that can help you.
Realty Mogul focuses on selecting the right opportunities to allow you to invest in. Every potential investment is thoroughly vetted by Realty Mogul prior to opening it up to investors.
Investments require unanimous approval from their investment committee. Realty Mogul states that only one of roughly every 1,000 deals they look at meet their underwriting process’s criteria.
Pros and cons
These are some of the benefits and drawbacks of investing with Realty Mogul.
- You can invest in individual property offerings if you’re an accredited investor.
- Non-accredited investors still have investing options with Realty Mogul’s REIT offerings.
- Investments are scrutinized by Realty Mogul before being offered.
- REITs have a minimum investment of $5,000.
- Non-accredited investors can’t invest in individual properties.
- The fees charged can be higher than traditional low-cost mutual funds or ETF investing options.
Who is it best for?
Realty Mogul is for accredited investors or those that wish to invest in one of their REITs and have at least $5,000 for the initial minimum investment.
As with most real estate investments, those that invest should have a long-term time horizon.
What Is Fundrise?
Fundrise is a real estate investing platform for every US resident over the age of 18. You don’t have to be an accredited investor to invest with Fundrise and the minimum initial investment is only $500!
At Fundrise, you invest in a diversified portfolio of real estate projects that Fundrise acquires. Fundrise acquires the real estate project then manages it on your behalf. You do not have the option to invest in a particular real estate project with this service, though.
Investing with Fundrise can be expensive compared to other types of investments. They charge an annual management fee of 0.85% for managing their real estate funds, eREITS and eFunds. On top of that, they charge a 0.15% in annual advisory fees for managing the account.
Fundrise can also charge other fees which could include development fees or liquidation fees. These fees usually are for work on specific projects. If you want to have an IRA to invest with Fundrise, their custodian (Millennium Trust Company) charges an annual asset fee of $125.
Fundrise may also charge a redemption fee of up to 3% if you redeem your investment prior to their stated timelines.
There are four levels of accounts you can have with Fundrise. They require a minimum investment as follows:
- Starter – $500.
- Core – $1,000.
- Advanced – $10,000.
- Premium – $100,000.
If you’d rather invest in a particular fund instead of Fundrise’s plan, you can invest in eREITS with a core, advanced or premium account.
They currently have 16 eREITS you can choose from. You can invest directly in their eFunds with an advanced or premium account. They currently have three eFunds to invest in as of this writing.
Pros and cons
As with any investment, there are positives and negatives to investing with Fundrise.
- You don’t have to be an accredited investor.
- The minimum investment is only $500.
- You have many eREITS to choose from if you have a core or higher account.
- Redemption fees can be up to 3% if you redeem your investments prior to the timelines stated.
- You must invest at least $1,000 before you can choose which eREIT you want to invest in.
- Fees are potentially higher than traditional low-cost ETFs or mutual fund investments.
Who is it for?
Fundrise is for non-accredited investors over the age of 18 that want to dip their feet into real estate investing through eREITS or eFunds.
Due to the type of investment, you should only invest in Fundrise if you’re willing to pay redemption fees or you plan to keep your investments for at least five years.
What Is Roofstock?
Roofstock’s main service is very different from RealtyMogul and Fundrise. Rather than sell you investments that are managed for you, Roofstock’s main business is to sell you a whole rental property ready to start making you money.
Roofstock has a service called Roofstock One. This service is only for accredited investors and allows you to buy portions of rental properties in 10% stakes.
Roofstock manages and maintains the property, so it’s a pretty passive investment compared to owning 100% of a home and managing it yourself.
Roofstock’s main whole-home service makes money in two major ways. First, they charge sellers a 2.5% marketing fee. Additionally, buyers end up paying 0.5% of the contract price or $500 to Roofstock, whichever is greater.
Roofstock One has a different fee structure. They charge a 10% property management fee based on gross rent and other income. They also charge an asset management fee of 0.5% of the home price or interest price.
You may also have to pay debt service fees and a portion of the other expenses a rental property has such as property taxes, insurances, and reserve payments. Other fees may also apply as necessary to operate the property.
The main feature of Roofstock is the ability to purchase a turnkey rental property that has been thoroughly checked over prior to being listed.
Roofstock provides pictures, floor plans and 3-D tours so you know what you’re buying. They also provide a property inspection, valuation and title reports as well as insurance quotes.
The properties come with a current lease and tenant along with tenant details and payment history so you can be comfortable with the current tenant. One of the main benefits of Roofstock is you’ll start earning money as soon as you close on your home!
Pros and cons
Since Roofstock operates in a very different way, the pros and cons of using their service are more unique.
- Non-accredited investors can use the main Roofstock service.
- Fees for buyers are relatively low and paid up front.
- Properties go through a vetting process and have tenants in place before the sale.
- Roofstock One offers accredited investors a way to own portions of multiple rental homes in a passive manner.
- Traditional Roofstock requires you to purchase a whole rental property instead of just investing in a passive investment.
- Only accredited investors can invest in Roofstock One’s more passive investing option.
- Roofstock One can result in paying many fees depending on the property you invest in.
Who is it for?
Roofstock is for real estate investors that want to own rental properties outright. You should either have a property manager or be prepared to manage the property yourself after you close on the sale.
Roofstock One is for accredited investors that would rather take a more passive approach to owning rental properties. You can diversify your holdings by owning as little as a 10% share in each rental property.
Comparison of Realty Mogul, Fundrise, and Roofstock
|Investments offered||Commercial real estate through individual investments or REITs||eREITs or eFunds||Individual rental properties or 10% stakes of individual properties|
|Must be accredited?||Yes for individual investments; No for REITs||No||No for Roofstock; Yes for Roofstock One|
|Minimum investment||Based on investment for individual investments; $5,000 for REITs||$500||Depends on the individual property|
|Fees||Individual investment and REIT fees vary by investment||1% combined plus other fees||0.5% buyer fee for individual properties; Numerous fees for Roofstock One investments|
After taking a look at these three real estate investing companies, I decided they didn’t fit with my personal investing goals.
If you decide differently, you can get started investing with these companies relatively quickly. The first step is opening an account with Realty Mogul, Fundrise or Roofstock. Then, start investing when you’re ready!