DollarBreak is reader-supported with the aim of becoming the ultimate practical resource for making money online. If you sign up or purchase using the links in this post, we may receive compensation. Disclosure.
$ 5 minimum account investment with $ 1 monthly fee
Creates change automatically
Earn up to 5% cashback with a reward checking account
Start investing with just $ 5
Buy fractions of shares in companies like Amazon or Apple
Just $ 1 monthly fee (for accounts under $ 5,000) or 0.25% annual fee for accounts over 5,000
High return (8.6%) on your cryptocurrency deposits
No minimum withdrawal requirements and no monthly fees
Gemini Insured Wallets – $ 200 million in custody insurance
You want to invest in real estate. This is how many of the richest investors in the world have made real money. The problem is, you don’t have the big bucks that the world’s richest have. Plus, you’ll want to start modestly – test the water before you near the deep end. It’s a reasonable approach.
First of all, real estate has outperformed the S&P 500 over the long term Investopedia, The average 20 year return on the S&P 500 is 8.6%. In the case of residential property, it is 10.6%. Thanks to compound interest, Over 20 years, this difference in average annual returns will have a huge impact on your wealth:
- Over 20 years, an investment in the S&P 500 with average growth of 8.6% and compounding would result in a fund value of USD 260,356
- Over a period of 20 years, a residential real estate investment with average growth of 10.6% and compounding would result in a fund value of $ 375,036
Now REITs – they make it even better. According to Investopedia, the average return on a REIT is 11.8%. Over 20 years combined, this achievement would increase your starting $ 50,000 to over $ 465,000!
Sounds impressive. But is that really it? As a rule, the higher the potential return, the higher the risk. In this post, we’ll tell you what a REIT is, and we’ll examine one of the newer REITs in this Modiv review (formerly Rich Uncles).
What is a REIT?
A real estate investment trust (or REIT) is a company that owns income generating real estate. You can invest in its real estate portfolio and get dividend-based income and total returns. According to Nareit around 87 million Americans own REIT stocks.
If you’re looking for high-paying real estate stocks, REITs could be for you. They have to pay out at least 90% of their taxable income to their shareholders – so dividend payments are usually high.
There are several types of REITs, including equity REITs (which are publicly traded on the stock exchange), public unlisted REITs (which are listed on the SEC but are not traded on the stock exchange), and private REITs (non-SEC.). registered and are not traded on the stock exchange).
What is Modiv?
Modive (formerly RIch Uncles) was founded in 2012 by Ray Wirta and Harold Hofer. As the former CEO of the CBRE Group, the world’s largest real estate service and investment company, Wirta is familiar with real estate. One of these is Hofer, who in his 35-year real estate career has participated in real estate transactions worth over 2 billion US dollars both as a builder and as a broker.
The two wanted to make real estate investments accessible to a broader public and founded Modiv for this purpose. Rather than being listed on the stock exchange, Modi is a private company that markets directly to the public.
Modiv enables you to invest in its real estate portfolios through its own online platform with an investment of USD 1000.
Because Modiv is privately traded, Modiv does not bear the fees that publicly traded companies have to pay. This is a plus, although a lack of liquidity is a disadvantage for shareholders.
What does RU invest in?
Modi offers two funds: the National REIT and the Student Housing REIT.
The national REIT
The focus of this REIT is on acquiring and holding commercial properties in primary, secondary and certain tertiary markets. They are rented to financially strong tenants on a “triple net” basis – the tenant is responsible for paying taxes, insurance and maintenance. The leases are long-term with defined rent increases. The minimum investment is $ 1000.
The REIT student residence
The Student Housing REIT focuses on properties that were built as student housing. All are within one mile of an NCAA Division 1 university with at least 15,000 students enrolled. They have at least 150 beds and a 90% occupancy rate.
Advantages and disadvantages of Modiv
Before deciding to invest, it is wise to understand the pros and cons of investing in Modiv.
No traditional REIT costs – Modiv does not suffer from the typical fees of traditional REITs.
Monthly dividend – Modiv pays its dividends monthly, and you decide whether to receive those dividends or reinvest to take advantage of them the power to pay interest on returns.
Modiv only makes money when you make money – One of our favorite functions. Only when the company makes enough money to pay investors does it make money.
A passive real estate investment – Modiv makes all the business decisions and does all the work while you sit back and collect your dividends.
Risk reduced through equity – In the National REIT, properties are acquired with 50% equity, which offers a buffer against a falling property market.
Minimum investment – The minimum investment is $ 1000
liquidity – Since there is no secondary market to trade, you rely on the company to approve a share purchase request. That could be tricky if many investors want to pull away at the same time.
Monthly dividends are not guaranteed – If tenants fail to pay their rent, there is no distributable income.
Modiv’s payment structure – It’s great that Modiv doesn’t make any money unless investors make money, but the payment structure after that gives Modiv a huge chunk of the potential payout – a massive 40% of the first 6.5% of profits.
Lack of diversification – Even though you invest in a portfolio that is diversified in its class, you suffer from a lack of diversification in two ways:
- You are limited to real estate of one type (e.g. commercial real estate or student dormitories)
- You are investing in a single company with all of the risks involved – if it goes bust, you will lose all of your money
Alternatives to Modivi
There are several other private companies that are direct competitors of Modiv. These include:
- Real EstateMogul – A crowdfunding platform that allows investors to invest in their private REITs. The minimum investment is $ 1,000 and only accepts accredited investors – you must be an experienced investor with at least $ 1 million net worth or an annual income of at least $ 200,000.
- piece of land – With a minimum investment of $ 1,000, Patch of Land enables investors to improve their investment security by investing in short-term debt. Should a company go bankrupt, you come first with every payout. Patch of Land pays between 1% and 2% of all distributions to its investors. As with RealtyMogul, you must be an accredited investor to invest.
Modiv Review – Our conclusion
There are many benefits to investing in Modiv – low financial exposure to a passive investment structure that has the potential for high returns is an attractive proposition. The fact that the company doesn’t make any money unless you make money is a philosophy that we agree with.
Before investing in Modiv, however, you need to weigh the risks involved. We think this is the decisive factor against investing in Modiv:
- You are investing in a single company with all the associated risks
- You are investing in a single real estate sector
- Modiv doesn’t have a long history of successful trading (although its founders do)
- The lack of liquidity means you may not be able to liquidate your investment if necessary
Maintaining a diversified portfolio is one of the most important keys to investing successfully. If you want to invest in real estate through REITs, the better way to do that is by investing in a REIT ETF. This ensures greater diversification (as it invests in many REITs within a real estate sector) and better liquidity because it is tradable on the stock exchange.
For the greatest possible diversification in this risk category, you should consider investing in a fund that offers full exposure to the equity market – like an S&P 500 ETF (which also includes some REIT stocks) – and other asset classes like bonds and cash includes your portfolio.
There are many platforms out there that can help you invest in a diversified portfolio that takes your financial goals and risk tolerance into account, such as: Personal capital, the ETFs used to maximize your investment potential while minimizing your risk by keeping you away from risky single-stock investments.
Summary of personal capital
- Provides a complete financial overview
- Advanced retirement tools
- Fees – 0.89% to 0.49% for accounts over $ 1 million
- Has comprehensive tax optimization strategies