In the past, real estate was a playground for the rich and nearly impossible for “everyday” investors to get in. With time, these barriers have come crashing down and it is possible for all of us to build wealth through real estate. It is also possible to do so at a fraction of what it used to cost.
Non-traded real estate investment trusts (REITs) have opened new opportunities and made it especially easy to invest in this lucrative asset class.
With the introduction of REITs, many crowdfunded investment platforms have popped on the scene and are competing for investor dollars. In this Modiv Review, we’ll cover what Modiv has to offer and how they are distinguished from other players in the space.
What Is Modiv?
Modiv, formerly Rich Uncles, is a non-traded real estate investment trust. It is a real estate crowdfunding platform and what makes it unique is that it is the first platform completely owned by investors. It is trying to differentiate itself as a conservative and stable option. The company started in 2015 but as a brand, Modiv was launched in 2021. It is working hard to lay a strong foundation for growth through mergers and acquisitions. Modiv raised about $400 million from the investors and is the largest crowdfunded equity REIT in the USA.
Modiv manages two non-traded REITs:
-Modiv is a REIT that has 38 wholly-owned properties in 14 states and 12 retail, 12 industrial, and 14 office properties. It controls more than 2.3 million square feet of total leasable space. Modiv leases the properties to creditworthy tenants under the triple net agreements.
-Modiv also handles the BRIX REIT. It focuses on buying and owning purpose-built student and family housing in addition to fitness centers, convenience stores, and service restaurants. However, everything did not go as planned due to the pandemic and the company decided to liquidate the assets of the REIT over the next 12 months.
Modiv is completely self-managed and it owns an advisory division. It bought the REITless Investment Platform and BuildingBITS.
Modiv works like any other real estate platform. It buys properties leased to credit-worthy tenants under long-term triple-net agreements. With this agreement, the REIT will ensure rental payments that can be used to support the monthly dividend. Additionally, there are a lot of facilities that are mission-critical to the consumers because it serves as the main industrial location or key office and it will reduce the risk of REIT. It is a strong investment strategy that is used by some of the publicly-traded REITs. Here is a detailed Modiv review for you.
Who Should Use Modiv?
Accredited and Non-accredited Investors
Modiv launched with the purpose of making real estate investment accessible to one and all. The company offers low minimums and an easy way for investors (particularly, non-accredited investors) to get exposure to commercial real estate.
The minimum initial investment is $1,000.
How Does Modiv Work?
Modiv acquires single tenant net lease assets and it leases them to creditworthy tenants through long-term agreements. It uses the capital raised through investors for this purpose. The platform will invest in a diversified portfolio of different asset classes like industrial, retail, and office.
It is easy to open an account at Modiv. You simply need to create an online profile. You will have to prove that you meet the investment qualifications set by the SEC and Modiv.
All investors should be residents of the United States and the company investors should be based in the United States. The investor support team may ask for documentation to prove the accreditation status and it will decide the maximum amount you can invest in the year.
After your status is verified, you can open and fund the account. You will immediately see the portfolio of the investment options you can choose from.
Types of Investments Offered
Modiv allows you to buy shares of a non-traded REIT. You get access to corporate real estate investment which will help diversify the portfolio. Modiv’s share price is driven by the Net Asset Value of the company. This helps keep the share relatively stable over time.
The REIT returns about 90% of the annual income to investors through a dividend. The shares cannot be resold. When you buy shares of Modiv, you buy the entire portfolio and the tenants pay Modiv a monthly rent. Modiv will manage the properties and pay bills on the property. It then passes the remaining profits to investors. Since it is a REIT, it is important to distribute at least 90% of the net income each year and Modiv does it through 12 monthly dividends.
The assets that are owned by Modiv are managed by commercial real estate experts. Modiv has some of the top experts to ensure that the assets are likely to perform in the long term. No investor has a say in the assets Modiv buys but the financials of all the deals are available to all.
Pricing and Fees
About 3% of the investment dollars go towards the organizational costs of Modiv. The costs are not formal fees because all the formal fees are paid by the trust. The overhead costs are almost the same at a 3% annual management fee. When compared to other real estate crowdfunding sites, the fees are slightly higher as they charge around 1-2%.
Is Modiv Legit?
Modiv is a legitimate company that is formed by real estate veterans. It regularly files reports with the SEC and these reports keep the investors apprised of the financial performance of the company in addition to other information like redemption suspension, dividend declarations, and property acquisitions.
Modiv pays a regular dividend but the impact of covid led to devastation in the real estate industry. The company reduced its payout from 7% to 3.5%.
How Can You Sell Modiv’s Investments?
Investment in Modiv is very illiquid as you cannot sell the assets for at least 6 months of the holding. Once the six-month window ends, you cannot sell it to other investors and you can only resell to Modiv through a purchase agreement.
Investors in Modiv can ask for a share repurchase directly from the website of the company. But they will pay a fee based on the period for which they have owned the shares. The repurchase plans work as below:
|Tenure of shareholding||Percentage of the Net Asset Value You’ll Receive|
|Less than a year||97% of the Latest NAV per share.|
|More than a year but less than two years||98% of the Latest NAV per share.|
|More than two years but less than three years||99% of the Latest NAV per share.|
|Three years||100% of the Latest NAV per share.|
It is risky to invest in commercial real estate and it has been evident to the investors in Modiv’s REITs. Due to the Covid outbreak, it saw a decline in the NAV and also experienced a loss. But you should not judge Modiv based on the past year. It remains a viable investment option. A lot of its tenants may have struggled but many properties continue to perform as expected.
Still, it is riskier than many of the large REITs that are focused on single tenant net lease properties. You should consider all the alternatives before investing in Modiv. It is certainly a unique opportunity in the sector as you get to be a part of the upside of commercial real estate.
Modiv certainly takes privacy and security very seriously but it cannot eliminate the risk of a hack or data breach. The privacy of your information is covered by US privacy laws and SEC. It is unlikely that we will see a pandemic like this again in the near future (hopefully!!!) but other risks will always remain present. These are the risks associated with non-traded REITs. If the REIT does not meet the performance expectations, the company might not be willing to repurchase the shares to allow investors to exit.
- Modiv recently updated their registration to Reg A, allowing all types of investors to use the platform (no longer limited to accredited investors only).
- There is a low investment minimum of only $1,000.
- It pays dividend every year.
- Modiv is crowdfunded which means it has no sponsor.
- It helps achieve diversification through a portfolio of properties.
- Modiv has a redemption plan that allows REIT investor to sell their shares before their maturity.
- It has an open management team.
- Modiv is an investor-friendly platform for the public.
- You cannot invest in individual properties.
- There is a limited operating history of the REIT and it has not gone through a real market downturn until recently.
- The REIT could stop the dividends and redemptions in a market downturn.
- COVID has had a devastating impact on Modiv.
Here are other private companies that offer similar services to Modiv.
RealtyMogul is a crowdfunding platform that allows you to invest in private REITs. The minimum investment amount is $1,000 and it also accepts only accredited investors. This means you need to have a high net worth and an annual income of at least $200,000 to make an investment.
Patch of Land
You can improve the security of your investment by choosing to invest in short-term debt instruments for just $1,000. If the company loses money, you will be the first in line for the payout. Again, you need to be an accredited investor to invest and Patch of Land will take anywhere between 1% to 2% of the distributions made to the investors.
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Should You Invest in Modiv?
Efficient asset allocation will drive more than 90% of the performance of your portfolio and there are many investors who will only carry bonds and stocks in their portfolio. Investors are keen on buying commercial real estate but are scared of the high investment cost and the risks associated with it. If you are looking for diversification, it is a wise choice to add commercial real estate to your portfolio and Modiv is a great platform to do so.
It is well-positioned in the market and once the impact of the pandemic is reduced, it could be one of the top choices of investors. You only need $1,000 to make an investment and take a bite of the commercial real estate.