As you’re doing your research about online real estate investing, don’t let enticing return projections distract you from reading the fine print regarding fees – that’s where the true story lies. Fees reduce investment portfolio returns so substantially that the SEC issued a warning to protect investors.
Below we’ll help you weed through the fine print of the online real estate platforms so you can quickly discern the low fee providers from the high fee providers. Armed with this information, you’ll be able boost your real estate returns!
Types of Fees
Generally speaking, there are a variety of fees in any passive real estate investment vehicle, including online real estate investment platforms: 1) one-time offering fees, 2) ongoing asset management fees, and 3) transaction fees. Let’s delve in.
#1) One-Time Offering Fees
This is the initial fee charged by a sponsor for setting up the investment vehicle, and is intended to cover legal, marketing, and organization formation costs. That’s reasonable.
But some sponsors often say they target a certain percentage, say 5% of your initial investment, but that percentage only applies if they reach their fundraising goal; otherwise the percentage grows if funding comes in short.
Say that platform marketing a 5% “target” setup fee only raises a third of its goal – your actual setup fee could triple! Streitwise charges a capped one-time offering fee of 3%, regardless of fundraising success.
#2) Ongoing Asset Management Fees
This is the ongoing fee charged to help cover the sponsor’s costs associated with employing the personnel and maintaining the infrastructure to acquire and oversee the investments. Also reasonable.
However, instead of hiring a seasoned team of real estate professionals and operating the properties themselves, many online platforms are merely online intermediaries that collect funds, charge an asset management fee for “managing” your money, and then invest it with a third-party real estate operator. And guess what – that someone else is likely charging fees as well to do the work you think you’re paying the platform sponsor to do.
Streitwise charges a flat 2% ongoing asset management fee (which is accounted for before the dividend is distributed). Every dividend we reference is net of fees.
#3) Transaction Fees
This is where the really offensive fees start to set in. Transaction fees are charged by sponsors for events or actions over the life-cycle of a real estate investment.
- The sponsor buys a property? Acquisition fee.
- Puts a loan on the property? Financing fee.
- Signs a lease with a tenant? Leasing fee.
- Completes a renovation? Construction management fee.
- And when all is said and done and the sponsor sells the property: Disposition fee.
These are just a sampling of the transaction fees sponsors buried in the fine print. But wait a second, what was the asset management fee for? Isn’t the asset management fee supposed to cover all these? Streitwise doesn’t charge any transaction fees.
There are online platforms with no real estate expertise charging potentially excessive and hidden fees, and there are others such as Streitwise that employ seasoned vets in a platform grounded in a low and transparent fee structure. You don’t have to take our word for it – the Real-Estate Crowdfunding Review rated Streitwise as having the best fees in the industry.
So instead of doing a lot of unnecessary exercise to boost your real estate returns, why not try a low fee diet!
Eliot Bencuya is the co-founder and CEO of Streitwise. Eliot has extensive experience identifying, underwriting, and executing value-add real estate investments.
Prior to forming Streitwise, he was a Vice President of Acquisitions for Canyon Capital Realty Advisors and the Canyon-Johnson Urban Funds, where he was responsible for originating, underwriting, structuring and executing transactions in the Pacific Northwest, Northern California and Midwest regions. Mr. Bencuya also held positions at Sovereign Investment Company (a subsidiary of the Marcus and Millichap Company) and the investment banking division of Merrill Lynch & Co. He holds a Bachelor of Arts degree in Economics and International Studies from Yale University, and a Masters of Business Administration degree from the Haas School of Business at the University of California, Berkeley. Mr. Bencuya is a member of ULI.