RealT has been a vanguard leader in tokenizing real assets and making use of blockchain technology to implement digital ownership. Recently, I wondered how RealT actually makes money. I did some research and read every Private Placement Memorandum (PPM) and there is what I found:
RealT makes most of their money from fees charged to investors. Among these fees are the property management fee (5-10%), the platform listing fee (10%), the series management fee (variable), and the capital event fee (10%). Additionally, RealT may have deals with local realtors or agencies to secure properties on the market.
In this article, I’ll go through all the potential ways RealT makes a buck. I’ll list every fee in detail and make sure that you as an investor know exactly what you’re getting into. We’ll also compare RealT to traditional real estate syndicators to see the differences in operation. Lastly, I’ll go over why I think RealT is still worth it despite their fees.
How RealT makes money
RealT’s main source of income is the fees that are charged to investors before and during the investment process. These fees are not disclosed publicly but only visible once you receive the Private Placement Memorandum (PPM) for each property.
Here are the types of fees RealT collects from investors:
- Capital Event Fee: The capital event fee is due every time a change in capital structure occurs with regard to the property. This could include the sale of the property of simply the restructuring of debt through a refinance. In both cases, RealT charges a 10% capital event fee, e.g. if the asset sold for $100,000, RealT’s cut would be $10,000.
- Platform Listing Fee: This fee is charged by RealT simply for listing the property on their marketplace and to claim back the costs of running their platform. This fee consumes a whopping 10% of gross proceeds.
- Property Management Fee: The property management fee is a common fee charged by almost all real estate syndicators and covers the costs of managing the asset, either through an agency or with their own staff. This fee varies between 5-10% depending on the property.
- Series Management Fee: While this fee is not included in the sale of all properties, RealT has been found to charge a series management fee on certain assets that were part of a series of properties. This fee is frequently hidden somewhere in the PPM, so you’ll have to dig through some paragraphs in order to find it.
In addition, to the above fees, RealT may have deals with local real estate agencies whereby they receive a commission every time a property is sold and brought to market. Since there is no public disclosure of such arrangements this source of income for RealT is pure speculation on my part.
All in all, there is quite a number of different fees that RealT uses to make money. Sometimes surprisingly, RealT even charges fees that are typically not charged by traditional real estate syndicators. Let’s look at these differences next!
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Making money: RealT vs. traditional real estate
Before evaluating RealT’s various ways to make money, let’s compare them to traditional real estate syndication to get an idea of how RealT’s fees compare.
Similarities between RealT and traditional real estate
- Property Management Fee: Almost all real estate syndications charge a property management fee in some form or another. This fee can range anywhere from 1% of the property value up to 10% in RealT’s case. Single-family homes also require significantly more maintenance on a per-unit basis than large multifamily complexes.
- Capital Event Fee: A fee that is charged in the event of the sale of the asset is very common. This is also sometimes referred to as the disposal fee or the profit split between managers and investors. Disposal fees are typically around 1-2% and are used to cover the costs of selling.
- Commissions: Traditional real estate syndicators frequently have deals with local real estate agencies to receive a commission for connecting sellers with potential investors.
Differences between RealT and traditional real estate
- Platform Listing Fee: The platform listing fee is quite unique to RealT and is likely used to cover the tech costs of building and running a fully digital platform. I’ve never seen this fee charged in traditional real estate crowdfunding.
- Acquisition Fee: One fee that is usually charged but not by RealT is an acquisition fee. While this fee usually is between 1-5% one could argue that this is already included in the platform listing fee of 10%.
- Profit Split: RealT does not conduct a traditional profit split with investors. Instead, it simply charges the 10% capital event fee. Usually, a profit split of 60/40 or 70/30 is established between investors and management beforehand and applies to all capital events.
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Why RealT is still worth it
Even though RealT has added some fees to cover their costs and make more money the deal is still worth it. Overall, RealT’s fees add up but do not come close to what traditional real estate syndicators will charge.
Additionally, you will get the benefit of direct digital ownership of your asset and weekly rental payments directly to your web3 wallet.
The only real criticism I have about RealT’s ways of making money is that they are not as transparent about all of their fees as I would like them to be. Why not list all of the fees publicly somewhere? Instead investors have to comb through their PPMs in search of hidden. Well, I suppose that’s what is called doing due diligence.
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RealT makes most of their money from fees. Investors are charged for the listing of each property, for the maintenance of the properties and in the event of a sale of the asset. Compared to traditional real estate RealT still boasts a clear advantage although many fees are similar. All in all, RealT remains a fascinating experiment in the tokenization of real-world assets and digital ownership.
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