Forming A REIT
I am interested in forming a small private real estate investment trust. Do the 100 shareholder test and 5/50 test apply to private reit's? Also, what is the preferred type of corporation for forming a reit?
I suspect you will need legal advice to really get answers for setting up an REIT.
More interesting to me at least is why do you want to set up a private REIT? What advantages do you expect over some other form of ownership (S or C corp, an LLC, a partnership)?
John
[addsig]
The area in which I live is very expensive, and there are many people who would like to invest in the growing, local real estate market that are unable to for financial reasons. I have several people interested in investing together in a rental property. I was most interested in the REIT due to its high level of liquidity, which I believe is a comfort to investors, in addition to the tax advantages. I believe I have the potential to organize many small investors in this enterprise. Is there a better entity for achieving this goal?[ Edited by Mainline on Date 10/07/2004 ]
Definitely get good, experienced legal help on forming, marketing, selling any REIT so you can avoid securities pot-holes.
I thought a reit was right for me, but After reading all these posts, I may be wrong. I have a group of investors with potentially a lot of money and want to purchase properties but let the investors get returns either upon selling their shares or monthly dividends.
Should I set up a corporation? What Should I Do????
I would greatly appreciate some suggestions from you guys, because the only way I am going to learn is by listing to people smarter than me.
What are your suggestions
Thanks,
Dave
Far and away the simplest fentity to set up & operate for your purpose would be LLC.
The operating agreement is the key to the deal, as it must meet every unit holder's needs, yet give the operator/manager (you?) the ability to run it day to day.
Since there are so many partnership pitfalls, I'd very much recommend you have an experienced corp lawyer set it up and do the op. agreement. He or she can point out problem areas to be addressed, such as what happens if and when a shareholder wants out early, how to value his/her shares, etc.
Defiinitely NOT an area for any amateur to be experimenting, unless he/she enjoys being sued when things don't work perfeclty, when people do want out, they don't get along, etc.
Upon further examination and consultation, I have decided an LP is a better entity for my needs. Thanks for the advice.
Just a suggestion (check with your lawyer and accountant for your state laws):
Instead of a REIT or some sort of LLP, I would suggest having your investors invest in "YOUR" property as mortgages. This secures the investors money, provides monthly payments them and gives them tax benefits if investing with GIC's, RRSP's, ETC. Insert in the mortgage (that YOU and your investors build), that You are allowed to "Transfer their mortgage" to any property "You" deem acceptable. Your investors will have to sign off on the transfer each time you move their money from property to property. This mortgage allows YOU to keep control and OWNERSHIP of the property 100%. If you lock your investors in for a term you can transfer their money as long as they are kept happy and willing to transfer, you will have total control of where your investors money is invested.
To keep you and your investors safe, use seperate lawyers to draw up the mortgages and deal with matters. Remember: You and your investors can build your own mortgage 100% from scratch!