Reits Or Other Forms Of Group Real Estate Investing
I am in contact with a group of people that want to invest their money in real estate. This group has new people joining every day so at the rate it is growing, there could be a large pool of money very quickly.
My question is I was thinking about forming a Reit or some other entity to buy real estate in so that the procedes could be treated as shares and the investors could all make money. The most logical thing to do I thought was to start a Reit, but after doing some research, I dont think I want the initial expense of the SEC and all the other legal wall street things that go along with that just yet.
I am mostly interested in buying multifamily properties and holding them in this fund or corporation and selling shares.
Any thoughts on how I should go about thinking about this or setting up the entity? (LLC, C corp, etc...)
Thanks for listening
Dave
Well, not sure I would form a REIT per se... it depends on how much capital you're talking about. Big difference between 1 and 20 million in terms of starting capital.
As for your corporate structure, it's going to depend heavily on how you're going to assign ownership (shares assumably), how many shareholders you're talking about (different corporate structures allow different numbers of shareholders typically), whether you plan on issuing multiple tiers of shares (preferred, common, etc), whether any of your investors are foreign resident (restrictions on foreign ownership for some structures), what sort of exit provisions you plan on using (cash out any time, limited exit time periods, etc), how you plan on returning investments if people cash out (dividends vs. partner buyout vs. corporate share redemption), and the tax treatment that may be involved (IE, capital gain vs. ongoing dividend income) on the money that comes out if any, and how you plan on raising additional capital (you may fall under SEC Sec. D if you're planning private placements).
Essentially, the corporate structure you use will be dictated by the goals and characteristics of your investors, as well as your long term operational plan for the investment entity.
So, that being said, figure out who's investing, the sums involved, how many people, and the exit strategies. From there, consult a series of attorneys, tax specialists, etc to figure out the best approach.
Hope that helps.
Galahad
Thanks Galahad,
I think after the research I have done and your response, I have decided that this is probably not the way for me to begin.
I think I will find a way to have the corporation buy them and have people invest in the corporation to become partial owners. I still have to consult some attorneys but do you have any suggestions on the easiest way for groups to buy real estate and to share profits? (monthly income, profits when sold, etc...) Also I will probably have new investors being added all the time.
Thanks for your response and I look forward to more insight,
Dave Stone
That "adding new investors all the time" part greatly complicates what you are trying to do. In essence this reduces your options to forming a C corporation and dealing with a Reg D filing. Complicated and expensive.
Easier is to do a series of LLC's or Limited Partnerships which have a common structure. These can invest in one or many properties and can distribute proceeds on pretty much any schedule you like but they have a closing date when no more investors are accepted.
So once you close one partnership you begin a new one. Each has investment in certain properties so each is unique but the investor pool remains the same-- or expands.
yes what commericalking said, makes the most sence to me as well. Me and my partners even though we do not plan on expanding are thinking of the same thing.
multiple partnerships easy to formulate, not many regulations and people do their own taxes..exactly what you need......
other than debt protection....but just invest smart and ull be fine
good luck keep us posted
Keep it simple!
2 Options
1. When you go into the deal you and the investor fronting the funds both of you are on the deed. Make a outside aggreement stating the percentage you both make from the deal.
2. You be the lender and originate the deal charge a one time fee and be done with it. Fees start a $2,000 and up you and the investor hold the note Interest Only I/O Note. Always use other peoples money take make money.
[ Edited by commercialking on Date 01/15/2005 ]