Group Real Estate Investments Flashcards
If you work with syndicates, including joint ventures and REITs, you’ll also be working with people, and these people will likely be investors. There are three broad categories of investors out there, each category focusing on a different type of investment property, different investment goals, and different timelines.
Investors
Some investors are looking for steady cash flow. When they purchase a property or make an investment, they’ll be expecting a monetary return every month or on a regular basis.
These investors will likely be interested in retail properties or rental buildings that collect rent each month (and therefore make a profit each month).
Cash Flow
Other investors have a more long-term mindset and will be looking for a property that will earn them a lot of money farther down the road.
These investors will likely be interested in properties in up-and-coming areas that will be worth more as neighborhoods develop and change.
Long-Term return
Short-term investments are also common. This would look like buying a “fixer-upper,” improving it, and receiving a monetary return on it in a few months or a few years.
Short-term
a group of investors that get together and combine resources to make investments they wouldn’t be able to make on their own. When these investors purchase real property together, they must follow the regulations of the U.S. Securities and Exchange Commission.
While syndicates can be used for something as simple and straightforward as purchasing a single-family residence, they are typically created for the financing of large commercial real estate projects, including:
Multi-family apartment complexes
Office space
Retail centers
Industrial buildings
Syndicates
A general partnership avoids the double taxation issue you’d have with a C corp, but the unlimited liability and lack of centralized management make it ill-suited to a syndicate.
In a general partnership, all members equally share responsibilities, profits, and losses.
General Partnership
A limited partnership combines the tax advantages of a partnership with the centralized management and liability shield of a corporation.
However, it still leaves the general partner personally liable for the business’s losses and liabilities.
Limited Partnership
LLCs permit the following:
Active participation in management
Control by the members
Limited liability similar to corporate shareholders
If you play your cards right, an LLC will be taxed like a partnership (as a pass-through entity) rather than as a C corp (taxed twice).
That’s why the LLC is the most common form for a syndicate to take. However, you will often see syndications structured as an LLC owned by a partnership made up of both general and limited partners.
LLC
A corporation ensures centralized management as well as limited liability for the investors. Even so, corporations are seldom used in modern syndicates because of their negative tax features.
Corporations: the business form so nice the IRS taxes it twice.
Corporations
- Organization
This includes:
Planning
Acquiring property
Satisfying registration and disclosure rules
Marketing processes
2. Operation
During the operation phase, the sponsor usually manages both the syndicate and the real property
- Liquidation
Liquidation (completion) is the resale of the property.
3 Phases of Syndication
is a kind of syndicate that, instead of being an ongoing investing group, is a one-off collaboration.
one-operating partner & one or several investors
Joint Venture
is a trust that invests in, owns, or acquires real property. It is owned by investors who share the trust’s profits according to shares.
Real Estate investment trust (REIT)
They provide a way for individual investors to earn a share of the income produced through commercial real estate without having to buy the properties. REITs pool the resources of individual investors who would not be able to fund, get financing, or manage a real estate undertaking on their own.
Pooled Funds
Real estate is a good hedge against inflation.
The real estate market is more stable than many high-risk stock investments.
Returns are higher than typical bond returns.
They avoid the double taxation of investing, as in a C corp.
There is a tangible investment (the properties themselves), which is generally considered a safer choice than intangible investment vehicles like stocks or Bitcoin.
Advantages of Reits
The downside of REITs is that they typically have lower returns when compared with other real estate investments.
Illiquidity
Disadvantages of REITS
