Pooling Money For Real Estate Investing

The Role Of The Operating Company

In the end, the real estate investment group will own the property and manage the expenses but the property may be managed through an operating company. An operating company collectively manages the units, takes care of maintenance, handles the advertising andscreens new tenants.

When evaluating the cost of legal counsel versus the risk, youll find it highly cost effective to seek out and hire areal estate lawyer to help you protect everyone and avoid violating SEC regulations. Remember, a real estate agent or broker cannot provide true legal advice on real estate transactions. Only a qualified real estate lawyer can.

How Do I Choose A Pooled Investment Fund

Since you’re investing in a company and their niche sector, do your homework on the profitability of that sector in the current and coming market. Look at the fund’s track record and the reputation of the fund managers. After all, you’re putting your hard-earned money into their hands for management.

Know who you’re working with and understand what they’re investing in. Below are some factors to consider and explore before choosing a pooled investment fund:

• Learn about the funds process for due diligence. What research do they conduct to evaluate the asset?
• What are the underwriting criteria for the assets the fund invests in and what’s their plan for selling those assets?
• How long have they been in business and what are some examples of completed transactions or successful funds?
• What’s the timeline for the investment and what returns are provided to the investor?
• What’s the process for removing your funds from the investment? If its privately traded, what is the period of time you cannot withdraw your investment without penalty?
• Are there any fees charged to the investor?

Pooled investment funds are a great opportunity for investing passively — especially for investors with limited available funds. With the variety of pooled investment vehicles available in the market, investing in real estate has never been easier. And remember: All investments have risks, and its up to you to determine which pooled investment vehicle is right for you.

How To Get Into Real Estate

There are several ways to get into real estate and start investing. The first thing youll need to decide is whether you want to be an active or passive investor. The difference between the two lies in whether you take on the role of managing the property or hire others to do it for you. Someone who is an active investor might, for example, self-manage a rental property instead of hiring a property manager. In comparison, a passive investor might delegate the majority of the work involved in owning and managing a property to a team of professionals.

Once youve decided what type of investor you want to be, its time to explore your options when it comes to the ways you can invest in real estate. There are 6 main real estate investment strategies, each with respective pros and cons. Do your research to find out which type of real estate investing is the best fit for your goals and financial situation.

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How Crowdfunding For Real Estate Really Works

This post originally appeared in BanklessTimes.com, by Jilliene Helman.

At its core, crowdfunding means pooling money together from a group of investors to make an investment. In this sense, crowdfunding has existed in real estate for centuries.

Neighbors have bought property together, husbands and wives and their sisters and brothers have collectively bought property and even multiple institutions have come together to collectively purchase property.

The major difference between collective real estate investing of the past and crowdfunding for real estate today is the ability to transact online and the unparalleled access to deal flow by using the internet as the new distribution platform.

Given the advances in modern technology, investors can now browse investments online, securely sign legal documents online, transfer funds and have access to investor dashboards to watch how investments are performing.

Rather than doing diligence on hundreds of real estate transactions to find one to invest in, investors can browse lists of pre-curated investments through crowdfunding companies.

While the bankless business finance industry eagerly waits non-accredited crowdfunding as a result of Title III of the JOBS act, crowdfunding for real estate with accredited investors has already begun.

There are two types of investments you can make when using crowdfunding real estate:

Classification Of Real Estate

Real estate includes various properties which can be classified by their uses. These are as follows:

Residential Real Estate: The real estate which consists of home, i.e., single, duplex, triplex, township, bungalow etc. used for residential purpose. Whether it is a newly constructed property or a house to be resold by the owner.

Industrial Real Estate: A large scale property utilized to build factories, manufacturing units, warehouses, distribution centres, etc. are categorized under industrial real estate.

Commercial Real Estate: The properties or office buildings such as a complex, are parted into multiple small units. These are rented out or used to run various businesses. Therefore, they are known as commercial real estate.

Retail Space: These properties are used as showrooms, restaurants, shopping malls, retail stores, etc. either individual units or multiple units located in the prime location.

Land: Any vacant land where activities like ranching or farming take place is also a form of real estate.

Fix and Flip Properties: The residential properties which are in a poorly maintained state and are available at a low price are termed as the fix and flip properties. These properties, when purchased by the buyers involved in renovation and repairs of properties to modify them and sell at a high price.

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Tips To Legally Pool Money For Real Estate Investments

Over the past decade and a half, weve watched real estate markets plummet and slowly begin to rise. Many of those losses are translating into big opportunities for those with cash on hand to buy real estate, which is still considered one of the most trusted ways to earn decent returns when compared to the ups and downs of the stock market.

The end goal of a real estate investment trust or real estate investment group is to have income and partnerships like these typically provide a month-over-month return on your investment. A typical real estate partnership may take an initial investment between five and 50 thousand dollars but ideally they will charge enough rent to cover all the costs of taxes, maintenance, and more and still earn a dividend.

One of the most recent statistics gathered by USA Today indicates that two of the five most profitable markets for distressed real estate are located in southern California, specifically in Los Angeles, Long Beach, and Santa Ana. Across the country, however, having more real estate investment deals than equity to pay for them is a persistent problem and so real estate investment clubs are taking one of the following approaches:

How Do You Get Paid From Real Estate Syndication

Getting paid with real estate syndication isnt an exact science. There is a bit of nuance that must be taken into consideration. Keep in mind, there are two parties involved the sponsor of the deal, and the various investors.

As a deal sponsor, there are a few ways you can earn money:

The investor invests in a real estate syndication deal to get a piece of the profit the deal generates. Well dive deeper into this example below.

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Invest In Real Estate Crowdfunding Deals

Real estate crowdfunding connects accredited investors with investment opportunities. These deals pool money from multiple investors to fund a real estate investment. The asset is owned and operated by the sponsor and the sponsor’s management team, making this a passive investment.

Investors get returns in multiple ways, including dividends and preferred returns over time. Crowdfunding is a risky investment option and many variables affect the quality of an investment.

If you’re interested in this avenue of investing, take a look at our complete guide to crowdfunding to determine whether it’s right for you.

Real estate crowdfunding is best for the following investors:

• Those who are accredited and have $500 or more available to invest.
• Those who can review commercial investment opportunities and conduct due diligence on the quality of the investment.
• Those who want higher returns than most other avenues offer and are willing to wait longer to receive them.
• Those looking for passive returns.

Invest In Commercial Property

Commercial real estate is used for business purposes, such as retail or office space. Industrial buildings, apartment complexes, mobile home parks, and assisted living facilities also fall into this category. Commercial real estate is costlier than residential real estate, often requiring a greater down payment. There’s usually more property to manage, too.

Investors in CRE need to dedicate ample time to learning how to properly invest in and manage the asset class before finding, buying, and managing an asset. With the larger upfront cost and significant time and effort required, many choose to invest in commercial real estate through alternative methods, such as REITs, ETFs, partnerships, or crowdfunding.

Commercial property is best for the following investors:

• Those who have significant investment funds saved and can allocate $50,000 or more to their investments.
• Those who want cash flow or tax benefits from owning commercial real estate and are willing to dedicate time and effort to owning and managing the property.

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Disadvantages Of Real Estate Investing Clubs

The collective nature of clubs also means a lack of flexibility for each member. Say you need to get cash quickly and want to sell some equity. You would need the support of other group members or have another member buy you out.

Another downside to investing as a group is that feelings can get in the way of good decisions. The group might decide against selling a property to avoid hurting the feelings of someone who had argued for holding on to it.

Many clubs ask for high membership fees. This could cut into your returns.

Understand The Risk You Are Taking

There are no guarantees in investing. It doesn’t matter whether you place your money with a financial advisor, the S& P 500, or in real estate. There is always the risk that you will lose your money or your return will be less than anticipated. Asset allocation can help you diversify your portfolio across different real estate strategies, but investing involves risk. Assess your risk tolerance and continue to do your due diligence on the various methods of investing in real estate to determine which method of real estate investing is right for you.

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Stock Investing Requires Technical Knowledge

Short squeezes, hedge funds, ETFs, mutual funds, short selling. Yes, stock investing may require you to learn a lot of investing strategies and concepts. And if you want to be a DIY stock investor, youll also have to learn the ins and outs of different stock companies, analyze balance sheets, and make informed decisions.

Real estate investing requires you to learn some key strategies, too, but the knowledge you need to succeed is usually far less technical. For some real estate investments, such as your principal home or vacation property, you just need to choose the best location, one that helps increase your equity.

How Do Pooled Funds Work

The pooled investment account lets the investors be treated as a single account holder, enabling them to buy more shares collectively than they could individually, and often for betterdiscountedprices. These pooled funds take money from smaller investors to invest in stocks, bonds, and other securities.

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Public Versus Privately Pooled Investments

For the most part, pooled investment funds are available to almost anyone. In general, ETFs, REITs, and real estate mutual funds are a low-cost investment that you can invest in or get out of at any time.

There’s also a private sector of pooled investment funds that are typically available only to accredited investors. These require a higher investment up front and have less liquidity in comparison to publicly traded pooled investment funds.

Many of these private pooled investment funds allocate investors money into different sectors of the market, like mortgage notes, apartment complexes, senior housing, single-family fix-and-flips, or commercial assets. These funds must be registered with and adhere to the rules of the Securities and Exchange Commission . Most investors that work with private funds are discovered through word of mouth, networking events, conferences, or real estate associations.

What Are Pooled Investment Funds

You’re probably familiar with a pooled investment fund but don’t realize it.

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A pooled investment fund collects money from multiple investors and puts it in one managed portfolio. Pooled investment funds allocate the combined funds over a variety of investments that are professionally managed by one company.

There are a number of investment vehicles available for pooled investment funds, including real estate exchange-traded funds , real estate investment trusts , real estate mutual funds, and real estate hedge funds.

Most pooled investment funds specialize in a particular sector. For example, real estate mutual funds buy a variety of REITs, real estate stocks, indices, or a combination of the three. Additionally, there are real estate pooled investment funds that focus on a specific niche like buying mortgage notes, apartments, medical buildings, senior housing, or self-storage facilities.

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The Best Way To Invest In Real Estate Right Now

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Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

There’s always a “hot” part of real estate investing. One year it’s flipping houses and the next it’s vacation rentals.

Determining the best way to invest can be challenging. There are many options, and every investor has different needs.

To make it easier, here are seven popular ways to invest in real estate. They’ll help you determine what makes an avenue of investing the “best” for certain investors — including yourself.

Intrastate Offering Exemption :

This is an attractive option for when the property, the investors and the sponsor all reside within the same state. The state law securities scheme will still be important, but in the right markets this is an outstanding option.

Trick: The advantage of limiting yourself to a rule 147 offering is that there are no Federal limits to who may invest in your deal.

Trap: The SEC will look to additional offerings by the venture and could conceivably bust your exemption. The key here if you intend on using the same entity to raise more money remember the rule: What happens in your home state needs to stay in your home state.

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Structure And Control Of Family Llcs

A family may form an LLC and elect the parents or grandparents as the managers, giving them authority over day-to-day decisions. The other family members own membership interests in the LLC. These can be from their own savings, where they buy their own investment in the firm or given as gifts from the older family members, who want to pass money on to the next generation.

If your goal is to have the family work as an integrated unit, you can have your LLC operating agreement written so that all investment decisions must be approved by every single shareholder or a certain percentage of the shareholders. That way, you can create a culture of collaboration.

You may also want to also give consideration to forming a Delaware LLC or a Nevada LLC. These states may offer advantages to some family groups. However, they may not be best suited for all groups.

Second And Third Purchase

With your $20,000 cash in hand you have a few options. If you dont like the house you currently live in, you can replicate Step 1, move into a new house, and rent out the one you already own. Or you can continue to live in the existing home you own and purchase 2 new homes as rentals. To get on the fast track of becoming a real estate mogul, lets explore the option of remaining in the existing home and purchasing two new single family homes as rentals.

If we look to purchase homes similar to our above example, that $20,000 will let us purchase two single family residences each with a $541 monthly payment. However, now that these homes will be treated as an investment, the tax rate increases to 6%, so your monthly payment will jump to $600 each.

The beauty of this model is that now you can rent out both of these homes, with average rental rates in most areas at $1,100. This gives you a positive cash flow of $500 each month per house. Of course you will want to save a portion of that income to build up an emergency fund for each house, but after saving $5,000 per house in an emergency fund, you will have an additional $1,000 per month in positive cash flow that you can use to build up your down payment for the next home.

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