HOUSINGNEWS REPORT
AN ATTORNEY’S GUIDE TO REAL ESTATE INVESTING
of returns your property generates. Research is key to finding the right group for you. Real Estate Limited Partnerships A real estate limited partnership (RELP) is similar to an investment group in that it holds and maintains a rental property or a portfolio of rental properties. However, a RELP is an entity that is formed to hold these properties for only a specific number of years. An experienced real estate property management company typically acts as the general partner. Individual investors are invited to provide capital in exchange for an ownership share of the limited partnership. The partners in the venture typically receive periodic income distribution based on the rental income that the group of properties generates. Depending on the terms of the partnership, the properties are sold for a profit, the partners split the proceeds, and the RELP is dissolved. This investment strategy allows investors to participate in the real estate market without having any previous real estate investing or management experience. The downside is that since the properties are held for a specific period, the money you invest may be tied up for quite some time. Real Estate Investment Trusts A real estate investment trust (REIT) is similar to a RELP, except that the properties form a holding trust. The trust is converted to certificates, similar to a stock, which is then sold off to individual investors.
prospective buyers to accept the market price. However, there is a risk that an investor will be unable to sell the property for whatever reason, saddling them with those expenses associated with the property, namely, the mortgage and maintenance. The costs associated with purchasing this type of investment are also high. Many times, flippers will have to take out a short-term loan, typically with a much higher interest rate than a traditional mortgage, to outbid competitors. If the property doesn’t sell or they run into problems with the renovation, the investor may get stuck making those high mortgage payments for many months, or be forced to dump the property for a loss. Real Estate Investment Groups Real estate investment groups are a type of investment vehicle, similar to a mutual fund, which invests into rental properties in specific markets. This strategy is a good investment for those who like the idea of owning rental properties but don’t want the
headache associated with collecting rents, maintaining the property, and filling vacancies. Under this scenario, a management group will build or buy rental properties, typically apartment buildings and multi- family dwellings, and hold them in a rental portfolio. Individual investors are then asked to join the group with one or more properties that they own, but the management company will take care of the duties related to operating all of the properties held in the group. In exchange for overseeing the group of properties, the management company will receive a percentage of the total rents collected. Typically, the investor still holds the lease for his or her property, while contributing a portion of the rent into a fund each month to cover the management fees and other expenses shared by the group. There are several variants of this type of real estate investing group depending on the type of property you own, the area where the property is located, and the kind
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JULY 2018 | ATTOM DATA SOLUTIONS
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