Tuesday, September 15, 2009


Investing in Real Estate

I know it is hard to believe but now may be a good time to consider investing in real estate. Prices and interest rates are so low and the residential rental market is still strong. If you are considering investing in commercial real estate there are still opportunities but the rental market for commercial real estate is weak right now. Her are a few terms you should know. There are many ways to structure a purchase and many different types of investments to consider.
You can buy into a REIT or Real Estate Investment Trusts. A company whose primary business is managing groups of income-producing properties. The company offers common shares to the public similar to a stock.
You can purchase your own property alone or with other investors and form an entity that will be the owner. Currently the most popular choice is an LLC agreement or a limited liability corporation. The name says it all, an LLC protects its members from liability, you can only be responsible for the value of the asset in the LLC. You can also form a TIC or tenant-in-common (you do need more than one person for this). This vehicle was more popular before 2000 and does allow for 1031 transfers, something you cannot do with an LLC. A 1031 exchange lets you sell an investment property for a profit and avoid pauing capital gains taxes by transferring the profits to another investment property.
The last term I am going to give you is a Delaware Statutory Trust or DST. This vehicle is popular in the downturn because you only need one name on the loan, the trustee. Having one name will make it easier to burrow in the current market.
Many of these transactions are complicated and it is best to work with a real estate professional who has experience in this type of transaction. In some case you will want your Realtor also to have a securities license because some of the above methods, like a REIT, are considered securities by the SEC.

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