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Triple Net Proeprties And Your Investment
The world of commercial real estate is sometimes looked upon as an exclusive “players only” club. Many people believe that only the people with money are involved. They believe that the “rich get richer” and “it takes money to make money.” In reality, these clichés hold little weight. The truth is that anyone can get involved if they know how to go about doing it. If you don’t have capital, you can get it.
Raising capital is at the heart of every successful commercial real estate transaction. The most important general rule in raising capital for a real estate deal is that it does not have to be all your money. Many people are hesitant to invest in commercial real estate because of the relatively large investment. They probably don’t have the money required by themselves. If you don’t have any money, you’ll need to familiarize yourself with the concept of “OPM” or other people’s money.
Of course, these “other people” will require some sort of incentive to give you their money, but it will be well worth it. Whether it is a lending institution or a private investor, OPM can get you in the game much faster. Sure, you can take the long road and save a little bit every week until you can buy commercial real estate. The only bad part about that is you’ll be 90. In order to get in the game while you can still enjoy the fruits of your labor, OPM will need to be involved. Once you come to realize this, you can focus on the best way to go about obtaining it. Some people are deterred from arranging a deal because of the apparent complexity of OPM. The hardest part is finding an investor that has the money. They may ask one or two people and get discouraged. If they do find an investor or two, they are overwhelmed by the paperwork.
They don’t know how to structure the transaction. While it can seem like a lot to do, don’t let it get you down. Just make sure you determine how the funds will be distributed, how the results will be reported, and what determines the end of the project. This procedure can also be referred to as syndication. Syndication is a way to gather substantial amounts of capital regardless of personal credit or capital. A syndicate is basically a group of investors that pool their money together in order to buy a more expensive piece of property. You may not be able to find that one investor that has millions of disposable income. However, you can probably find several that can invest three or four hundred thousand. In this way, they get the benefit of purchasing a high-quality property without putting up all of the money. You as the broker get the advantage of being involved without putting up the money.
You will find the property, manage it, and report to the investors. This way, both you and the investors will be happy. As the broker, you will need to understand a few key concepts. To set up an arrangement like this you will need a separate entity. One great example is the Limited Liability Company or LLC. This type of corporate entity has several advantages over other forms. It gives you the freedom from personal liability that a corporation enjoys without the double taxation. If you or one of the investors is named in a lawsuit, this will prevent the court from coming after the property. The property is owned only by the LLC. No one person has complete ownership.
Then when it is time to report taxes, each member just files them on their own personal income tax. Depending on their percentage of ownership, that is the percentage of the income and expenses that they will claim. This is much better than the company paying taxes first, then the shareholders paying again. In order to start an LLC, the appropriate documents will need to be filed with the government. A registration fee will also need to be paid. Although it may be frustrating in the beginning, this is time and money well spent. It will save you much more money in the future. When you, as the one in charge of the syndication, find a potential property, a Private Placement Memorandum must be created. This is basically a document that informs all of the investors about the potential risks involved.
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