Common question is what is a real estate investment trust or
a REIT? And how does it differ exactly from a real estate fund
or a real estate syndication? Let's talk about those
differences.
Let's start talking about REITs. Real estate investment trusts.
So what exactly are they? And how do they work? Well, a real
estate investment trust is a fund of sorts, it is a kind of
real estate fund, what it is as it accumulates real estate, and
it pays out based on the income of that real estate. So all
REITs are required to pay out 90% of their income, that's
derived from rents as dividends to their investors. Now, a REIT
really is it's a sub classification of the tax code.
It's not a different kind of security, as far as the SEC is
concerned, what that means is there are REITs that are
structured as Regulation D offerings, there are REITs that
are structured as Regulation A offerings, and there are REITs,
that are public that have, they've gone public. And they do
that they meet the minimum requirements, which primarily is
a certain amount of ownership needs to be in people other than
those managing, and that they pay out that 90% of their
income. And that 75% or more of their holdings is in real estate
specifically, not necessarily not not bonds or anything like
that, but in the real estate itself, and that they also have
more than 100 investors that are not part of the management team
itself. That's the basic structure of a REIT. The
benefits of a read are that they are very liquid, especially a
public REIT, public REITs, you can trade on the stock market,
you can log into your brokerage account and make a trade and
then sell it the very next hour. So they're very, very liquid.
Whereas with a real estate fund, the private fund, it may be less
liquid. Now, private REITs are also going to be less liquid,
but they're going to have specific mechanisms in place in
order to get people make it easier to liquefy their
positions, so they can sell it at regular intervals. When a
REIT is put together, what is oftentimes needs to happen is
that figuring out the greatest challenge of net asset value.
Now net asset value only comes into play as it relates to
private REITs. So private REITs have to figure out net asset
value on a regular basis. Most of the ones that I know and have
talked to and follow and have consulted with those breeds,
they that are private, they do it on a monthly basis. Now
monthly is a lot of time, it's a lot of work in order to adjust
your net asset value. But that's their regular schedule. Public
REITs. However, doesn't matter. The net asset value is computed
by itself just naturally by being on the public market. It's
how the public perceives the net asset value and how it changes
stock price. So there you might get valuations of you know, 30
$30 based on income or something like that, but basically, the
bottom line is that that net asset value is very critical for
private REITs and for public REITs not a factor at all,
necessarily not a factor as it relates at least as it relates
to share price because the share price is determined by the
market itself. So let's go through the main takeaways and
key points of REITs and real estate funds. Number one REITs
are companies that buy and manage property and generate
income from rents primarily, they're not in the business of
selling bit properties for their own sake or counting on
appreciation. They distribute 90% of their profits as
dividends to shareholders and their main benefit is this
massive amount of liquidity. Number two real estate funds and
syndications they gather funds from multiple investors for
buying, managing, developing selling properties. Generally
they have less liquidity, larger minimum investment, but they
offer a much wider range of options of things that you can
do. This is where the mat the majority of our clients are. We
have a very small number of REITs that we help and then we
generally Help you're all the way from your very, very large
private equity funds, all the way down to first time,
syndicators. Number three investment in real estate funds.
It offers those benefits of diversification and true
professional management but it's subject to that market.
volatility. Generally these are smaller, so they have a little
bit less holdings than a REIT, which can oftentimes be quite
large. As property values decline high fees lock in
periods, they also track slightly different than then
reads on value. Number four REITs. In real estate funds have
different tax implications. REITs dividends are subject to
income tax, whereas real estate funds and syndications in
general are much more likely to target going being taxed at the
capital gains rate. Number five, as a syndicator, or a real
estate fund manager yourself, your job is to really consider
what's in it for your investors. And what are you putting this
together for? What is your founders investment theory, use
that in determining whether going down the road and to the
expense and complication of putting together a huge business
like a read, make sense? A lot of my players very, very, very
large investors who have assets under management of well over a
billion dollars are not REITs and will never be REITs and do
not want to play that game. They don't even put together funds.
They put together just straight syndications. So your success is
not tied to well whether you are a publicly traded REIT or not.
It's put to your success is tied with doing the kinds of deals
and the kinds of funds that you want to do and working with the
investors that you want to work with. My name is Tilden
Moschetti. I am a real estate syndication attorney with the
Moschetti Syndication Law Group. I hope this video helped explain
that difference between REITs and private equity funds and
syndications. If we can help you on your journey, whether it's to
become a read or a private equity fund or a syndicator
yourself, give us a call. We can help you stay compliant with
Regulation D Rule 506b and 506c and also offering the exit
expert guidance to make sure that you get on the path that
you're going and get to the goal that you want to get to