How to start/structure an organization similar to a REIT

Question

What would you recommend for someone who wants to start something similar to a REIT, but on a much smaller scale?

Let's say you have 10 friends who want to provide capital that you intend to pool together to invest in real estate  Your goal would then be to provide them a fixed or variable rate of return.  As the entity grows, your intent is to market that investment as a product to where investors could receive fixed and secured returns.

What type of entity would be best to handle a plan like this?

Thanks

Daniel Hart · Answer

David,

No, this hasn't gone anywhere yet.  My friend wants to put this project together, but he's been busy with other real estate ventures.  I don't have the know how to do it on my own, so I'll have to wait until he's ready.

Daniel Hart · Answer

I guess our thought is that investors may be more comfortable providing capital that will be secured.  A straight loan to an LLC is pretty simple, and could leave an investor at risk if we were to go under.

Vikram C. · Answer

Daniel, if you have your investors lined up then the rest is easy if you have a good securities lawyer to help you out.  In an ideal world, you would want all your investors to be accredited and sophisticated and that should allow you to get the securities stuff done for less than $15K.

One possible structure for this would be an LLLP or, depending on your state, an LLC.

Daniel Yoo · Answer

Dave,

Did you ever decide to go anywhere from your discovery phase?

Daniel

Dave P. · Answer

I'm looking for a good book about starting and funding a REIT. I am in discovery phase right now, but plan on starting a large investment group in late 2009.

Rick Tripp · Answer

Rick

Jon Holdman · Answer

You can also do it as an LLC with the investors buying units.

Normally in a winding down, lenders come ahead of shareholders/members in the distribution of any remaining funds.  So, the investors have more risk by buying shares/units than lending, not less.

Dave P. · Answer

Dan,

Did you ever decide to go anywhere with this?

Dave

Jason F · Answer

Probably a corp with shares for a variable rate.

If it's a fixed rate, why not a loan to your LLC?