Number of Units to Consider becoming a REIT

1 Reply

This is a rather silly question but (full disclosure) I am a college student studying Real Estate and information from this site has helped provide context for my studies. For that, Thank You!!! to anyone who has commented on my posts, or anywhere on this site! I've probably read your comments, and they have helped!!

My understanding is that REIT's do not need to be public, but simply need to have over a 100 investors, distribute over 90% of their profits, and have no more than 5 partners owning more than 50% of the equity. Owning multiple multi-family apartments and generating solid cash flow can lead to a lot of money. 

So my question: How large do you need to be as an investor where you should consider reaching out to 100+ investors? Are there any general rules of thumb about the number of units you should own, or the amount of equity you should own?

@Sean O'Dowd  There are basically three ways to invest in multifamily. 1 - Personally and solely owned (hard to do unless your last name is Buffet or Gates). 2 - Private fund/REIT and 3 - Syndicate Investors.  2 and 3 are very similar in that you are pooling the money from investors to purchase the investment.  

However, consider looking at the difference between the two from the perspective of the investor: 

With a syndication, I am fully informed on a specific deal and see the specific returns it can provide. If it is good, I reap the full benefit of it, and if it is not so good, I have a voice to push for change.  I see those as the pros.  The cons are that I am in the deal long term with very little liquidity.

With a private fund/REIT, I can average the good and not so good investment deals and they might even out each other, much like a mutual fund in the stock market.  While you may not reap the full benefits of the home run deals, you most likely have higher liquidity and can escape from the deals if needed (but you will also have to leave the good ones).

I have also seen a hybrid of these two.  In some syndicated deals, I have seen one of the large equity shares actually belong to a private fund that acted like a REIT for their prorata share of the deal.  The fund is the investor as far as the syndication is concerned, but the folks in the fund have the liquidity to move in and out of the fund as long as the fund overall maintains its portion in the syndicate.

This was a long winded way to answer your initial question:  It does not matter how many units (whether 10 or 5000) because you can set any deal up in any way you choose.  What will come into play is the costs for maintaining the legalities of how you set up the ownership (both for asset protection and SEC), and how those costs affect the return to your investors.  Set up whatever will work to make the deal attractive to the investor!!  

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