How to Start a REIT and Find Investors?
Los Angeles, CA · Member since 2014 · 17 posts · 5 votes
How to Start a REIT and Find Investors?
Most Popular Reply
Residential Real Estate Broker · Newton, NC · Member since 2015 · 13 posts · 17 votes
10yJustin,
There is an alternative approach, though you'll need to do your home work.
What you might can do is this:
1. Buy majority of a Pink Sheet shell
2. Form a REIT Delaware Trust Inc.
3. Merge the two companies on share exchange through a reverse merger or triangle merger and redomicile the corp to Delaware.
4. Upgrade the shell to OTC Pink (this is not SEC reporting and lower costs for now about $5,000 year and reports to edgar).
Begin acquiring properties by exchanging Membership interests in an LLC that coverts to common stock of the REIT after one year. (upreit structure)
Build the company up, it will trade over the counter for a few years while you build up the shareholder equity and then PCOAB audit and move to SEC reporting.
Once you reach 5-million in equity, you can uplist to NYSE.
Books to read:
"Real Estate Investment Trusts Handbook" by: Peter M. Fass, Michael E. Shaff, Donald B. Zief.
"Fuqua" by JB Fuqua -My Hero in the south.
Ticker Symbols you can look at that are doing this now (go to www.otcmarkets.com and look at ticker symbol "MRTI" and look at their financial filings. You will see exactly what to do in this regard.
Search other small REIT's on the OTC Markets for the smaller ones and see how their growing. The money is made by converting unusual assets into a REIT that has large retained earnings that aren't public now but have share holders, think small railroads, cable TV companies and Billboard companies. In the last few years, Windstream, Lamar and Power REIT have unlocked millions in equity this way.
This is stuff no one will tell you, I hope you do your home work and go for it. You can be creative as you want to get people to contribute property to your REIT. The benefit to them, especially if they have rolled and rolled 1031 exchanges, will be the ability to sell shares as they want over time. It also works great for Real Estate Investors that are ready to retire and want to split shares in an REIT to the Heirs and let them receive a stepped up basis and they can sell the shares over a few years. Think about this, how do you leave a shopping center to three kids? But you can leave them 2,000 shares each of a public REIT they can sell if they want to without the other Heirs and on and on.
Your idea is great, you just have to put the pieces together. Others are and no one will tell you how, I just told you a poor mans way and once you're NYSE, no one will care. Good luck.
Kind regards,
-dr
Newton, NC
17 Replies
- Denver, CO · Member since 2012 · 350 posts · 175 votes11y
Hello Justin,
First thing kuddos on big thinking. The REIT I worked for was founded in similar fashion. There was a ton of hotels in financial distress in the early 90's and the founders took advantage of some unparraled changes in the tax code to put it all together.
Having said that a public traded REIT is very expensive to form. Legal and accounting alone would easily $500,000 plus.
I would encourage you to learn the private placement single asset model first. Singnificantly easier to partner with an experinced operator and a single asset first and grow towards blind pool later.
Your goal is possible...eventually...just reverse engineer what others have done.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes11y
Lofty goal. An LLC will not cut it. See http://www.sec.gov/answers/reits.htm
Without a clue about your business focus, I'd say take a look at this list of public companies http://en.wikipedia.org/wiki/List_of_public_REITs_in_the_United_States in whatever sector you will play in and read all their S-1 and 10-K filings to get a hint about the business. There are capitalization and liquidity requirements starting in the 7 figures and compliance fees will be in the mid 6 figures from everything I've seen.
Good luck.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
I am curious how much the principal officers of the REIT make compared to a PPM model etc.??
I have some private REIT's that have not gone public yet that are clients. They have to get to a certain valuation on their shares etc. and time it just right before making the jump.
It is interesting to learn about it.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes11y
So would many in real estate! You'll need about $250,000 for initial compliance and legal work, before you ever develop a prospectus. Those who specialize in REITs don't work cheap and no, you can't do it yourself. I was faced with the same option, I choose to stick to about a dozen investors, a few with very, very deep pockets and use no more than 3 on any project, usually any one could swing 90% of what went on alone, much easier life getting started that way. :)
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
So Bill you never went the REIT structure??
Just simply kept it to a few investors for single property syndicates??
I am looking eventually at the REIT option but it might not be something I want to do. I have lots of investors wanting to place capital with me for investments.
I was interested with the REIT structure since 90 percent has to go to the dividends what benefit that offers over staying small and I get commission going in and out, equity share, and cash flow after investors are paid etc.
Basically what benefit does the REIT provide over someone doing a PPM etc.??
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes11y
The OP wants a REIT and NYSE exposure. Two tough nuts.
The Designated Market Maker NYSE equivalent (after IPO/offering) may want a chunk of equity for trading inventory and volume/liquidity requirements from the company or underwriting firm.I'm not sure what NYSE requires now, but the underwriting firm will let you know when/if they accept your business.Publicly traded REITs have nice liquidity.
- Los Angeles, CA · Member since 2014 · 17 posts · 5 votes11y
Wow, really appreciate all the replies! I am a newbie investor that has only flipped a single family home and had a condo rental unit.
I am a web developer and SEO freelancer by career, but really want to get into a NNN deal. But any good deal (10+ yr lease, corp guarantee, good location, etc.) is $1 mil plus, so I would like to "crowdfund" my first NNN deal with several investors.
What are your suggestions for collabing with outside investors to start an LLC together to crowdfund a property? Sites like fundrise.com don't offer the tax benefits of owning, so I am looking for input on my website and idea to fund ongoing crowdfunded deals and find the several interested investors www.NNNmarket.com
Thanks for input!
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes11y
A commercial guy like
can offer better post content than residential types. The NYSE idea... you are way early. You'll need to do some multi-million deals first. Where are you getting the deals on your web site? It's not clear who you represent (if anyone).
- Investor · Baltimore, MD · Member since 2013 · 205 posts · 44 votes11y
@Account Closed
I would like to start a REIT also. I believe you definitely need a good partner. Sam Zell has one of the biggest and most successful ones. If you are really into trying to start one I would be willing to collaborate with you in gathering information and trying to find out how exactly to put the structure together.
- Austin, TX · Member since 2012 · 137 posts · 62 votes11y
I would also agree that starting a REIT, for someone with limited experience could be tough. One obvious reason why people choose who they invest with is because they perceive the fund manager(s), executives to be subject matter experts. Many are ran by people that worked for other REITs, investment companies for many years. Some of the REITs I have heard or read got started was by amassing a large portfolio and then essentially selling it to potential investors. So their track record is what got them started.
Sam Zell said at a conference he spoke that he started by managing and acquiring properties in Ann Arbor, Michigan during his grad school years. Him and a partner ran a company that managed 4,000+ rental units. Obviously he is a genius and to manage that many units alone is a feat, to do it while your going to grad school, you are certainly in the top 1% of both intelligence, hard work and determination.
Unless you start working as an Ibanker and transition into a private equity firm working for investments and can accrue enough knowledge, investor connections and get very good at selling a vision (always tougher than selling a product), then you are more likely to do it by acquiring a large portfolio or merging a lot of small portfolios together. Along the way you have to convince people investing with you is a sound idea.
As for the crowdfunding site this I believe is much more realistic and to me there is a big difference between the two. There is a lot of info here on crowdfunding and it is definitely an area of interest as it is just getting started, so you could really get in at a ground level. I have heard from someone who has done projects that for an operator IFUNDING, is his preferred site. Obviously would be interesting to know what it would be from an investor.
- Rental Property Investor · MA · Member since 2014 · 420 posts · 213 votes11y
Justin, I am an accredited investor and work with a number of private companies that go public BUT do not need to start on NYSE.
All the advise above is great and should be taken in. As far as an REIT you can look into Nasdaq Capital Market or NYSE-AMEX. These are for start ups that have some value/revenue but in need of capital raising. As an example, 750K revenue would qualify you for NCM but not NYSE.
As always, talk to an attorney.
Have a good one!
- Residential Real Estate Broker · Newton, NC · Member since 2015 · 13 posts · 17 votes10y
Justin,
There is an alternative approach, though you'll need to do your home work.
What you might can do is this:
1. Buy majority of a Pink Sheet shell
2. Form a REIT Delaware Trust Inc.
3. Merge the two companies on share exchange through a reverse merger or triangle merger and redomicile the corp to Delaware.
4. Upgrade the shell to OTC Pink (this is not SEC reporting and lower costs for now about $5,000 year and reports to edgar).
Begin acquiring properties by exchanging Membership interests in an LLC that coverts to common stock of the REIT after one year. (upreit structure)
Build the company up, it will trade over the counter for a few years while you build up the shareholder equity and then PCOAB audit and move to SEC reporting.
Once you reach 5-million in equity, you can uplist to NYSE.
Books to read:
"Real Estate Investment Trusts Handbook" by: Peter M. Fass, Michael E. Shaff, Donald B. Zief.
"Fuqua" by JB Fuqua -My Hero in the south.
Ticker Symbols you can look at that are doing this now (go to www.otcmarkets.com and look at ticker symbol "MRTI" and look at their financial filings. You will see exactly what to do in this regard.
Search other small REIT's on the OTC Markets for the smaller ones and see how their growing. The money is made by converting unusual assets into a REIT that has large retained earnings that aren't public now but have share holders, think small railroads, cable TV companies and Billboard companies. In the last few years, Windstream, Lamar and Power REIT have unlocked millions in equity this way.
This is stuff no one will tell you, I hope you do your home work and go for it. You can be creative as you want to get people to contribute property to your REIT. The benefit to them, especially if they have rolled and rolled 1031 exchanges, will be the ability to sell shares as they want over time. It also works great for Real Estate Investors that are ready to retire and want to split shares in an REIT to the Heirs and let them receive a stepped up basis and they can sell the shares over a few years. Think about this, how do you leave a shopping center to three kids? But you can leave them 2,000 shares each of a public REIT they can sell if they want to without the other Heirs and on and on.
Your idea is great, you just have to put the pieces together. Others are and no one will tell you how, I just told you a poor mans way and once you're NYSE, no one will care. Good luck.
Kind regards,
-dr
Newton, NC
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes10y
See also this topic: Fundrise REIT IPO
- Raleigh, NC · Member since 2018 · 1 post · 0 votes8y
Just saw this post. I am new to bigger-pockets and it has already given me more inspiration than I could have imagined. Thank you to all who posted on this topic. It has confirmed my growth strategy. Think big always!
- Member since 2017 · 1 post · 0 votes7y
If you are ever in the process of starting your own reit, hiring a good attorney to bombard the charter with provisions is key to long term success and preservation. But the most important provision every charter must state is that the only way a shareholder could vote or complain, was they couldn't file a lawsuit they can only go to arbitration. that right there could save face in case you get people upset which tends to happen when the market is crashing.
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 726 votes7y
The people you need on Wall Street to go the NYSE or even NASDAQ route wont touch you without a substantial track record and a lot of money involved. I doubt even the pink sheets would. I would recommend the PPM route, build small, maybe a 5-10 million dollar portfolio.
One person to look at who is very successful and doesn't get enough credit is Cherif Medawar.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.