Converting your empire into a REIT

6 Replies

I was just thinking about something. What would it take to convert your properties into a REIT? Seems like a cool idea to me. Turn your empire public - sell shares - get financing to grow. Although you lose in some ways (control, % ownership), you gain through the influx of cash, and the reduction of risk.

Does anyone know about doing this? Is it even possible, or do you need to start out as a public entity?

I don't know the specific number, but anytime you want to sell a security (which is what it would be) to the public there are HUGE COMPLIANCE issues. Several years ago an acquaintance of mine started investigating putting together a publicly held company in order to raise the funds to purchase a minor league sports franchise. After about 20 minutes of informal time with his attorney he decided against it.

IIRC REITs also have another requirement in that they have to pay out a MINIMUM amount of their income to the owners each year. My opinion is that any time I get other "owners" involved I start to feel a little cramped. While I've had partners in several business ventures I've found that I've enjoyed myself more when it was ALL ME. Some of this has to do with my personality type (I know most of you think I don't have a personality so how could I have a "type").

One thing that I did successfully was invest in RE with my brother (about 6 units at different times), my sister (twice) and a guy that I knew pretty well though business. All of these people owned RE on their own before I approached them about going in with me. As both my brother and sister lived in California they left the "management" to me, although my brother and his wife made a couple of trips down to do re-roofing and other big jobs.

Unfortunately the other acquaintance lived nearby, our work speeds and methods of dealing with "difficult" tenants did not mesh very well, but we were in this deal together for about 10 years. 5 years as landlords and 5 as mortgagees.

The "mini-REIT" appealed to me for the reasons you mentioned, reducing risk and expanding more than would otherwise be possible. For an example I'll use an "all cash" scenario. If I have $50K, I can buy ONE $50K house, when it's empty I have 100% vacancy. However, if you and I each put up $50K we can buy 2 $50K houses. When one is empty, I ONLY HAVE A 50% VACANCY RATE.

Great idea, just limit how you market it to friends and acquaintances and you're golden.

all cash

Thanks for the advice. I'm not actually looking to start a REIT anytime soon, but I am certainly curious. It really seems like a promising idea in the long run, doesn't it?

Hey Sam - You are thinking about things in the right direction. I haven't personally done deals with any partners yet (haven't needed to), but I think its a good idea. Spreading your risk like all cash suggests is great, but remember that you're now working with others. When you work with others, things can quickly get a bit messy.

If you are selling properties to get into a REIT, there will be capital gains you will be paying. You can't exchange.

Have you considered TIC properties?

What are TIC Properties??? Thanks.

Tenant In Common properties. Large triple net leases with professional management already in place. Many have non-recourse loans associated with them. IRC codes are strick with gudelines regarding them, so don't take them lightly. There are another option for exchanging. :pup: :pup:

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here