Starting a private REIT

5 Replies

I'm looking at starting a private REIT with friends and family. My idea is to form an LLC with ownership equally spread across all investors. After this is done, my idea was to have everyone (around 10 ppl) invest $500 a month with a compounding 10% increase in investment every year. There would be a minimum of 1 property purchased per year for 3 years, and the profits from each property would not be available for withdrawal, and would just contribute to the funds future of investment. My thought is that after 5 year or so if there are 6-10 properties owned, the fund could liquidate all properties, or borrow against them to buy an apartment complex, and continue on a path towards having more and more multi family or commercial properties owned. At some point, we would begin taking monthly or quarterly dividends or distributions, but the goal would be to atleast do 3 years of all in investment, maybe more. Has anyone done something similar? Or have any critiques? I've talked to everyone I want to invest, and they all are on board.

It'd be a lot more straightforward to do a 506(b) syndication and go for the larger properties right off the bat. $500 a month for 3 years without receiving distributions is more than most people have the stomach for, even though they may say differently now. If you have smaller properties that are viable investments then you can likely get private loans for them or JV with other investors.

I don't know what the up front legal costs are to start a REIT, but they're almost certainly hefty. In the syndication world, we can expect somewhere around $25k just for a securities attorney to prepare all of the syndication paperwork. I would not be surprised if a REIT was more than that.

@Joshua Craig . I don't thing you really want the time, hassle and cost of a REIT; I think a LLC structure would be much more appropriate.

As to the operating plan, I foresee the probability of many problems as participants needs, desires, risk tolerance, and expectations change over time. Seems like a lot of moving parts for a rather small amount of invested capital. These monthly commitment plans don’t seem to ever work out. But should you decide to pursue it I wish you the best of luck.

@Don Konipol  and @Taylor L. thank you for the reply. Does it make sense to have an LLC setup to invest in REIT? I am interested in REIT since it would allow me to start investing now without having to commit large sums of money and while learning more about RE. Does it make sense to have the same LLC also hold properties down the road? I've heard of investors having multiple LLCs in order to decrease their liability even further. In my mind that only further increases complexity. I like the idea of RE but currently looking at it as a hobby instead of a full-time job. Thanks!

Originally posted by @Gabriel Vidal :

@Don Konipol  and @Taylor L. thank you for the reply. Does it make sense to have an LLC setup to invest in REIT? I am interested in REIT since it would allow me to start investing now without having to commit large sums of money and while learning more about RE. Does it make sense to have the same LLC also hold properties down the road? I've heard of investors having multiple LLCs in order to decrease their liability even further. In my mind that only further increases complexity. I like the idea of RE but currently looking at it as a hobby instead of a full-time job. Thanks!

For my personal REIT and stock investments, no. In my judgement an LLC holding stock wouldn't offer any advantage because as a shareholder of a public entity I believe I am sufficiently shielded from liability. You can just open a brokerage account with Vanguard or whomever and start investing. They make it easy to set up automatic purchases