All Forum Posts by: Brian Raynoha

The cash flow seems a little low, did you do a rent survey and give the units a little premium since they will be brand new?

Real Estate Investment Trusts (“REITs”) allow individual investors to invest in large-scale income producing real estate typically owned by a company. These are an excellent way for individuals to earn a share through commercial real estate ownership without having to purchase commercial real estate.

While buying REIT's are a perfect way to diversify your real estate portfolio they, unfortunately, do not qualify as a suitable replacement property for a 1031 exchange. In other words, you cannot sell your real property and exchange those proceeds into a REIT.

An UPREIT ("Umbrella Partnership Real Estate Investment Trust") may provide a solution to this. In these cases, property owners contribute their real estate directly to the Operating Partnership subsidiary. An arrangement is made between the property investor and REIT to transfer the ownership of appreciated real estate (also known as a 721 exchange). The property owner receives operating partnership units within the REIT called Operating Partnership (OP) Units.

By receiving the OP units instead of cash, the property owner can defer capital gains until either:

• The OP units are sold
• The units are converted into REIT shares, or
• The REIT owner sells the contributed property

The challenge is that the property must by one that the REIT wants to add to its portfolio, which can bring some challenges.

These 721 exchanges rarely happen, has anyone had a successful transfer of real property into an UPREIT and what challenges did you face?

Investment Info:

Small multi-family (2-4 units) buy & hold investment in San Jose.

Purchase price: $380,000
Cash invested: $50,000

Short Sale, 2 units, 3 bed 2 bath house plus a 1 bed 1 bath over a 2 car garage.

What made you interested in investing in this type of deal?

Was just trying to buy any multi-unit deal at the time.

How did you find this deal and how did you negotiate it?

At this time there were tons of short sales. This one is not my top choice.. but we were able to get it at a good price. Tried to get additional credit, bank told me to buy at a price offered or get lost.

How did you finance this deal?

FHA, then conventional

How did you add value to the deal?

Painted, Electrical, Changed out bad tenants, completely renovated the 1 bedroom, Raised the rents

What was the outcome?

Rents have come up almost 200 percent since I purchased the property. The property barely broke even for the first couple of years.

Lessons learned? Challenges?

Dont take bad tenants... Be patient.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I represented myself in the deal.

100% agree with the above folks! Booking a professional means they know how to showcase a property and take well lit photos while also not making it look nicer than it really is. I think you do get into that realm when you virtually stage a unit. Just ensure the property is clean, well-maintained, staged how it will be in reality and properly lit. By all means, hire a professional photographer. Think of it as an investment instead of just an expense.

Know your market well or find an agent that is an expert in the market you're most interested in. They'll be an invaluable resource for you. Good luck!