Cherif Medawar

Free Training - Unlock Cheirf's NEW CAPITAL RAISING SECRETS for any ECONOMY!

real estate education
Menu

Blog

How To Invest In Commercial Real Estate In Your 30’s

by

If you’re looking for a new way to invest your money, commercial real estate may be the answer. Commercial property includes everything from office buildings and apartment complexes to warehouses and retail space. If you’re considering investing in real estate in your 30 Here are some tips for investing in commercial real estate. Know your goals: Before you begin investing, it’s important to understand what your financial goals are. Are you looking for passive income or do you want to use real estate as a way to build wealth? Knowing what you want out of your investment will help guide how and where you invest your money. Do your research: Once you know what type of property interests you most, it’s time to do some research. Learn about the market and other investors in the area so that you can make an informed decision about what type of property would be best for you. You may also want to talk with a broker who can help guide you through the process of buying or selling a building or piece of land. The more knowledge and experience he or she has with commercial real estate, the better off you will be when making decisions about which properties are worth pursuing: Learn from your mistake: If you’ve already made investments in property that haven’t worked out, don’t be discouraged. You’re bound to make mistakes as you’re learning about investing. The key is to learn from your mistakes so that you don’t repeat them again. For example, if you lost money on an apartment complex because it was poorly managed, don’t make the same mistake by buying another apartment complex without knowing who is managing it or how well they manage the property. Choose a niche market or geographical area: where you have experience or expertise and stick with it until you become an expert at it. For example, if you’re a plumber who knows how to fix plumbing problems in apartments, then focus on buying apartments with lots of plumbing problems (a sign of poor management). Or if you’re an accountant who knows how to manage finances for small businesses, then focus on buying small businesses with lots of financial problems (another sign of poor management). Types of Investment Strategies Investing in commercial real estate is a great way to build wealth and passive income. The benefits of real estate investing are cash flow and appreciation. As a young real estate investor, building wealth through real estate is appreciation and cash flow. Cash Flow – Commercial properties have tenants that pay rent on a monthly basis. The cash flow from your investment property will be used to pay off your mortgage balance and any other expenses related to owning the property such as property management fees and maintenance costs. This is one of the primary reasons why many people choose to invest in commercial real estate instead of residential properties because they can rely on consistent income each month after paying their expenses. Appreciation refers to the increase in value of a property over time as its market price rises due to changes in supply and demand. In other words, if there’s more demand than supply for a specific type of commercial property (or any property), it will tend to increase in value over time because people are willing to pay more for it than they were before — essentially bidding up prices until everyone agrees on a fair price point based on what buyers are willing. Types of commercial real estate investments Commercial real estate investing is a great way to build wealth and passive income. If you’re looking for a new way to invest your money, commercial real estate could be just the solution you’ve been searching for. There are many different types of commercial real estate investments, including: Office buildings Retail properties Industrial warehouse properties Multi-family housing units Apartments Parking Garages Gas station Building Self-storage investment Mobile Homes But before you jump in headfirst, there are some things you need to know. Here are some tips on how to invest in commercial real estate in your 30s: You don’t need a lot of money upfront Buy a property that needs work Make sure you have enough cash flow after repairs Never go into debt when buying commercial real estate Don’t use all of your savings to buy your first piece of commercial property Get professional advice about how much you should spend on repairs and renovations Be prepared for unexpected costs like insurance premiums and tax bills Don’t forget about taxes when calculating your return on investment (ROI) Don’t expect too much from your first property – results don’t come overnight! Final Thought Ready to dive into commercially investing? The suggestions and recommendations in this article can provide you with the tools and knowledge you need to get started. With the right amount of research, preparation, and attention to detail, investing in commercial real estate can add a source of steady income for life to your financial portfolio.  Learn the Steps to Invest in Commercial Real Estate Like a PRO by becoming a part of Cherif Medawar’s Commercial Real Estate Mastermind

Cash Flow vs. Appreciation: Which one should you choose?

by
Cash flow vs. appreciation

With real estate being such a popular investment choice, a lot of people wonder whether they should choose cash flow or appreciation when building their next portfolio. With so many factors in play and having experienced both sides. When it comes to investing in real estate, there are two main ways to make money: cash flow and capital appreciation. Cash flow is the amount of money coming in. Appreciation is the increase in the value of an asset. Cash flow is the money you get from your rental property each month. Appreciation is the increase in the value of your property over time. It’s important to understand the difference between these two concepts because they are two very different things. Cash Flow Cash flow is the amount of money you can expect to receive from your investment. Cash flow is typically calculated on an annual basis, but it can also be calculated on a monthly basis. When you’re thinking about cash flow, you should take into account interest rates, fees, and property taxes because these will affect how much money you have left after paying for your mortgage each month. In addition, it’s important to consider other expenses like maintenance and repairs so that you don’t run out of money before reaching retirement age. Appreciation Appreciation refers to the increase in value of your property over time. Appreciation increases your net worth by increasing the amount of equity in your home. For example, if you purchase a home for $200,000 with a 20 percent down payment ($40,000) and sell it 10 years later for $300,000 — then there has been a 100 percent appreciation on your property. Cash flow from rental property Cash flow from a rental property is the amount of money you receive from renting out a property. It’s typically expressed as a monthly figure and is one of the key performance indicators for real estate investors. Cash flow can be calculated in several ways, but it’s often calculated using the following formula: Cash Flow = Net Income – Mortgage Payment Cash flow is important because it shows how much money an investor is bringing in each month. It also helps investors see how much money they’re paying out each month to cover mortgage payments and other expenses. Investors who want to know if they’re making money on their rental properties need to calculate cash flow regularly so they can see trends over time. When it comes to calculating cash flow from rental properties, there are two primary ways to do it: the income method and the expense method. Both methods use identical formulas but reach different results by using different sets of figures. So which one should you use? It depends on what kind of information you want to get from your numbers. How to calculate cash flow Cash flow is the money that comes into and goes out of a business. Cash flow can be calculated in two ways: Cash inflow: The amount of cash you receive from customers for goods or services that you sell. Cash outflow: The amount of cash you spend on labor, inventory, equipment, and other items to run your business. You can calculate cash flow by subtracting your cash outflows from your cash inflows. For example, if you invested $10,000 and had revenue of $6,000 during the first month, then your cash flow would be -$4,000 ($6,000 – $10,000). Advantages of investing for cash flow Investing for cash flow is an investment strategy that focuses on owning assets that pay a steady stream of income. Cash flow investments can be highly profitable and provide the investor with a steady stream of income over time. There are many advantages to investing for cash flow; some are listed below: Tax advantages: Investments that produce cash flow are typically taxed at lower rates than capital gains. This can be particularly beneficial if you have a high income and are in a high tax bracket. Flexibility: Cash flow investments often allow you to access your money without triggering taxes or penalties. For example, if you invest in real estate and need to sell it for some reason, you can borrow against the property to finance the sale without paying taxes on any gain until you sell it. Security: Cash flow investments tend to be more stable than other types of investments because they don’t involve speculation or relying on someone else’s success (such as an investor) or failure (as might happen with a start-up company). Diversification: Cash flow investments complement other types of assets because they provide income while others provide growth potential. Real estate is an excellent example of an asset that produces both dividends (cash flow) and appreciation (growth). Appreciation in real estate Appreciation in real estate is the rise in value of property over time. Appreciation is not the same as price, which is simply what someone is willing to pay for a property at a specific point in time. Appreciation is usually measured by comparing the sales price of similar properties that have sold recently with the asking price of a property currently on the market. Appreciation can be calculated in two ways: by comparing the current market value of a property with its original purchase price, or by comparing current rents with original purchase prices. Appreciation can be divided into two categories: capital gain and income yield. Capital gain refers to the difference between what you paid for your home and what you could get if you sold it today; this is considered appreciation because it represents an increase in value. Income yield is the amount of money generated by your investment in real estate, which can include rent from tenants or profits from selling your property at a later date (after it has been appreciated). There are several factors that influence real estate appreciation, including: Location Property type (house, condo or apartment) Condition of the building (newer or older) Why some investors focus on appreciation Appreciation is the … Read more

What is a K-1 and How is it Used for Taxes in Private Real Estate?

by
What is a K-1

A K-1 form is a tax form used to report the incomes, losses, and dividends of a business’s partners or an S corporation’s shareholders. K-1 forms are issued by partnerships, S corporations, estates, and trusts. The recipient of the income, loss, or dividend is responsible for reporting it on their federal tax return. Investors in hedge funds, private equity funds and real estate funds receive K-1 forms if they own interests in pass-through entities, such as partnerships. A K-1 is a tax form used by pass-through entities, including partnerships, S corporations and limited liability companies (LLCs). The form reports the income and losses of a business to its individual owners. Private real estate investors have many choices when it comes to investing, but there are several factors that make real estate investing unique. One of these is the K-1 filing for tax purposes. A K-1 is a form that must be filed along with your income tax return if you are invested in a pass-through entity, like a limited liability company or partnership. The form shows how much income you’ve earned from the investment and what types of deductions you can take. The first thing that you need to know about the K-1 form is that it is not the same as a 1099. A K-1 form is used to report your share of income, deductions, and credits from a partnership, S corporation, trust, or estate. Important K-1 and Tax Filing Information for Private Real Estate Investors Valuation When filing taxes, it’s essential to know the value of your investment at the end of each year. Private real estate funds provide both an estimated valuation at the end of each month as well as a final valuation at the end of each year. The value of the investment at year end may not be the same as the amount reported on the K-1 statement. The amount reported on the K-1 is the “book value” of the asset(s). The book value is typically the price paid for an asset adjusted for capital improvements made during ownership and depreciation taken since acquisition. Because private real estate transactions are complex and vary from property to property, it is not uncommon for there to be delays between when revenue is collected and when expenses are processed. Tax Basis Your tax basis is defined by your initial investment amount into a fund plus any additional capital contributions you’ve made over the course of your investment minus any distributions you’ve received during your holding period. Each investor’s initial investment in the partnership is recorded as their tax basis for the investment. Any additional capital contributions increase the investor’s basis in the partnership. Any distributions from a partnership reduce the tax basis dollar for dollar up to the amount invested in the partnership. If a distribution exceeds a partner’s initial investment, the excess distribution reduces any gain recognized if and when the partner disposes of his or her interest in the partnership. Losses When filing taxes as a private real estate investor, losses can be used to offset other income from sources such as wages or stock dividends. But if your losses exceed $3,000 or so in any tax year — depending on your filing status and income — you may have to carry over some of those losses into future years. To do this, first use all losses against other income in the year they arise; then carry over any unused portion to next year’s tax return; and finally use that remaining amount against other income in that second year. Tax Deferred Distributions Many private real estate funds will offer investors the opportunity to postpone (defer) the recognition of taxable income by reinvesting distributions in additional units or shares of the fund’s interest under a so-called “distribution reinvestment plan” (DRIP). This is advantageous because it allows investors to avoid current taxation on the distributions and instead defer taxation until the eventual disposition of the investment. Additionally, investors may be eligible for long-term capital gains treatment when they do eventually sell their investment. K-1 Arrivals If you are a passive investor in private real estate funds (either directly or through a 1031 exchange), you will be receiving a K-1 form for each fund in which you hold an interest. Once you have received your K-1 forms, please be sure to follow the below steps: Check that the Box 17 codes accurately reflect the tax treatment of your investment. Be aware that certain Box 17 codes may require additional information on your tax return to be properly treated. Be sure to discuss these with your tax advisor. Consult your tax advisor regarding any amendments to the underlying partnership agreements that may have occurred during the year. These changes could affect your allocation of income and/or basis, and may require additional actions on your part. Multiple Forms Some shareholders may receive several K-1s from different real estate investment entities. This can raise multiple questions for investors about how to best file their taxes. It’s important for investors to remember that a K-1 form is attached to each entity that you have invested in during that calendar year. With multiple K-1s in hand, it is also important to remember that each form must be submitted with its own tax return — there can be no bundling of multiple K-1s on a single tax return. Let’s say you have investments in multiple partnerships. Each partnership is required to generate their own K-1s, which means you could potentially have numerous forms to file and track. Keep in mind that each partnership is required to send out their K-1s by March 15th or April 15th at the latest (or soon after).* Composite Returns If you invest through a partnership or LLC, you may have noticed that most fund managers offer Composite Returns so that investors do not have to pay state income taxes on investor distributions. A composite return is a state tax return filed by an “agent” on behalf of two … Read more

What Is A Good Cap Rate & How To Calculate It

by
what is cap rate

Cap rate is a useful metric used to value commercial real estate properties. Often considered a benchmark in the industry, cap rates are more commonly utilized in regards to income producing properties as they are a key indicator of future cash flow. Finding the cap rate of a property is critical to determining its value. Ideally, you want to make sure the price you pay for a property is less than the combination of rents and capital expenditures when calculated as a percentage of the property’s value. This is where cap rate comes in. Cap rate can be defined in numerous ways including: (1) net operating income divided by cost or market value; (2) gross income divided by cost; or (3) cost divided by net operating income. What Is Cap Rate? Cap rate is a real estate term that refers to the ratio of the net operating income (NOI) generated by a particular property to the property’s sales price. Cap rates are used by investors as one indication of how desirable a particular property may be as an investment. There are two parts to a cap rate: capitalization rate and value. The cap rate is a useful metric for real estate investors looking to evaluate their existing or potential investments, because it gives an indication of how well that property will generate cash flow. It does not take into account other factors like cash-on-cash return and loan payments, but these can be calculated as well to give a complete picture of your investment. A high cap rate (10%+) indicates that your investment has a low risk of default, while a low cap rate (5% or less) indicates that the property could be at a higher risk of default. Cap rates are commonly quoted as annual figures; however, they can also be calculated on a monthly basis. To convert an annual cap rate to a monthly cap rate, divide by 12. For example, if you have an annual cap rate of 8%, then your monthly cap rate would be 0.67%. What Is A Good Cap Rate For Rental Property? A good cap rate for rental property is largely determined by the location of the property and the condition of the market. The return on a real estate investment depends on how much capital you’re willing to invest, what kind of property you’re buying, and how much risk you are prepared to take. A cap rate is a simple way to estimate the potential return on an investment. It measures the ratio between annual net operating income and purchase price or current market value. A cap rate of 8 percent means that an investor would receive $80,000 in rent annually if they bought a property for $1 million dollars and collected 100 percent of their rent. It’s important to remember that there are expenses related to owning rental properties — including maintenance costs — so it’s not as simple as dividing the monthly rent by the purchase price. You’ll also need to factor in any maintenance costs and other expenses such as utilities and property taxes. The formula for the cap rate is: Cap Rate = Net Operating Income (NOI) / Current Market Value (CMV) For example, say an investment property has a current market value of $500,000 and is expected to generate $40,000 in net operating income after expenses. Using the above formula we compute: Cap Rate = 40,000 / 500,000 = 0.08 or 8% The cap rate formula is as follows: (Net Operating Income / Purchase Price) x 100 = Cap Rate in percentage form A cap rate of 10% indicates that the property generates $10,000 per year for every $100,000 in price. Put another way, it would take 10 years for a property to pay for itself if you use only income to finance the purchase. When Is Cap Rate Used And Why Is Cap Rate So Important? Cap rate is used when estimating the investment value of a real estate property. This figure tells you how much money you will earn each year on your investment without taking into account interest, taxes, etc., and is calculated by dividing the net operating income of a property by its market value. The higher the cap rate, the greater the potential return on your investment. Cap rate is one of the most important metrics for real estate investors because it gives an estimate of how much cash flow a property will generate based on its current market price. When evaluating a property, it’s important to look at the cap rate based on pro forma projections – what you expect the property will return for you once you acquire it, renovate it and fill it up with tenants – as well as the actual returns over time. In practice, cap rate is often used in place of cash on cash return, which is net operating income (NOI) divided by total cash invested. In addition to the capitalization rate, factors that affect the cash on cash return include: Total investment costs Loan size and interest rate Mortgage amortization period Recurring expenses How To Calculate Cap Rate: Capitalization Rate Formula The capitalization rate formula is calculated by dividing the net operating income (NOI) by the cost of the asset. So if an apartment building was purchased for $1,000,000 and it generates annual net operating income of $100,000 then the cap rate would be 10%. When using this formula you are assuming that the NOI will continue indefinitely at the same level and that there will be no further investment in the property after purchase. Cap Rate = Net Operating Income / Current Market Value or Cost of Real Estate Cap Rate Vs ROI A cap rate is an estimate of the potential profit per unit of a property. It’s calculated by dividing total gross income by total cost, and then subtracting all expenses, including vacancies and interest. ROI, alternatively, is the annual return on investment. While cap rate is used to determine the … Read more

Hedge Fund vs. Private Equity Fund: What’s the Difference?

by
key difference between hedge fund and private equity fund

Investors are often confused between the similarities and differences of hedge fund and private equity funds. In modern financial markets, many institutional investors allocate a substantial portion of their portfolios to alternative investments. It is often the case that hedge funds and private equity funds are included in the same alternative investment allocation. A hedge fund is an investment vehicle that uses both types of investments to achieve its goals. A private equity fund is a professionally managed investment partnership that pools money from other investors and invests in, or lends money to companies that the managers believe have growth potential. Through due diligence and research, Real Estate Fund Managers invest in specific segments of a company in hopes of adding value through operational improvements and restructure. Hedge funds A hedge fund is an investment fund that pools capital from accredited investors or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques. It is administered by a professional investment management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. Hedge funds are generally distinct from mutual funds, as their use of leverage is not capped by regulators, and distinct from private equity funds, as the majority of hedge funds invest in relatively liquid assets. Hedge funds can be classified according to certain criteria; for example: Investment strategy (directional/non-directional) Investment objective (absolute return/relative return) Net asset value (single-manager vehicles/funds of hedge funds) Investor type (institutional/high net worth) Hedge funds are an alternative asset class. That means they don’t trade on public exchanges like stocks and bonds do. Instead, hedge funds are usually private investment vehicles that sell shares only to accredited investors (people with a net worth greater than $1 million or annual income of more than $200,000 for individuals and $300,000 annual income for a couple). The value of hedge fund shares can be based on the value of the securities owned, plus or minus any cash or other assets held by the fund, minus any liabilities it has. Since many Real Estate Fund Managers use leverage (borrowed money) to amplify their returns, this can mean that just a small decline in asset values can wipe out the entire value of shareholders’ equity in the fund. Private Equity Fund Private equity funds are a type of investment vehicle that pools together money from various institutions and investors in order to invest in the private equity of startup or operating companies through a variety of loosely-affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Typically, a private equity fund has a fixed life of 10 years, with the possibility of two 1 year extensions. Private equity funds are often classified by their stage of development (early-stage venture capital or growth capital), their geographical location (regional, national/multi-national), or their stage of maturity (opportunistic, value-added, distressed debt). Private Equity Fund Structure Private equity funds are organized as partnerships and structured in two parts: the Limited Partnership (or “LP”) and the General Partner (or “GP”). The LP is composed primarily of institutional investors and accredited investors who provide the bulk of the capital for the fund. The GP is composed of professional fund managers who make investment decisions on behalf of the LP. GP’s typically receive management fees as well as performance compensation through carried interest. There are many different types of funds that exist within private equity; some focus on acquiring certain types of companies while others focus on certain industries or regions. There are even funds that specialize in certain stages of financing (e.g., early-stage venture capital). Some funds will invest across multiple asset classes such as real estate, commodities, etc., which can make them more diversified than other types of funds. Key Difference between Hedge Fund and Private Equity Fund Hedge funds and private equity funds are two of the most significant investment vehicles available to investors. These funds differ from each other in many aspects. Some of the key differences between hedge fund and private equity fund include: Investment Strategy – The major difference between a hedge fund and a private equity fund is their investment strategy. A hedge fund invests in liquid assets, while a private equity fund invests in illiquid assets. Hedge funds invest in stocks, bonds, derivatives, currencies, etc. Private equity funds generally invest in private companies, real estate or infrastructure projects. Fund Size – Hedge funds are smaller than private equity funds. The typical hedge fund manages around US$100 million to US$300 million in assets under management (AUM). On the other hand, the typical private equity firm manages around US$2 billion to US$20 billion AUM. Moreover, large hedge funds can also manage more than $10 billion AUM as well. However, it is comparatively easier for a small hedge fund to raise capital than a small private equity firm. Investment Targets – The main difference between hedge funds and private equity is what they invest in. Hedge funds generally invest in financial instruments that can be bought and sold quickly on public stock exchanges, while private equity firms tend to focus on acquiring entire companies or large portions of specific businesses through leveraged buyouts (LBOs). Investment Risk – The private equity fund takes on more investment risk compared to the hedge funds. The investment of the private equity fund is highly illiquid. But the hedge funds can easily liquidate their investments. So, the hedge funds take low risk compared to the private equity fund. Lock-up and Liquidity – A hedge fund normally does not have a lock-up period or waiting period for investors to redeem their investments. However, a private equity fund has a lock-up period ranging from three to five years which is called an “illiquidity premium” or “time premium”. In other words, investors cannot redeem their investments during the lockup period. Similarities between Hedge Fund and Private Equity Fund Both hedge funds and private equity funds are types of alternative investments. A typical investor in a private equity fund is … Read more

What Are Real Estate Funds And How They Work?

by
real estate funds

Investing in real estate is a lucrative strategy that attracts many entrepreneurs, which is why there are so many different types of real estate business models. People chose to find the deals and do the work themselves OR they choose to passively invest in REITS, hedge funds and real estate funds and syndications.  Today we will focus on real estate funds and syndications. These are investment vehicles that enable sponsors to raise capital for deals and give investors the alternative to stocks, options, crypto and other investments to earn passive income based on the assets held in the portfolio.  Sponsors structure a fund or syndication to legally raise capital for a broad range of real estate assets in an attempt to generate high returns, protect against potential losses, pay their investors and scale the portfolio.  DEFINITIONS A real estate syndication is when a group of investors pools together their capital to jointly purchase a large real estate property. Apartments, mobile home parks, land, self-storage units and other real estate assets are some of the investment opportunities available through real estate syndications. A syndication is usually focused on one deal at a time.  An investment or real estate fund is an entity formed to pool investor money and collectively purchase securities such as commercial and residential real estate. Thus, a real estate investment fund is a combined source of capital used to make real estate investments. A real estate fund may have a variety of projects under management at the same time. HOW DO REAL ESTATE FUNDS WORK? Real estate funds are a relatively new addition to the real estate market. Generally speaking, RE funds are pools of money — sometimes tens of millions or billions of dollars — managed by investment professionals. Unlike mutual funds, which must be registered with the Securities and Exchange Commission (SEC), RE funds are exempt from most standard securities regulations. However, they are filed with the SEC and are managed with Rules and Regulations that the SEC sets. There’s no single definition of what qualifies as a RE fund, but they typically share these four characteristics: They’re not registered with the SEC. They are filed.  They must follow Blue Sky Rules.  They may only accept accredited investors. Although there are exceptions with the Regd 506b; whereas if you have a preexisting relationship with the potential investor(s) you can accept up to 35 unaccredited. However, they must be sophisticated and the process to invest must be met.  They use some combination of advanced investment strategies to maximize returns, such as short selling, leverage and derivatives. These real estate investment vehicles may invest in commercial properties, such as office buildings or apartment complexes, or residential properties. The  fund may also invest in shares of publicly traded companies that specialize in real estate, such as homebuilders or mortgage lenders. Some real estate funds invest directly in property, whereas others use derivatives or other strategies to express their view on the real estate market. Some may combine these approaches within a single fund. Like any other fund, a real estate fund may charge management fees and performance fees depending on the type of structure used. Management fees are usually assessed on assets under management and are typically 1% to 2% annually. Performance fees are often charged at 20% of the profits generated by the fund above a certain hurdle rate such as 8%. WHAT IS THE DIFFERENCE BETWEEN REAL ESTATE FUNDS AND MUTUAL FUNDS? Real estate funds and mutual funds are two similar forms of investing that come with distinct differences. There are a few key differences between funds and mutual funds. Real estate funds have less regulation than mutual funds. They do not have to register with the SEC, and there are no requirements for how often they have to report what they own or how they’re doing so long as the total capital invested in the fund is under 20 million dollars. Obviously normal management, compliance and accounting processes must be in place. The only requirement is that fund managers must register with the SEC if they manage more than $100 million in assets and they must register with the Commodity Futures Trading Commission if they trade certain types of derivatives. Those who invest in funds must be accredited investors and have a net worth of at least $1 million. Funds typically have higher fees than mutual funds. Real estate funds are more liquid than mutual funds, allowing investors to enter or exit an investment faster. The sponsor or syndicator sets that timeline in their offering documents.  Mutual fund managers have more constraints on how much risk they can take on, which limits their ability to generate big returns when markets are rising but also limits losses in bear markets. Mutual funds are required to report holdings every quarter, so investors know what the manager owns at any given time. Individuals can invest in mutual funds by buying shares directly from the mutual fund company or through brokers. There’s no minimum net worth requirement. HOW DO I INVEST IN A REAL ESTATE FUND? The rules for investing in real estate funds are rather different than those of other investments. To invest in most real estate funds, you must be an accredited investor. This means that you must meet one of the following criteria: You have an annual income of at least $200,000 (or $300,000 together with a spouse) for the past two years and expect to make the same or more in the current year. You have a net worth of more than $1 million, either alone or together with a spouse (excluding the value of your primary residence). Additionally, real estate fund investors typically must contribute at least one share  to the fund itself. There are some funds that allow smaller contributions, but it’s unusual for these to be less than $25,000 to 100,000. For a Regd 506b you must have a preexisting relationship with the sponsor prior to investing. With a Regd 506c there … Read more

Raising Capital For Real Estate In 6 Steps

by
Raising Capital for Real Estate

For investors in the real estate industry, raising investment capital is one of the first challenges that you will face. You need to be able to raise sufficient funds to cover the down payment on your real estate property, closing costs and brokerage fees and construction.  Because you may be relying on other individuals and investors for a significant portion of the cash needed for your projects it is important to create an investor profile that will help you to attract investors. And it is critical that you are raising capital through legitimate vehicles, whether that be JVs, partnerships or syndications and/ real estate funds.  You should not take money from investors without the proper legal structure so you protect the investment, yourself and most importantly your investors.  Improving the performance of your real estate business has a lot to do with how much you spend on it and what your budget or strategy is to take it to its highest and best use. For example, how much money you can afford to buy property will determine how quickly you can reach your volume goals. And if you want to start spending money on advertising, you first need to make sure it pays off by having the funds. There are many different ways to raise capital for real estate investing. We focus on JVs. partnerships and syndication. Once you know the vehicle you will use to raise capital you need to focus on your plan. There are certain things you should do first to ensure your success. The following steps will help you not only attract investors. Step 1 – Always be Improving Your Credit The first step is to improve your credit score. It’s not that potential investors will run a credit report on you– but it does give you power with your structure to work with financial institutions to get more money to use towards the projects, like construction loans. Your investment vehicle will stand as one score, as will yours. The better your credit the bigger the opportunity to get inexpensive money and leverage the deal.  This can be done by paying off any outstanding bills and not applying for any new loans until you are at a 720+. It may seem counter-intuitive, but raising your credit score is necessary in order to find banks and lenders for a loan at a great rate. Having a good credit score shows lenders that you can be financially responsible and that you have a good chance of repaying their loan. And having lenders who will loan you for the construction allows you to use the money you raise with you JV, partnership or syndication for scaling the portfolio.  Step 2 – Save up Money Once your credit score has improved, it is time to save up some money. You should have enough saved up to pay back the loan, with some extra cash left over as profit. You will need this money to put down on the property as well as pay closing costs and other fees associated with the purchase of a property. Step 3 – Find Investors Once you have saved up enough money and your credit score is high enough, it’s time to find some investors. You can put ads out on the Internet or approach people face-to-face. What Is Investment Capital? Investment capital is money your business uses to grow. You can use it to buy supplies, inventory, rent space and employees, launch new products, or expand your business. You may need up to several million dollars for an initial outlay and ongoing financing for your operation. Your goal as a business owner should be to get the most capital for your business at the lowest cost possible. An investor gives money to an entrepreneur in exchange for a financial stake in the business. The most common type of investment is equity financing, where the business issues stock that investors purchase as part of a company offering. Revenue-based financing is another form of investment, whereby a company receives monthly payments based on its monthly revenue. Another popular form of financing is debt financing, which allows entrepreneurs to borrow money from investors for a set period of time at an agreed upon interest rate. Contingent promissory notes are another option, where investors can receive returns on their investment if the business achieves profitability or meets other goals established by investors. Sources Of Private Money In order to raise money, you will have to borrow from other sources.  First, you will look for private money sources. Private money is the funding that comes from either an individual or group of private individuals.  The best place to find private money is through your network of friends, family, and business contacts that know you well and trust your abilities.  You should be prepared to show that you have thought out how you plan on using their investment and how they will get their money back plus some profit with enough left over to buy the next property if they choose to do so. What Are Money Partners? Money partners, also known as capital partners or investment partners, are people and organizations that provide the primary capital for a real estate investment deal. Money partners function as the financial backer of the deal and are responsible for financing, funding and paying back any debt that’s created by it. Real estate investing often relies on money partners to supply a portion of the investor capital for a property to be acquired, developed or redeveloped through a loan or by equity investment. How To Raise Private Capital For Real Estate Raising capital for real estate can be a challenging feat. Few people think about the fact that real estate investments are always capital-intensive. While there are several ways to finance your property, you may opt to raise money on your own. Here are some tips to help you raise private capital for real estate: 1) Make sure you have a great … Read more

How to Setup Your Own Real Estate Fund: Key Strategies and Structures

by

In its simplest form, a real estate fund is a structure established to raise equity for real estate projects. It can be set up as a debt or equity investment vehicle with multiple investors who jointly contribute capital to the fund in exchange for limited liability company (LLC) interests or as a limited partnership (LP) with a single general partner and several usually passive limited partners. In some cases, the fund may be established as an additional layer of ownership, but not a separate legal entity, where investors contribute capital directly to the underlying properties. Real estate funds have been growing rapidly in recent years as investors are looking for uncorrelated asset classes offering handsome returns. The increase in availability started with the JOBS Act for small business, but the structure also allowed real estate investors to use the strategy to get into bigger deals and provide a safe vehicle to protect their investors. Essentially, a real estate fund is a partnership, established by experienced investors, to raise money (also known as “equity”) for real estate projects. Similar to other pooled investments such as mutual funds and exchange-traded funds, private real estate funds provide investors with the opportunity to spread their risk by investing in a variety of different real estate assets rather than single properties. However, unlike investing in publicly traded securities, private equity funds are not required to disclose their holdings or financial performance so long as they raise under a specific amount of capital. These types of funds are focused on marketing to accredited investors. How does one go about creating a structure, blessed by the Securities and Exchange Commission (SEC) to raise equity for ongoing real estate investment? Funds are a reality in the world of real estate investing for those who find the right people to work with and to legally structure and file or register the structure. In its simplest form, a fund is a legal entity formed by people coming together with the desire to earn money through real estate investments. The purpose of this post is to go over some of the key strategies and structures you can use when forming a partnership to fundraise or raise equity for ongoing deals. Entity Types Private equity or debt real estate funds are investment vehicles that are created and organized to invest in a single specific sector or industry. The two most common private equity real estate funds and the structures that they utilize include a limited liability company (LLC) or a limited partnership (LP). Only IRS regulations can accurately dictate which structure is required by your specific situation, but in both cases, it is best to work with a CPA who can guide you through the entities that are best for you. A proper fund is also filed or registered with the SEC, and the sponsor or fund manager is responsible to follow strict guidelines enforced by the SEC. These rules and regulations protect the investor, the fund manager and the investment itself. A private equity/debt real estate fund can be structured as a portfolio of income-producing real estate that is owned by a fund OR it can be structured for one project at a time. The purpose of these funds is to yield returns for investors, typically through the purchase of distressed properties, affordable housing or other income-producing properties, like stand alone commercial buildings, land or even industrial. When establishing a private equity/debt real estate fund, there are several strategies and structures to consider before making a final decision. Admission and Withdrawal of Investors One of the basic considerations with private real estate funds is whether the fund should be an open- or closed-end fund structure. Both of these structures have their advantages, and the right choice will depend on multiple factors (such as liquidity needed, investor base, etc.). The open-end structure of a real estate fund allows investors to enter and exit the fund at regular intervals which also allows the sponsor to raise capital from a broad base of investors. It doesn’t allow investors to reimburse the fund or invest additional funds if they want to increase their exposure. it also exposes investors to greater tax risk. The closed-end structure, on the other hand, allows investors to increase their exposure by reinvesting distributions as well as receive returns of capital, which reduces an investor’s overall equity in the fund, which is a tax advantage. The third option is to create “side pockets” for the fund. This structure can also help manage some of the conflicts investors may have with one another by allowing them to participate in investments according to their preferences for risk or return. What is the difference between General Partners and Limited Partners? A general partner (GP), often called “Sponsor” limited partners (LPs) referred to as “Investors”. General Partners are responsible for managing and controlling the risks, taking care of day-to-day matters and approving decisions while Limited Partners make all investment decisions but usually have no responsibility for the management of the partnership. What roles do sponsors and investors play in the real estate private fund? The first step in forming a real estate private equity/debt fund is identifying the key roles to be played by all the participants involved. These include the sponsors or fund managers and their investors. You can structure your real estate fund as complicated or as simple as you like. Sponsors: The sponsor is a person/company that provides the legal structure of the fund, hiring an investment manager to run it, raising capital from investors, and providing ongoing support and project management. Investors: Investors provide capital to the fund, expecting that they will get their money back (plus interest) when they sell their shares. The sponsor is a firm/or individual which set up the fund. It is also known as an investment adviser, or a fund manager. The sponsor looks for potential deals and performs due diligence on them to determine if they are worth investing in. The sponsor has the … Read more

What is the criteria of an “Ideal Business”?

by
parking lot investments

Most of my readers know that I prefer real estate investing over owning any business. But I am involved in many businesses such as my real estate syndication, the education company, the tax reduction company, the real estate management company and soon we will be launching a full fledged crowd funding website and portal. In all of my business listed above there is a direct connection to REAL ESTATE. As I analyzed each business I took time to compile a list of criteria for an “Ideal Business”. Please read it and add to it as you see fit in the comments below. Here is my list so far:   Unlimited Global Market Product needed by people (a basic human need) Low to no market price resistance Profitable through residual income Unique values not available anywhere else Minimum labor Low overhead Low inventory requirements Low capital cost requirements Low to no credit required No equipment Income in cash (no account receivables) Fewer to no government regulations or intervention No complicated permits or licenses to own or operate Portable – movable or can be handled from anywhere Interesting, fun, intellectually stimulating Truly helps others Compounds over time Frees your time – controlling schedule Several avenues of profit Low taxes (incentives and rebates) Easy to pass on (to loved ones) No direct exchange of unit of time for unit of income Can be systematized for predictable work and returns Can be automated through people and processes Can be leveraged (bank desirable) Can be scaled and expanded through duplication (going public) No special degree or complicated/on going education Can work through different economic cycles (up and down markets) Gives you a great reputation and support from others Again, feel free to add to it in case you feel I missed something. And BTW if you know what kind of business that could be— please share it with everyone you know. The closest I came up with was real estate. Sincerely, Cherif Medawar CEO Founder of the ideal business CrowdFundExpress.com Launching in the 2nd quarter of 2017 Once we get final approval from FINRA and SEC

Crucial Factors and Calculations to Consider for Best Results in Real Estate Investing

by
retail courses

If you are investing in real estate you must understand the relationship between price and value. I want to share with you what calculations I do to figure out that difference and how I apply the strategy: My buy and sell strategies My buy and hold structures The business models I offer my investors Under the “price” consideration I calculate: How much money will I have to pay to purchase the property How much money and effort will it cost me to rehab the property, including other fees to reposition it and get it to perform to its highest & best use How much time will it take to get it to a level where it can be resold or rented Then, I compare each of the options to alternative assets and opportunities Under the “value” consideration I calculate: After spending all of the above to get the property to its highest & best use, how much income will that property bring in each year and over how many years? What would be the incremental effort, and ongoing cash expenses required to keep the property performing (Monthly operating expenses and periodic capital reinvestments)? At what price would I be able to re-sell it once I finish the repositioning vs. what value would the property have if I held on to it for income over a period of 5 years, 10 years or longer? Then, I try to compare the long-term value of that property vs. the price (based on time, money and effort) that I would pay, and I compare that to other income producing assets. If I am buying to resell (flip) the property, then here are the factors I would consider that combine the price and value calculations: How much time, effort and money will it take to: Find a property below market price and purchase it Improve the property to increase its value Resell the property (closing costs etc.) The next step is to figure out: What is my expected average profit on each deal (percentage wise: i.e. 20% annualized)? How long would it take me to find the next deal (down time with no returns between deals, cost of the money)? How much would my yearly returns be after all the time, effort and money spent on all the deals I could do in one year? How would that compare to other business models that would require a better balance between my resources (time, money and effort) at that particular time in the market and in my life? After doing all these calculations, and after many years of experience in the real estate business and profit sharing through my various real estate funds and educational companies, I have created the safest and most profitable business model for students/investors. If you wish to flip properties with no investment of your time or effort— and down time on your money, then my business model is a perfect fit. Your money will produce returns from day one when you acquire the properties. It is a “done for you” model to buy and hold, as well as flip with cash flow of 9% per year, and an approximate upside of an additional 30% +/-. Right here right now I have a business model that produces for my students/investors a hands-off, hassle free, secured return of approximately 40% per year. That is true “TURNKEY”. Watch my next blog for details to go to www.SFIFundDirect.com Sincerely, Cherif Medawar CEO SFIFund Direct www.SFIFundDirect.com      

Skip to content