Syndications, REITs and crowdfunding
Syndications, REITs and crowdfunding make it possible for a single investor with $5,000 be part owner of multi-million dollar properties in Napa and across the nation.
A REIT (Real Estate Investment Trust) owns and operates large investment properties such as shopping malls. Ownership is created by purchasing shares in the REIT along with thousands of other investors. Oftentimes the actual properties owned are not known by the investor.
Most REITs are publicly registered, listed and traded in an exchange and own investment real estate all over the world. For example, in Downtown Napa the Kohl’s building and the two buildings in front on First Street are owned by American Realty Capital Partners, a $21.5 billion company based in Boston.
Several SEC requirements must be upheld in order to qualify and maintain status as a REIT. Investing in a REIT is available to anyone and can be as easy as purchasing shares of a mutual fund.
Diversification and liquidity are two advantages to owning shares of a publicly registered and traded REIT. Multiple properties across a large geographical area are usually held and your shares can easily be traded.
Syndications are a type of group ownership of real estate. A small number of investors pool their funds together to purchase one or more larger properties where you could not do so on your own. The SEC regulates syndications to be certain it maintains guidelines to not require it be registered as a security unlike a REIT, which must be registered with the SEC.
In a syndication your shares in the company, which is usually an LLC, cannot be sold or transferred. Once you invest you are committed for the term of the investment as stated in the private offering. A syndication could be created to purchase a single property or under a blind-pool investment, multiple properties over a set time period.
One significant distinction between a syndication and a REIT is who can invest. Because of the nature of a syndication the SEC considers this to be a high-risk investment for only accredited investors or those who “know what they are doing.”
Most likely you have heard of crowdfunding being used as a vehicle to raise funds for an invention or new product. This is a new form of online investing and is now moving into real estate.
Since the JOBS Act was signed into law in 2012 it loosened some restrictions related to who may invest in private offerings of investment real estate and how those offerings could be marketed.
Crowdfunding uses web-based platforms that help an accredited investor find an investment online. He is then able to make an investment into a single property or large portfolio with as little as $5,000, which is something he could not normally do on a multi-million dollar property.
Crowdfunding is not as much as a form of holding an investment as a method of locating and securing an investment into a syndication with other investors.