Investment Groups-Setting Expectations

In real estate, when several investors want to mutually invest together in a rental property, the results can be inticing and profitable. Pooling funds can allow a group to invest in a larger property with increased financial performance. However, it can also develop into a nightmare if everyone is not in agreement on goals, objectives, timeline and exit strategy for the property. The key to a successful partnership is to make sure that expectations are set from the beginning.

Just as every investment property is different, every partnership is different in some respect. Some strategies may be "buy and hold for an extended time", while others may be set up for short term gains, cash infusion and/or cash dividends paid to the owners.

When everyone is on the same page, decisions are easier. Planned expenses such as replaceing a roof, seal coating a parking lot, or painting the exterior won't be disappointing to investors when that expense comes up, and they can plan for it if they need to set aside the cash.

The timeline should be outlined up front as well. Getting out of the partnership before selling the property is not impossible, but there is not really an open market for buying/selling or trading ownership percentages in these types of partnerships. Operating agreements will spell out how this would be handled, usually centering around the other members buying that partner out, or having the first right of refusal.

Every investor should understand his/her options when the partnership sells the property. Moments before closing, the LLC is dissolved, and the individuals may take ownership as themselves according to their ownership percentages, and what they plan to do with their share of the profit. Some investors may elect to participate in a 1031 exchange. Others may want to take the cash out.

When getting into any investment, setting expectations up front will make for a smoother more successful venture. Happy Investing!

Chad Vaughn

If you believe your retirement portfolio needs diversification, you are not alone. A self directed real estate IRA may be your answer, combining an investment secured by the durability of a real property asset with a tax deferred or tax free gains as a part of your IRA.

Why haven't I heard of it?

Traditionally, financing planners sell insurance products or sell securities.

So, if you can't go to your financial planner, bank or insurance company, where can you go for a real estate IRA to diversity your portfolio?

First step, before you meet with anyone it is good to do a little old fasion self study on your own or with a company that specializes in self directed IRAs such as Entrust. The IRS doesn't say a whole lot of what you can do with the assets in your IRA, but they are painfully precise on what you can not do. A company specializing in self directed IRAs can help assure IRS compliance.

Second step, find a reputable administrator who is an expert in this field. This is an independent trustee or custodian who will help you open a self directed IRA. You can't buy real estate with your basic IRA. These administrators are commonly a combination of "fee-based" and charge each time they do something such as making a payment on an account and "asset based" administrator charging a percentage of the total  asset value annually. So when interviewing an administrator don't forget to ask the hard questions. What are their fees? What are their geographic areas? Do they provide an annual statement?

Once you find an administrator, they'll walk you through the steps and documents needed to set up a self directed IRA. You can set up an account with new money, but then you would only be able to fund it with the maximum IRA contribution each year. Or you could transfer some or all of the assets from your traditional IRA.

(The foregoing is a general discussion. It is not intended, and should not be relied upon as an opinion or advice on any legal, tax or investment aspects of IRAs. An IRA owner considering an IRA investment in real property should consult with your own advisers) (Resources: Laura Bruce with Bankrate.com/Jon Galane with Entrust Group)

Jeff Williams