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Peer to peer mortgage lending Dallas Texas

Peer to Peer mortgage lending Dallas Texas | InvestmentClub360

Peer to peer mortgage lending Dallas Texas

Peer to peer mortgage lending is an online platform or company that connects borrowers with lenders. It is an alternative means with which real estate investors/developers can acquire capital from investors instead of seeking loans from banks and other traditional means.

It cuts out the lending protocols of the bank and makes it easy for investors to seek capital from other investors. Peer to peer is conducted by a P2P platform who brings the borrowers and the lenders together.

The P2P platform does not lend money to investors seeking for funds; they only bring the investor seeking for funds with other investors who want to invest.

Peer to peer lending platforms has made it easy for investors to get funds to expand fund their investment without going to the bank to seek loans.

P2P lending involves low-interest rates, simple applications, and quick decision making. All these have made P2P a better alternative to traditional means of seeking loans from the bank and made it a huge success in the modern world. The number of P2P lenders getting into the mortgage business has increased steadily.

The lender can set the interest rate and compete for the lowest rate reverse auction model or fixed by the P2P company on the basis of the analysis of the borrower’s credit score.

The lender’s investment is not normally protected by any government guarantees. This means the government cannot guaranty repayments in case a borrower is defaulting to pay back.

For this reason, the lender mitigates risks by choosing which borrower to lend to. The lender can also further mitigate risks by diversifying his investment loan among many borrowers.

According to a report by PriceWaterhouseCoopers, US P2P platforms have issued approximately $5.5 billion in loans in 2014. It is estimated that by 2025, the market could reach up to $150 billion or higher.

Process of obtaining a peer to peer mortgage loan

The process of obtaining a P2P mortgage loan varies by companies. Different P2P mortgage lending companies have different processes before giving out loans, however, the process typically follows a similar pattern.

The pattern is:

  1. The developer/borrower begins an online search and application for a loan. The borrower then receives pre-qualifies interest loan amounts and interest rates from the P2P company.
  1. The borrower then chooses the loan amount and interest rates which he/she wants and is most convenient. The borrower will then complete the application and receives a letter of pre-approval from the P2P company.
  1. The borrower will then submit his/her offer to the P2P company and close the loan. Here, the borrower will need to upload his/her purchase agreement, state his/her interest rate, obtain a property agreement and sign final documents.

As a developer/borrower, before applying for a mortgage loan, you need to know the ups and downs. You need to know all it entails.

What are the Pros?

  1. P2P lenders tend to approve loans for people with low credit scores more than for people with high credit scores.
  1. The interest rates on P2P loans are typically lower than the interest rates of other traditional loan lenders.
  1. Service fees on P2P loans are also typically lower than other traditional loan lenders.

What are the Cons?

  1. The time to process and approve a P2P loan may be longer than that of the traditional loan lenders.
  1. Collections fees for borrowers who don’t pay back on time can be very steep.

Peer to peer intermediaries provide the following services to better secure a lenders investment:

  1. An online investment platform that enables borrowers to attract lenders. It also allows lenders to identify and give loans that meet their investment criteria and expectations.
  1. The P2P intermediary identifies borrower’s identity, bank account, employment status, and income.
  1. Develop credit models for loan approvals and pricing.
  1. Perform borrower’s credit checks in order to filter out borrowers that are not qualified.
  1. Provide customer service to borrowers and also collect fees from borrowers who default in payments.
  1. Process payments from borrowers and remitting the payments to the lenders who invested in the loan.
  1. Ensure legal compliance and reporting.
  1. Loan servicing.
  1. Find new lenders and borrowers and connect them together.

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How to do Crowdfunding for Real Estate Development in Dallas, Texas

How to do crowdfunding for real estate development in Dallas, Texas

How to do crowdfunding for real estate development in Dallas, Texas

Crowdfunding is a way in which real estate developers raise capital. It is a way investors raise capital by reaching out to a large pool of investors who contributes a little amount of money. Crowdfunding is different from the traditional way of raising money in that it is usually done online.

Real estate developers use their crowdfunding websites and social media platforms to reach out to more investors who are interested in investing.

Real estate developers have adopted crowdfunding as an alternative traditional means of raising funds for real estate projects. Crowdfunding is a better alternative to traditional bank loans as it entails very low-interest rates.

Benefits of Crowdfunding

Unless you’re as wealthy as Bill Gates or Warren Buffet, you will most likely need investors to be able to acquire the amount of money you need for a real estate deal. As a developer, you will most likely need investors who want to invest in order to be able to generate capital for a real estate investment.

A lot of developers and investors have chosen crowdfunding as an alternative way of raising funds needed for real estate projects.

There are several benefits of crowdfunding which include:

  1. Crowdfunding increases your chances of raising money to fund your real estate investment

With crowdfunding, you have easy access to credits and capital without going through the stressful procedures of getting a loan. As an agent investor, you are able to keep your personal funds for other uses and keep your personal credit scores intact.

It helps you to secure funding for real estate projects when other traditional means of raising funds are not available or are limited.

  1. Crowdfunding helps to grow your investor network

Through crowdfunding, you are able to reach out to a lot of investors across your state, country and all over the world. You get to communicate and make deals with a lot of investors and grow your investor network. 

  1. It helps to save time and money

Crowdfunding helps you save time and money as you only use an online platform to reach out to lots of investors who want to invest. It takes a little amount of money and time to create a crowdfunding website compared to when you seek for loans via traditional means. You can also make use of your personal social media platforms to reach out to investors who are willing to invest.

  1. You gain access to lots of contributions and feedback from your online audiences.

Crowdfunding is a way to get feedback and contributions from the online audience about you and what you do. As an investor or developer, it is important that you pay attention to what investors are saying, their feedback and contributions.

From their feedback and contributions, you gain access to important information and knowledge on how to succeed in your fund sourcing campaign from potential investors.

  1. It is also a marketing strategy to inform people about your business and what you do

Crowdfunding is a marketing tool to promote your brand. Apart from launching a fundraising campaign, it is also an opportunity for you to promote your brand and what you do. It is an avenue to sell yourself as a reliable and professional real estate developer/investor. 

Crowdfunding Channels to source for funds

As a real estate investor who is looking for ways to expand and grow his/her portfolio, there are two crowdfunding investment channels to seek funds from willing investors. These are:

  1. Equity investment

Equity investment gives investors an equity stake in the real estate property/investment. It effectively turns investors into shareholders. Equity investment is what most real estate investors are willing to invest in because it yields higher returns than debt investment.

Returns are based on rentals income of the property. Investors also earn a share of the appreciation value of the property in case the property is sold. Payouts are usually sent quarterly.

  1. Debt Investment

Debt investment means the investors are basically lenders to the developer/property owner. Each Investor receives a fixed amount based on the interest rate of the property mortgage loan as well as the amount invested. Payments are usually given every month or quarterly. Investors are given priority during property payouts.

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How to Invest in Commercial Real Estate Texas

How to Invest in Commercial Real Estate Texas | InvestmentClub360

How to invest in commercial real estate Texas

Commercial real estate (CRE) is a profitable investment sector because of its growth potentials, consistent investment returns, and passive income. CRE is becoming increasingly popular with investors as an alternative investment.

If you want to make more profits as a real estate investor, investing in commercial properties yields more income than investing in residential properties.

However, you need to know how to invest in commercial real estate so as to maximize profit and avoid the risks of running into a loss.

CRE has the potentials to be increasingly profitable, most especially if you invest in the right location.

Texas is a very big state in the United States. It has a population of nearly 29 million and the land of about 267,000 square miles. Texas is one of the three states in the United States that contributes 48% of the total population growth in the U.S. Texas has the second-largest economy in the U.S with a GDP of $1.803 trillion in 2018.

Investing in commercial real estate in Texas is a very profitable investment in which real estate investors are sure of making good profits on their investments. 

Why invest in Commercial Real Estate in Texas

Texas has one of the lowest unemployment rates in the United States with its unemployment rate at 3.4% in Oct 2019. This makes Texas a desirable location for foreigners who are seeking jobs and better living conditions.

There is no state income tax in Texas which promotes a business-friendly environment. Texas is being ranked as the second top state for business in the U.S.

Investors who are looking to invest in commercial real estate in a state with stable growth rates, better opportunities, and long-term investment growth are advised to look into investing in Texas commercial real estate market.

As a real estate investor, you should invest in Texas commercial real estate because:

  • The population of Texas keeps increasing as foreigners and even locals are relocating to Texas due to its high employment rate and good economic condition.
  • The economy of Texas is always growing and it is not expected to fall.
  • Tax rates for residents and businesses are less in Texas.
  • The increase in population and businesses lead to an increase in rentals which benefits commercial real estate owners.
  • Commercial real estate properties are always sought after due to the increased number of businesses.

How to get started in commercial real estate

You must first do your homework and thorough research before investing to prevent failure and losses. You must know the ins and outs, dos and don’ts of commercial real estate.

Below are some vital tips you need to follow for a successful commercial real estate investment:

  1. Understand how commercial real estate is different from others

The income from commercial real estate is usually larger resulting from longer leasing periods. A commercial real estate investor has better potentials and opportunities to earn a higher income than a residential real estate investor.

The location of the property and the type of tenant also has a great role to play in determining the demand for the property.

A property located in a location with a low economy and low population will have low demands. This will affect the value of such property. Commercial properties have better value and generate more profits in urban areas compared to residential properties.

  1. Analyze comparable properties

You must first compare the property with other recently sold similar properties before buying and selling a property. This is to help you determine the current market value of the property.

To determine the current value of the property you want to buy, search for a similar property that the square footage is not higher or low than 10% of the property you want to buy. Doing this, you will come up with the most accurate comparable value for the property.

  1. Use the right success metric

You need to understand real estate finance and investing. There are a lot of calculations and formulas involved in real estate finance and investing. These include:

  • Net Operating Income – The net operating income equals all revenue and costs from a property. This calculates the amount investors will make from an investment after removing all operational expenses. This is calculated before payment of taxes.
  • Cash On Cash – This is a calculation that shows investors the rate of return on a commercial real estate investment. Real estate investors that rely on financing to purchase their properties commonly use this. It measures the returns on out-of-pocket cash or the personal cash invested relative to the return on the part that was financed. It provides an accurate analysis of an investment’s performance.
  • Cap Rate – The cap rate or capitalization rate is used to calculate the value of income-producing properties. It is the ration of the net operating income to a property asset value. It provides investors with an estimate of future cash flows or profits from an investment. 
  1. Avoid mistakes and mitigate risks

As a commercial real estate investor, it is very important that you avoid making mistakes and mitigate risk. Mitigating risk is the greatest asset of a commercial real estate investor. If you do not know all you need to know to avoid mistakes, you may end up losing and failing.

What are the common mistakes a commercial real estate investor should avoid?

They include:

  • Financial ignorance – Financial ignorance is failing to understand the financial intricacies of commercial real estate investment. As a commercial real estate investor, you need to learn all the financial components of commercial real estate investments.
  • Improper Valuations – As a commercial real estate investor, you need to be able to evaluate and account for variances in each property. If you do not know how to make proper valuations of the properties you want to buy, you may end up going into a great loss.
  • Neglecting due diligence – As a real estate investor, you should always mind due diligence. You need to take adequate time to learn much about a property before investing in it.
  • Not working with a team – It is wrong for a real estate investor to work alone. Working with a team is essential in order to get the best professional advice and services. Hire a team of qualified professionals who are knowledgeable in commercial real estate investment.

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Real Estate Syndication: The Ultimate Guide and How It Works?

Real Estate Syndication: The Ultimate Guide and How It Works?

Try not to be interested in real estate syndication after you hear this statistic:

Experts project the industry will generate over $300 billion by 2025. That’s after a $3.5 billion growth in 2016. Suffice to say, real estate syndication is on the up and up.

Don’t you want to join the ride?

Surely you do. But you haven’t the slightest idea where or how to start. That’s fine; it’s why you came here after all, isn’t it?

The real estate syndication industry first saw its genesis in 2012. Yes, it’s only been around since 2012! It must be reasonable to say this industry is off to a booming start.

Listen to this:

Since the early 2000s, real estate investments have outperformed the stock market at a ratio of about 2:1. Just take a look at this graph:

As you can see, even at that obvious dip during our country’s recession, real estate has outperformed the stock market every year.

In this guide to real estate syndication, we’re going to introduce you to the industry. You’ll learn what real estate syndication is, exactly, and you’ll also learn how it compares to other investments in real estate.

In addition:

You’ll discover the different types of real estate syndication investments. You’ll understand the difference between equity and debt investments for real estate syndication. Also, you’ll know the complexities of equity and debt investments.

You’ll learn there are two different types of equity investments and two different types of debt investments. If you pay attention, you’ll be able to freely consider the pros and cons of both investment types.

After your proper introduction to the industry, we’ll provide some of the best websites to get your portfolio started. If you’re still on the fence, we’ll also provide a key rundown of information. This rundown will help you determine whether or not real estate syndication is ideal for you.

We’ll offer you a look at real estate syndication and how it stacks up against other investment options. Also, you’ll learn some predicted trends for the industry in 2019 and beyond.

This is the ultimate guide to real estate syndication, but let’s start with the basics.

Real Estate Syndication: What Is It?

Let’s say you see an extremely promising property being built. You know that property is going to boom. However, there’s no way you could afford an investment on your own.

Besides, you wouldn’t be able to manage the property on your own, either. You’ve got your rigorous job to keep up with.

Here’s the deal:

Real estate syndication allows you to pool your money with other investors. The pooled money is then invested into, let’s say, that extremely promising property.

To do this, you would use an online marketplace where you could browse different investment opportunities. Those opportunities will typically vary by investment type, the location of the property, and target returns for investors.

Once you’ve selected the investment you believe to be promising, your funds are pooled with up to 99 other investors. The number of investors typically relies on the size and potential returns of a project. After the money is pooled together, the investment closes.

What happens next:

If the investment goes according to plan, you begin to collect passive income on the investment. While collecting passive income, you’ll also monitor the investment’s performance.

Soon, you’ll be able to “exit” on the investment. Typically, you “exit” on investment by selling your stakes in the investment for a large profit. Sometimes, you’re not so lucky: you have to “exit” to get at least some of your money back.

Two Common Types of Investments:

In real estate syndication, you’re going to most commonly see equity investments and debt investments. Equity investments allow you to invest in a project or portfolio of projects, kind of like the sample scenario given earlier.

However:

Debt investments differ. These investments allow you to invest in a mortgage or a group of mortgages.

Equity investments are the more common type of investments. They’re also a long term investment that tends to yield a higher return for the investor.

Equity Investments for Real Estate Syndication

When you make an equity investment on a property, you are given a passive, indirect ownership position. This means you are a long term investor and will receive returns on your investment from property appreciation and rental income.

You become a shareholder of the property and receive several shares proportionate to your investment.

When you make an equity investment, you typically earn returns in two ways:

  1. Rental Income

Projects you make equity investments often require 3 to 10 years. This is because the properties are typically either new developments being built or require extensive renovations.

After your equity investment, you’ll likely receive quarterly payments of cash flow distributions. This is where you receive your return on investment by receiving proportional shares of rental income generated by the property. Because it may be a while for the property to start generating rental income, equity investments do require patience.

After all:

Buildings don’t sprout up overnight. It takes months and years of planning, building, and renting out spaces in the finally finished property.

Luckily for you, these properties are professionally managed. All you have to do is invest, sit back, and wait for your (hopefully) profitable returns.

  1. Property Appreciation

The other, less common way you earn returns is through property appreciation. This occurs when your investment property is sold.

Scenario:

A new apartment building is under construction in the heart of a bustling city. It’s an investor’s dream. You and others pool money together in equity investment to fund the construction.

Once construction is finished, a big-money investor comes in wanting to purchase the property. They’re offering a lot of money. You and the other investors decide to sell it the big money investor for an instant return and profit for your investment.

Of course, that’s a dream scenario for anyone looking to make a quick profit. But it has happened before, and it will happen again.

Another benefit:

Equity investors for real estate syndication also receive tax deductions like depreciation deductions.

Two Types of Equity Investments

Now that you’ve learned the basics about equity investments, let’s take a deeper dive. There are two types of equity investments: common and preferred.

  1. Common Equity Investments

These are the equity investments we’ve essentially detailed above. With this investment, you buy a percentage of a project being developed and own that percentage. Every month or quarter, you’re paid out your percentage of returns for the property.

You’re also paid out a nice sum if the property appreciates and is sold.

But here’s the catch:

Common equity investments are considered the riskiest type of real estate syndication investments. This is due to a lot of different liabilities you’re hoping will pan out.

First, you’re relying on the building to be constructed successfully and promptly. Second, you’re hoping the property will appreciate or generate interest. Third, you’re relying on people to rent out space in the building and to make timely payments.

The list goes on…

Because of these liabilities, and the fact that common equity investors are paid last, it’s easy for you to lose your investment.

And yet:

With high risk, comes high reward. That’s right: the potential for a high return on investment (ROI) is the greatest with common equity investments. This is because common equity investments don’t cap your returns as preferred equity investments do.

  1. Preferred Equity Investments

Speaking of preferred equity, these investments are essentially less risky than common equity investments but riskier than debt investments. Also, they offer less reward than common equity investments but typically offer more reward than debt investments.

Preferred equity investors typically receive monthly payments from their investments. However, these payments are commonly “fixed” payments. This means there is less potential for a larger ROI.

The advantage:

Preferred equity investors are paid back before common equity investors. This is where that “preferred” title comes from. Because they’re paid back first, preferred equity investors are in a less risky position.

Pros of Equity Investments:

  • They offer the highest potential for return on your investment.
  • Most equity deals are under an established LLC. This allows you to receive tax deductions similar to if you owned an investment property.
  • Lower fees than debt investments.

Cons of Equity Investments:

  • Higher risks since equity investors are paid last.
  • Potential to lose your investment since you’re investing in equity and not debt.
  • The investment time frame is much longer: typically 3 to 10 years.

Debt Investments for Real Estate Syndication

When new developments are being built, the developer needs funds for the project. This is where debt investments come in. With debt investments, you’re lending funds to the developer to fund the project’s construction.

In return, you receive your funds paid back and with interest. Typically debt investments have a term of 6 months to 2 years. The average return on debt investments sits around 8.8%.

Remember:

Like any other real estate syndication investment, you don’t get to choose when you exit the investment. All investment exit timelines are set up-front in a signed agreement.

If you choose to fund a build for 1 year, then you’re funding that build for the whole year. This means you need to go into every investment with certainty. If something feels off, don’t invest, or you’ll be stuck in a financial sinkhole for a year.

Of course, debt investments are considered the lowest risk option because the developer does have to pay you back.

Again:

There are essentially two common types of this real estate syndication investment option:

Syndicated debt syndication and platform issued debt investment.

  1. Syndicated Debt Syndication

The terms for these debt investments are typically less than two years and offer fast liquidity for investors. If you’re looking to make multiple, quick real estate syndication investments, this might be the option for you.

When you invest in syndicated debt, you’re investing in a portion of an existing real estate loan. This real estate loan was originated by professional lenders who conducted diligent research before approving the loan. Because of this, you’re offered extra security.

However, these professional lenders charge a yearly fee of around 0.5% to 1.5%.

That’s fine:

You’ll still receive, on average, fixed payments ranging from 8% to 12% in returns. Because the debt is secured by the property, this investment option is less risky than equity investment options.

  1. Platform Issued Debt Investment

Instead of going through a middleman to approve the loans, platform issued debt investments invest in loans originated by the real estate syndication site. This type of debt investment also offers quick liquidity. They tend to offer investment terms ranging from 6 months to 2 years.

Pros of Debt Investments:

  • Shorter investment time frame: you’ll receive your money back within 2 years.
  • Your money isn’t tied up for a long time: you can invest in other projects.
  • Less risk than equity investments: if the developer goes bankrupt, you can regain your losses through a foreclosure.
  • Predictable payments are typically forecasted ahead of time and paid every month or quarter.

Cons of Debt Investments:

  • Higher fees than equity investments.
  • Lower potential for return on investment than equity investments: debt investments are typically limited by the interest rate on the loan.

Real Estate Syndication: How It Works

When a property is approved for investment, it is usually openly marketed to investors on an investment site. The investments site will include an investment page.

What is on an investment page?

An investment page typically includes:

  • The project overview
  • Descriptions of the local market and developer
  • Details about the business plan
  • A financial summary
  • Potential future cash flows
  • A review of risks, fees, and legal frameworks

After you’ve taken a look at the investment page, be sure to do some homework of your own. Try doing your research about the local market and potential future cash flows. Look at the developer’s build history.

Have they been successful in past endeavors?

Once you’ve decided to invest in the project, the transaction process includes 5 simple steps:

  1. Sign the legal document(s) for the investment
  2. The funds will then be debited from your bank account
  3. Your debited funds will be pooled with other investor’s funds
  4. Once enough money is pooled, the investment closes
  5. You start receiving payments for your investment

Of course, step #5 depends on the success of the project and the outlined terms in the investment agreement. Returns are never a guarantee for real estate syndication investments, just like any other investment option.

The developer could fail to implement their business plan or an unexpected market crash could occur. Any investment is not without its risks.

However:

It’s the potential rewards that keep you going.

While you’re looking at different investment pages, you might wonder the following:

Where Do These Listed Investments Come From?

You don’t see or hear about a potential investment opportunity until it’s listed on a syndication site. That makes sense. But those syndication sites often initiate the process of finding investments months before you see them.

During a stage called sourcing, syndication sites work with real estate developers to find interesting investment opportunities. If the syndication site believes the development will intrigue its investors, it will list the development on its site.

Some syndication sites use intense, data-driven processes to find the best investments. These processes typically evaluate the real estate developers, the type of building being developed, and more.

Meanwhile, some syndication sites choose to list any and every investment option. By doing this, they allow investors to identify whether or not the investment is suitable for them.

Obviously:

It’d be much easier to use a syndication site that does the vetting for you. And vetting processes aren’t the only differences between these syndication sites…

Other Differences Between Real Estate Syndication Sites

For the most part, every real estate syndication site uses similar legal structures to allow its investors to invest in projects.

But listen:

Those legal structures are just about the only similarities between different syndication sites. These sites vary in the types of investments they offer and in the minimum amounts that can be invested. They also vary in fees and the amount of research and underwriting they conduct for each project.

When you are choosing the right real estate syndication site, use these questions as guidelines:

  • Is every investment vetted?
    • While some sites undertake considerable measures to evaluate and underwrite potential investments, others simply offer a large number of investments. Ask yourself whether or not you want to research the investments, or if you’d rather the site did the research for you.
  • Who’s allowed to invest?
    • Most sites allow anyone to invest in their listed projects. However, some sites only allow accredited investors. These accredited investors have to pass requirements for net worth or annual income.
  • What investment types are offered?
    • If you’re wanting to invest in syndicated debt syndication, there’s no use signing up for a site not offering it.
  • How much is the minimum investment amount?
    • Every site will have a minimum investment amount. You’re probably better off starting at a site with a $500 minimum as compared to one with a $50,000 minimum. You know, because you’re new to the whole thing.
  • How much are the site’s fees?
    • This is how syndication sites make their money. Most sites require investors to pay 1% to 2% in fees to cover costs. Additionally, sites are typically paid by project developers for pooling the funds for their projects.

Which Websites Are Best?

You’re probably starting to think about syndication sites and finding the best ones. To make life easier for you, we’ll provide a comprehensive list of syndication sites for you.

After all:

This is the ultimate guide to real estate syndication!

PeerStreet:

This syndication site offers investors access to loan investments (debt investments). PeerStreet is a marketplace for accredited investors to invest in high-quality private real estate loans. These loan investments typically last 6 to 24 months.

According to The Real-Estate Syndication Review, PeerStreet originated over $500 million in loans. The Review also ranks this syndication site as the top-ranked syndication site.

For more info on PeerStreet check out the video below: https://www.youtube.com/watch?v=LfufsQSEVyg

RealtyShares:

Like PeerStreet, this site employs a staff of analysts and underwriters to evaluate and verify potential investments. By doing so, you’re left with a list of investment options that have been heavily vetted for approval. With this syndication site, you won’t have to do the dirty work and extensive research.

Real Crowd:

This syndication site offers you direct access to commercial real estate companies. You can build relationships with these companies and invest directly in their investment opportunities. This site is great for investors looking to avoid costly fees.

This site addresses accredited investors, meaning you’ll have to qualify for approval to use the site. Once you’re approved, you’re able to browse a wide array of investment offerings for private real estate. The Real-Estate Syndication Review ranks this site as the top site for general commercial real estate equity.

Sharestates:

This real estate syndication site allows you to directly access real estate investments. Investors using this site typically see annual returns of 8% to 12% for their investments.

Real estate and property developers/owners can gain access to capital through this site very fast. In turn, they’re able to close a deal much quicker than going through a bank. Therefore, this site is beneficial for both investors and developers.

Crowd Street:

This site is excellent for you if you’re interested in commercial real estate investing. The syndication site offers investors a minimum investment of only $1,000, so it’s perfect for beginning investors.

The listed real estate syndication websites are just a glimpse at the wide array of sites out there. However, these are five of the very best syndication sites. You should be able to find what you need from at least one of these sites.

If you’re unable to find what you need, head to The Real-Estate Syndication Review to see the top 100 syndication sites. From there, you’ll be able to look at a diligently compiled list of syndication sites.

Real Estate Syndication Returns: What to Expect

While real estate syndication has only been around for about 7 years, annualized returns are starting to come in. As you consider getting into the industry, you’re going to wonder what to expect from these returns.

Here’s the thing:

No one is going to experience the same amount on returns. One guy might average around 8% on returns from debt investments while the other averages 9%. Whatever the case, you can count on debt investments to provide returns just under 10% for your investments.

Equity investments, on the other hand, tend to average returns of around 12% to 15%. Some individual properties for equity investments may offer returns as high as 20%, but your overall rate of returns will likely end up around 14% or so.

These returns aren’t insane, but consider the other benefits of investing in real estate syndication:

  • It helps diversify your portfolio of stocks and bonds: investing in real estate holds up during inflation and its natural demand supports prices even during times of recession. Remember that infographic at the beginning of the article? Real estate investment has doubled the returns of stocks for nearly two decades.
  • Real estate syndication is a cheaper and more effective way to diversify your portfolio. It also protects you from market-specific risks.
  • Syndication investments on properties are one of the most passive ways to earn an income. All you do is invest and then collect the returns when payments are issued. It’s truly that passive and simple.

As you can see, the returns you receive from real estate investments are typically better than stocks and bonds. Also, it’s a much more passive activity. Once you’ve fronted the money, you don’t have to anxiously watch the stock market.

You simply kick back and wait for your returns.

Overcoming Investment Failures

Of course, there’s the possibility the investment goes under, but failures are bound to happen. The important thing is to not get discouraged after a failed investment.

What’s more important is this:

Do not fall into the habit of trying to make your lost money back right away. People who do this are the ones who file for bankruptcy. It’s important that you cautiously plan every investment endeavor.

While it’s easier said than done, you must use the same financial willpower it took to get you to this point. After all, you didn’t get the capital to invest in real estate without at least some financial willpower and prowess.

How You Know If Real Estate Syndication Is Right for You

You’ve been given all of this information about real estate syndication. You know the difference between debt and equity investments. Also, you’ve even been given information about which syndication sites to use and why.

However:

You’re still not certain whether or not syndication real estate is right for you. Essentially, real estate syndication is right for anyone interested in passive investing in properties too expensive to afford on their own.

Also:

Real estate syndication allows investors to increase their exposure to debt investing.

Here’s a quick rundown for you to see if real estate syndication is right for you:

  • You don’t have enough capital to purchase a property on your own but still, want to make real estate investments.
  • You don’t want to have to do any work on the property yourself. Also, I don’t want to deal with the headaches of being a landlord or property manager.
  • You want to invest in real estate outside of your location.
  • You’re looking for an alternative to the stock market and other investment options.

If you want to own the properties outright, real estate syndication isn’t right for you. You also won’t want to get into real estate syndication if you like to be very hands-on.

For example, you want to play a large role in renovating or constructing the property. You want to make decisions about deadlines and budgets, contractors and investments. If that’s the case, syndication isn’t the right choice for you.

If you’re more interested in developing properties and being hands-on with the process, consider flipping homes. Whether it’s purchasing a recently foreclosed property or a spot of land, there are plenty of tips for flipping properties.

Or maybe you want to fix up the property and rent it out to tenants. If that’s the case, there are also some great articles about becoming a landlord.

But:

Let’s stick to real estate syndication. You may have noticed the last bullet point in that rundown list mentions the following:

  • You’re looking for an alternative to the stock market and other investment options.

How Does Syndication Compare to Other Real Estate Investment Options?

In the last half-century, real estate investing has become more and more accessible. With the recent genesis of real estate syndication, real estate investing has become even more accessible.

While real estate syndication makes it much easier to invest in real estate, how does it stack up with other real estate investment options?

First, you have to consider the different real estate investment options. There’s property ownership, traditional direct investing, public REITs, and real estate syndication.

Let’s take a look at each of these investment options and how they stack up with real estate syndication. We are going to evaluate these options through six aspects:

  • Ease of diversification
  • Liquidity
  • Stock market correlation
  • Minimum investment
  • Investor fee amount
  • Daily management duties

Ease of diversification ranks how easily that investment type allows you to diversify. If the investment type offers easy diversification, it will have a high rating in that category.

Liquidity ranks how liquid the assets are for the investment type. If the investment type offers a lot of liquidity, it will have a high rating for liquidity. High liquidity means the investment offers you assets you can sell right away.

The stock market correlation ranks how much the investment correlates with the stock market. An investment type ranking high in this category will be heavily affected by a stock market crash.

Minimum investment ranks the minimum amount of money required for the investment type. An investment type with a high ranking requires a greater sum of money for the investment.

The investor fee amount ranks how high the fee is for the investment type. A high ranking means a large investor fee.

Daily management duties are straight forward. It ranks how often you will have to manage the investment. A high ranking means the investment needs to be managed daily. A low ranking means very little to no management is needed for the investment.

  1. Property Ownership

Let’s take property ownership through the gauntlet first:

  • Ease of diversification: low
  • Liquidity: low
  • Stock market correlation: low
  • Minimum investment: high
  • Investor fee amount: none
  • Daily management duties: high
  1. Traditional Direct Investing

  • Ease of diversification: low
  • Liquidity: none
  • Stock market correlation: low
  • Minimum investment: high
  • Investor fee amount: medium
  • Daily management duties: low
  1. Public REIT’s

  • Ease of diversification: high
  • Liquidity: high
  • Stock market correlation: high
  • Minimum investment: low
  • Investor fee amount: low
  • Daily management duties: low
  1. Real Estate Syndication

  • Ease of diversification: medium
  • Liquidity: none
  • Stock market correlation: low
  • Minimum investment: medium
  • Investor fee amount: medium
  • Daily management duties: low

As you can see, this extensive list allows you to easily see the differences between each investment type. If you want to manage your property, property ownership is the best course of action.

If you don’t want to have any management duties and have the money to spend, traditional direct investing will be ideal.

However, if you don’t want to spend big but still don’t want daily management duties, real estate syndication is ideal.

Meanwhile, if you want something with a high correlation to the stock market, high liquidity, and that’s easy to diversify, public REITs are your best option.

More Reasons to Consider Real Estate Syndication

In case you’re still on the fence, let’s take a look at some more reasons you might consider real estate syndication:

  1. It’s Your Choice

You’re able to choose the individual properties that appeal to you most. Somebody else doesn’t choose where you put your money. If you want to invest in properties in L.A., you’re able to do so.

  1. Easy Diversification

With real estate syndication, you’re able to easily diversify your investments. You can find different properties types, make different investment types, and invest in properties in different cities.

  1. Low Maintenance

Perhaps the most commonly talked about the benefit of real estate syndication is its low maintenance. After investing, you have no stress or headache regarding managing the properties. All you do is wait for the returns to start coming in.

Of course, there’s still the chance that you will lose your money.

However:

  1. Low Risk

If you invest in debt investments for real estate, you are almost certain to at least get your money back. Why? Because debt investments allow you to make your money back even if the developer goes bankrupt.

After a developer goes bankrupt, the property is foreclosed and sold to make up the debts. Guess what? With debt investments, you’re one of those debtors getting paid back.

  1. Tax Benefits

Common equity investments allow you the possibility of potential tax benefits. Tax deductions can be applied due to depreciation and mortgage expenses. Of course, this all depends on your tax situation.

Real Estate Syndication Trends

Perhaps those reasons have given you the boost you need to get you over the figurative fence. Now that you’re over the fence, you might want to know some potential trends for real estate syndication.

  1. An Increase in Institutional Investing

So far, the target audience for real estate syndication has been accredited, investors. These are the investors you learned about earlier.

Remember?

They’re the ones who have met certain requirements by syndication sites and are allowed to invest. Requirements like net worth and average annual income are usually used to “accredit” an investor.

While individual accredited investors may provide up to $100,000 for investing, institutional investors can step in with up to $100 million. With that said, look for institutional investors to be the next target for real estate crowdsourcing sites.

Of course, it’s difficult to say whether or not crowdsourcing sites will completely pivot toward institutional investors. Sites that have done so really began to struggle when institutions began to pull back on their investments.

  1. Look for Mergers and Acquisitions to Start Happening

As of now, the real estate syndication market is flooded with syndication platforms. There’s a good chance only a handful of these hundreds of platforms survive the next ten years.

Chances are, it’s the first ones to start developing smartphone apps for their platform that make it.

Guiding You to the End

There you have it:

That’s quite the guide, isn’t it? You’ve learned what real estate syndication is. Now you understand the subtle differences between common equity investments and debt investments.

You even discovered the different types of equity and debt investments. Reasons have been laid out to guide you into real estate syndication or to guide you away from it.

You’re probably surfing one of those syndication sites right now. Does it even matter what I say here?

Of course, it does:

Because the heartiest of you have stuck it through to the end! You even received some helpful information about future trends for real estate syndication.

Let me ask you:

What was the most enlightening information you learned about real estate syndication? Is there anything that pushed you into deciding to try it out? Anything that repelled you from the idea of it?

Let us know in the comments below!

Sources:

https://www.financialsamurai.com/real-estate-syndication-trends-for-2018/

https://www.realtyshares.com/learn/article/ultimate-guide-real-estate-syndication

https://fitsmallbusiness.com/real-estate-syndication-the-ultimate-guide/

https://www.crowd101.com/real-estate-syndication-guide/

https://realtybiznews.com/real-estate-syndication/98745264/

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Real Estate Investing in Land Dallas, Teaxs

Real Estate Investing in Land Dallas,Texas (Ultimate Guide in 2019)

Investing in land has become increasingly profitable. Investors are having more interest in land investment as it requires low or no maintenance and with good investment profits. Continue reading about Real Estate Investing in Land Dallas.

Investing in lands in Dallas has become increasingly profitable for investors. Investors boost and diversify their portfolios by investing in Land in Dallas.

The land is a limited property; it can’t be manufactured or created. The number of lands available now is the number of lands that are going to be available forever. The value of land will always appreciate as more buildings and constructions are been done. The need for land is continuously growing, creating a high demand for it.

The population of Dallas is constantly increasing and the demand for more residential buildings keep increasing. Lands are going to be needed for these buildings to be built.

It is not a question whether or not land appreciates because it will always appreciate. The only question you may ask is how much it appreciates. 

Benefits of Investing in Land in Dallas

There are several benefits of investing in land in Dallas. As an investor, you will find out that it is easier and more profitable to invest in land rather than investing in commercial and residential buildings.

Some good benefits of investing in lands include:

 

  • Lower start-up capital 

The prices of land are generally lower than the prices of commercial and residential buildings. Purchasing land requires lower capital. You can easily save up to have enough money to purchase a land unlike purchasing a building that cost a small fortune. 

More investors and taxpayers have the opportunity to invest in lands due to lower prices of land as compared to purchasing a building. You can start your investment with low capital and generate profit over time to expand your portfolio. 

 

  • It generates good profits

The land is one of the investments that always appreciate. The demand for land is always increasing due to population and economic growth.

As an investor, you can hardly run into a loss by investing in lands. The value of land appreciates over time. Land does not depreciate.

When you buy a land at a cheaper price and leave the land for some years, it appreciates in value and you make good profits.

 

  • Low maintenance 

Unlike maintaining a building, you do not maintain the land. Land requires very low or no maintenance. The only thing you might need to do is to cut down trees or clear off the bushes if you want.

Otherwise, you can leave the land as it is for years and its value will not depreciate. You don’t spend extra money on maintaining the land.

You also don’t need to hire a management company to help you manage the land or you don’t need to spend money repairing damaged parts. 

 

  • A source of additional income

You can make your land a source of additional income. You can do this by finding creative ways to make the land usable.

You can lease out the land for use as a parking space, playground, farmland, or to be used for special events. You can also lease it out to be used as a garage until you want to sell it.

You can lease out the land for a couple of years until you are ready to sell it. This way you make extra income from the land and still retain the value of the land.

 

  • Lower Taxes

The taxes of buildings and structures are much higher than taxes on land. You pay just a little amount of tax on a land as compared to the huge amount of tax you will pay on a residential or industrial building.

 

  • It is flexible

The land is a flexible asset, unlike buildings. You can use land however you want. You can decide to develop on it, lease it, or leave it to appreciate.

You are not limited to how you can use the land; hence its value continues to appreciate due to its flexibility. 

 

  • It is limited

The land is not produced or manufactured. They aren’t making any more of it. The amount of land available now is the amount of land that is going to be available forever.

Land is a valuable resource with limited quantities available. Most people do not realize this on time. There will be a time that land will be very scarce and this will skyrocket the prices of land. Holding a land for a long-term is a way to increase the profit you will make on the land.

Why you should invest in land in Dallas

Dallas is a good investment ground for land. Many investors are coming into Dallas to invest in land and more investors are still expected to invest in land in Dallas. 

You may be wondering why you should invest in land in Dallas, below are some of the reasons:

  • Absorption of undeveloped or underutilized land in Dallas-Fort Worth continues at a record pace

Different areas in the Dallas-Fort Worth are becoming very strong in employment. More people are relocating into the city due to the availability of jobs. Jobs creation does not only help to increase the economy of a city or a country, but it also helps to increase the population. 

More investors and partners are coming into the Dallas land investment market due to potentials and profits. There has been greater interest in land in Dallas-Fort Worth within the last two years than in the previous six years.

This is due to the growing population and economy in the city. Investing in land in the Dallas area has become increasing alluring and profitable to investors.

Low top rates, buy costs surpassing replacement costs, and diminished retail demand has made some investments riskier. However, the value of lands has continued to grow and land investments have continued to experience increased profits.

  • External factors are making land investments more attractive

Investors and buyers are getting more cautious, yet there is a reported increase in land interests in the Dallas-Fort Worth area. 

There is increased interest in lands in outer regions, especially in the concentric circles around Dallas-Fort Worth, as per the report.

Land investments are becoming increasingly when compared with other types of investments such as oil and gas, stocks and bonds, technology and other investments they are perceived to be riskier.

  • The so-called fairway is still a great buy-in and around the Dallas-Fort Worth area

The stretch of land limited in Interstate 35 East and U.S. 75 from downtown Dallas up to the Red River keeps on being a great buy. The risk of buying these lands are much lower if you keep them long-term. 

Southern Dallas keeps on pulling in new and reputable developers searching for land for short-term and long-term developments.

Forney to upper east Rockwall to Princeton still has lower costs per acre of land. West DFW has appealing short-term and long-term investments.

  • The increasing population keeps increasing the demand for land

 

The population of Dallas-Fort Worth is estimated at about 7.4 million. This makes the cities two of the fastest-growing cities in the United States. The Urban Land Institute recently named Dallas-Fort Worth as the top real estate market in the U.S.

An average of 300-600 people relocates to Dallas every day and these people will need new homes to live. This increase in the population of Dallas creates more needs for construction of new homes which increases the demand for lands.

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Industrial Real Estate Investment in Dallas, Texas

Industrial Real Estate Investment in Dallas, Texas

Industrial real estate is typically properties used by manufacturing companies and production companies. They include properties such as warehouses, factory buildings, garages, manufacturing buildings, distribution buildings, showrooms, docking bays, and plant sites. Let’s discuss Industrial Real Estate Investment in Dallas.

Industrial real estate investments are high-risk, high-profits investments. An industrial real estate investor needs to know the ins and outs of industrial real estate investment. 

Dallas industrial real estate market is one of the most solid real estate markets in the U.S. The market has continued to grow strong from previous years through the first quarter of 2019. 

Dallas is a good investment ground for industrial real estate investors who wish to make good profits from their investments.

Dallas Industrial Real Estate Trends

The Dallas industrial real estate market has continued to make good records and has been very solid in 2018 through to 2019.

Industrial rentals have continued to surge higher while development and construction sector continues to spring up due to good economy and e-commerce in the city of Dallas. This is validated by a recent report from COMMERCIAL Cafe’s.

In the year 2019, Dallas has experienced stability and continuity in terms of development as the total square footage scheduled for delivery by the end of the year is set to match the total pipeline volume of the year 2018.

In 2018, developers brought 270 projects which amounted to 105.7 million square feet of new industrial space to the U.S. In 2019, 304 projects amounting to 104.6 million square feet are expected to be delivered.

All these projects need more industrial space and properties, leading to an increase in demand for industrial real estate in Dallas and the U.S in general. 

Dallas-Fort Worth, Chicago, and the Inland Empire are the top three locations for industrial construction in 2018 and also in the year 2019.

Dallas-Fort Worth is the third most attractive industrial real estate market and it is estimated to move upwards with more projects expected to be available. According to reports from Yardi Matrix, about 57 more projects amounting to approximately 18 million square feet is expected to be available in Dallas in 2019.

The most active owners of industrial property by square footage this year are Crow Holdings at 2.24 million square feet with five projects, the second is Hillwood at 2.16 million square feet with four projects and Trammel Crow at 2.01 million square feet with three projects.

Dallas-Fort Worth has also been ranked as one of the top investment targets among the U.S. metros. It was listed as the second most desirable investment market by investors for the third year consecutively. This is according to the CBRE’s 2019 Americas Investor Intentions Survey.

According to Randy Baird, the CBRE executive vice president, “There has been unprecedented investor interest for industrial and logistics properties in the Dallas-Fort Worth area coming not only from U.S investors but also global capital from Asia, Europe, and the Middle East”.

Dallas-Fort Worth is catching the interest of all types of capital since we are at a central point in the US production network. We have a pro-business environment with low costs of doing business and we have country driving populace development.

Investors are pulled in not just by the present market essentials, which are more grounded than at any other time, yet by the long haul see that Dallas-Fort Worth and Texas all in all will keep on outpacing the nation in populace and occupation development, meaning long haul asset appreciation.” 

The study, which covers all asset types, found in 2019, additional investors are organizing auxiliary markets that can offer more potential for both values and pay development. Investor’s interest for secondary resources expanded for the fifth year in a role at 33% to increase critical ground on value-add at 37% as the most preferred strategy.

The survey likewise analyzed how investors see every one of the different types of assets, both Industrial and logistics is as yet the preferred property type by 39% of investors as the most appealing for investment in 2019.

Multifamily intently followed in the runner up, with 37% of investors naming it as the next most attractive property type which has gone up from 20% in 2018. Office properties were preferred by 10% of investors as the most appealing for purchase in 2019. 

As far as multifamily investment is concerned, Dallas Fort-Worth has been appealing to capital because of the amazing economic growth we have seen through this cycle, bringing about solid retention and lease development in the multifamily space.

This economic growth combined with multifamily is being seen as the most recession-proof asset class has prompted the extraordinary flow of capital into the multifamily space.

Generally, the survey demonstrates that investors will stay active in the commercial real estate market in Dallas this year, with 98% of respondents planning to make investments.

There has been an articulated move toward more prominent alert, with the portion of investors wanting to either keep up or increase spending in 2019 tumbling to 75% from 88% in 2018.

Dallas Economy and Industrial growth Q1 2019

The Dallas-Fort Worth economy keeps on flourishing, as population and business growth surges higher. As per Moody’s Analytics, the Dallas-Fort Worth population increased by 104,000 yearly. This equates an average of 290 new residents every day, reaching a population of 7.6 million residents toward the end of March 2019. 

The Dallas-Fort Worth employment rate also increased during this time by 96,000. The unemployment rate remained at 3.5% at the end of Q1 2019. Out of the 96,000 new jobs, 21% (20,522 jobs) are from the industrial sector comprising of goods production and trade, transportation, and utilities.

The trade, transportation, and utilities account for 61% of the whole industrial sector which is the leading indicator for the expansion of industrial space.

Dallas Fort-Worth Industrial Real Estate Market Q1 2019

Market Overview 

The Dallas-Fort Worth (DFW) industrial market closed Q1 2019 with a slight decrease of 10 basis points (bps) in opening quarter-over-quarter, posting a rate of 7.0%. This denotes a 60 bps uptick from the 6.4% rate toward the end of Q1 2018, a result of the 29.1 million square feet (msf) of new supply added to the DFW market. 

The DFW industrial market saw 9.3 msf of new leasing during the first quarter, leading by South Dallas (2.8 msf), Great Southwest (1.1 msf), Alliance (1.1 msf) and North Fort Worth (1.1 msf).

Dallas-Fort Worth’s industrial market produced 5.2 msf of net retention in Q1, somewhat outpacing the 5 msf of new supply included during the quarter. This denotes the tenth straight quarter that net ingestion in the DFW industrial market has surpassed 3.0 msf.

Great Southwest led the market in net retention for the quarter with 1.6 msf. Firmly following was Alliance with 1.5 msf, of which 1.3 msf was an aftereffect of Stanley Black and Decker possessing their Alliance Northport build-to-suit. 

The Mesquite submarket was not a long way behind, retaining almost 860,000 square feet (sf), most of which was due to Ashley Furniture’s move-in to their new local appropriation focus.

During the first quarter, developers included almost 5.1 msf of new item to the local inventory, 55% of which was work to-suit item. Of the 22 projects completed, the average size of the building was around 230,000 sf.

Cushman and Wakefield are following an extra 30.1 msf of industrial product right now under development. This denotes the first run through in DFW history that product under development has arrived at the 30 msf edge.

Of this record-breaking new supply under development, 18 msf is theoretical item 23% of which has just been pre-rented. In light of current interest, the general opportunity rate is required to encounter just a little uptick for a quarter or two preceding by and by leveling out. 

Asking rates stay stable in the DFW industrial market. The first quarter finished up with an overall asking rate of $5.19 psf, denoting a 2.8% increment from the rate that was set toward the end of 2018.

The warehouse and distribution product type, which as of now has an asking rate of $4.35 psf, produces the highest quarter-over-quarter gain in the DFW area, increasing by 2.1%.

Dallas Economy and Industrial growth Q2 2019

The Dallas-Fort Worth (DFW) economy keeps growing strong both in growth of its population and employment. As of June 2019, the population attained a new high of 7.6 million residents and job market grew by 97,000 over the previous year.

According to Moody’s Analytics, industrial jobs represented 24,700 jobs which are 25% of all the new jobs added. The market for industrial demands is driven by trade transportation, and utility sector jobs, accounting for 74% (800,400 jobs).

The industrial employment in DFW as of June 2019 is totaled at 1,084,000 jobs. Due to the addition of jobs in the industrial sector, the unemployment rate has reduced below the national unemployment rate. 

Dallas Fort-Worth Industrial Real Estate Market Q2 2019

Market Overview 

The DFW industrial market maintained solid positive momentum through the first half of 2019. The quarter shut with a 10-bps decline in vacancies to 6.9% compared with the earlier quarter.

The vacancy rate increased by 50 bps year-over-year because of the high volume of new supply.

Developers added 4.7 million square feet (msf) of new products to the market in Q2 and an aggregate of 9.8 msf of new deliveries year-to-date 2019. 

Build-to-suit projects were 72% of newly completed projects. The 12 projects finished this quarter had an average building size of 390,000 sf.

Last quarter instituted the market’s first time in history surpassing more than 30 msf of under construction activity. Construction stayed at a high in the market with an extra 30.3 msf, bringing the market to the second consecutive quarter of surpassing 30 msf in under construction activity. 

Speculative projects represented most of the projects under construction at 21.4 msf (70%). Just around 10% of the speculative projects are currently pre-rented. High demand for products in the DFW market will keep vacancy rates generally stable with slow decreases. 

The overall leasing activity (excluding renewals) totaled 4.5 msf with the most activity in South Dallas at 1.0 msf. The Pinnacle/Turnpike and Alliance submarkets followed with 833,000 sf and 691,000 sf.

The DFW industrial market continues with its positive occupancy growth and retained 5.7 msf in the second quarter of 2019.

Net retention outpaced new supply included the quarter by 1.0 msf. This denoted the eleventh straight quarter net absorption surpassed 3.0 msf in the market.

The highest cumulative increase in occupancy was in the DFW Airport submarket at 2.9 msf pursued by Great Southwest and Pinnacle/Turnpike at 1.2 msf and 830,000 msf.

Asking rental rates remained generally stable in 2019 in the DFW modern market with a 0.2% decline compared with the earlier quarter.

Generally, rental rates diminished by 5.8% year-over-year to $5.18 per square foot (psf) on a yearly net premise. Compared to the in-place rate at year-end 2018, asking rent increased by 2.6%.

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Commercial Real Estate Investment in Dallas, Texas 2019

Commercial Real Estate Investment in Dallas, Texas

Real estate investors are constantly looking for the best investment opportunities. Investing in the right properties and the right location will yield more profits. There are different kinds of properties that you can invest in as an investor. If you are looking to invest in properties that will yield you good financial rewards, Commercial Real Estate Investment in Dallas. 

Investing in commercial properties will yield more profits than investing in residential properties. However, you need to make adequate research and seek the services of commercial real estate professionals. This is because commercial properties are high-risk, high-reward real estate investments.

What is Commercial Real Estate?

Commercial real estate (CRE) refers to buildings or lands used exclusively for business purposes for the aim of generating profits. Any building or land used exclusively for business purpose and generating profit is known as a commercial building. Profits are generated from commercial properties by selling or leasing the properties. They are either sold or rented out to business owners who want to use the properties for business purposes.

Commercial real estate includes office buildings, medical buildings, hotels, shopping centers, farmlands, retail stores, malls, warehouses, restaurants, garages, gas station buildings, and departmental stores.

Investing in Commercial Real Estate Dallas

Investing in commercial real estate is a high-risk, high-reward investment. As an investor, you can make money through property appreciation and rental increments. The management and maintenance of a commercial property is the responsibility of the tenant, hence you don’t incur more expenses in managing and maintaining the property.

You can invest and own a commercial property through two ways which include:

  • Direct Investment

 

This is a way to own a commercial property by investing directly towards the ownership of the physical property. It simply means purchasing a commercial property directly. 

To be able to purchase a commercial property directly, you need to be a high-net-worth individual. This is because you need a considerable amount of capital to invest directly and own a commercial property.

Investing directly in commercial properties in Dallas could require a considerable amount of capital. However, it is a wise investment risk to take because you will be making good profits from your investments due to its high economic growth, high employment rate, and ever-increasing population.

  • Indirect Investment

 

Indirect investment means investing in commercial properties indirectly through various market securities such as exchange-traded funds, real estate investment trusts, or investing in companies that finance commercial real estates markets such as banks and realtors. 

Indirect investment means you are part-owner of the property and enjoys a part of the profits made from the property.

Advantages and benefits of investing in commercial real estates in Dallas

Investing in commercial properties in Dallas has many benefits and advantages. These include:

  • Increased profits

 

Making profits is the sole aim of investing in commercial real estates. When compared to investing in residential properties, the annual return of commercial properties is about 12% while the annual return of residential properties is about 6%.

The leasing rates of commercial properties is significantly higher than the residential properties. Dallas is a populated city with a good economy. Businesses are experiencing drastic growth in Dallas and commercial property owners are smiling to the bank due to high rentals. Commercial real estates have good returns and considerable monthly cash flows.

  • Longer lease contracts

 

Commercial properties generally have a longer-leasing contract compared to residential properties. A leasing contract for a commercial property could be up to 5 years or more while a leasing contract for the residential property could be for 1 or 2 years. 

The long leasing contract generates more cash which you can reinvest in purchasing another property.

  • Property appreciation

 

Commercial properties are always appreciating. Business owners are constantly looking for commercial properties to rent, hence increasing the demand for commercial properties. The increase in demand leads to the appreciation of the property which in turn leads to increment in rentals. Commercial property will continually increase in value.

  • The maintenance and care of the property is the responsibility of the tenant

 

The tenant doing business in a commercial property is most often the one maintaining and taking care of the property. This means you do not spend your money on maintaining the property. The tenants are in charge of maintaining the property and keep it in good condition to keep their business running and their customers happy.

Why investing in Dallas commercial real estate market is a good investment

An expanding population, pro-business environment, increased economic growth, and some other good reasons are luring investors to invest in Dallas commercial real estate market.

A survey conducted by NYSE ranked Dallas-Fort Worth as second in the U.S for real estate investor’s interest. Dallas commercial real estate market attracts both domestic and foreign investors with Canadian investors particularly interested.

The Canadian investors have invested a large amount of over $326.2 million in the Dallas-Fort Worth real estate market over the past 12 months and this is estimated to go higher.

Germans and South Korean investors are also trooping into the Dallas commercial real estate market. 

One of the strong reasons why Dallas is a lucrative ground for commercial real estate investment is its high employment rate and economic growth. A strong economic lead to rental increment as the demand for the property keeps increasing.

Businesses and organizations make good profits due to good economy and high employment rates. The people living in Dallas can comfortably afford their basic needs and buy whatever they want from these businesses. A business will not grow when the people around don’t have money to patronize the business. Hence, the high employment rate and availability of good jobs also make Dallas a lucrative ground for commercial real estate investors.

Dallas-Fort Worth is a dynamic region where no one industry dominates and growth projections are generally higher than other large U.S. Due to its diverse economy, the city is much more insulated against unforeseen macroeconomic events which might cause stronger economic headwinds in other States.

Nationally, industrial real estate is attracting the most investor interest, with 50 percent citing it as their preferred investment opportunity. Multifamily real estate follows at 20 percent, office at 14 percent and retail at 10 percent.

Along with investments, the region’s real estate scene continues to expand. CBRE reported it’s tracking more than 5.6 million square feet and 15 million square feet in current active tenant requirements for office and industrial space, respectively.

That’s an indicator that Dallas-Fort Worth will remain an attractive investment opportunity.

Dallas has remained on top of the list for the top real estate investment market for years. Dallas was ranked 12th after cities like New York, London, Paris, and Tokyo in JLL’s 2016 investment market survey.

Dallas city is comprised of high-tech and high-value sectors with good infrastructure and transparent business practices that all combine to make the city a robust commercial real estate market.

Commercial real estate market Data in Dallas-Fort Worth area 2019

The population of Dallas-Fort Worth is about 7.4 million, making the cities two of the fastest-growing cities in the U.S. The Urban Land Institute recently named the Dallas-Fort Worth area like the top real estate market in the U.S. This recognition was given for both commercial and residential real estate market.

Top business sectors in the Dallas-Fort Worth area reported employment growth over the years, especially in transportation, utilities, professional and business services. 

Below are the following Market data highlights from Q2 2019 Dallas-Fort Worth MarketView reports from CBRE:

Multifamily rental homes

 

  • Rentals grew 3% year-over-year as demands exceed supply
  • The net absorption in Q2 2019 is the highest that the market has experienced in 30 years.
  • The annual delivery in multifamily homes is exceeding annual starts, while the single-family development is declining simultaneously.

 

Office buildings

 

  • The gross asking rentals increased overall from $25.01 per sq. ft. to $25.26 per sq. ft. between Q1 and Q2 2019. Also, Class A asking rentals rose from $30.95 per sq. ft. to $31.37 per sq. ft.
  • Over the most recent quarter, vacancy remained flat.
  • The net absorption of office spaces slightly declined within the Q1 and Q2 2019.
  • 4.3 million sq. ft. of office constructions are currently ongoing and 46% of the offices are already pre-leased. 

 

Retail stores

 

  • Occupancy of retail stores reached a record high of 94.7% in Q2 2019
  • Retail construction and absorption both increased during Q2 2019.
  • The Collin Creek $1 billion redevelopment project has been approved by the planning and zoning commission in the DFW suburb of Plano. This is a mixed-use project including a hotel, 500 homes, 2,300 apartments, 300 senior living units, and 300,000 sq. ft. of retail space.

How to get started in commercial real estate

Do you want to invest in commercial real estate but you don’t know how to start? Here, we are going to show you how to get started and invest in commercial real estate. To ensure success and going into investment loss, you must first do your homework and thorough research. You must know the ins and outs, dos and don’ts of commercial real estate.

Below are some vital tips you need to follow for a successful commercial real estate investment:

 

  • Understand how commercial real estate is different from others

 

Commercial real estate is different from residential real estate. The income from commercial real estate is typically usable resulting from longer leasing period. A commercial real estate investor has better potentials and opportunities to earn a higher income than a residential real estate investor.

The location of the property and the type of tenant also has a great role to play in determining the demand for the property. A property located in a location with the low economy and low population will have a low demand. This will affect the value of such property. Also, commercial properties have better performance and value in urban areas compared to residential properties.

 

  • Analyze comparable properties

 

Before buying or selling a property, you must first compare the property with other recently sold similar properties. This is to help you determine the current market value of the property. To determine the current value of the property you want to buy, search for a similar property that the square footage is not higher or low than 10% of the property you want to buy. Doing this, you will come up with the most accurate comparable value for the property.

 

  • Use the right success metric

 

As a commercial real estate investor, you need to understand real estate finance and investing. Real estate finance and investing involve a lot of calculations and formulas. These include:

  • Net Operating Income 

    The net operating income equals all revenue and costs from a property. This calculates the amount investors will make from an investment after removing all operational expenses. This is calculated before payment of taxes.

  • Cash On Cash 

    This is a calculation that shows investors the rate of return on a commercial real estate investment. Real estate investors that rely on financing to purchase their properties commonly uses this. It measures the returns on out-of-pocket cash or the personal cash invested relative to the return on the part that was financed. It provides an accurate analysis of an investment’s performance.

  • Cap Rate 

    The cap rate or capitalization rate is used to calculate the value of income-producing properties. It is the ration of the net operating income to a property asset value. It provides investors with an estimate of future cash flows or profits from an investment.

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Healthcare Real Estate Investment in Dallas, Texas 2019 

Healthcare Real Estate Investment in Dallas,Texas 2019 

The healthcare sector is an economic force in the United States surpassing manufacturing and retail to become the largest employer of the nation’s workforce. The healthcare sector has over 13% of the total workforce in the country and it is expected to continue growing. Here we discuss about Healthcare Real Estate Investment in Dallas.

The aging population, prevalence of different health conditions and chronic diseases have made expansions of the healthcare sector a necessity.

Investment in healthcare real estate has risen significantly in the last couple of years. It is expected that the need for medical facilities and health-care related buildings will continue to grow in the coming years due to rising patient numbers.

Healthcare real estate investors are realizing good profits and returns from their investments with brighter future predicted. 

Healthcare Real Estate Investment Trends

According to JLL research, the sales of medical buildings in the United States reached almost $10 billion in 2018. 

According to the U.S. Census Bureau, by 2030, all baby boomers in the U.S. will be more than age 65. In another five years’ time, the number of people who are 65 years old and more will be more than the number of people who are under 18 years old.

By the year 2060, one in four people will be 65 years old or older and 20 percent of the total aged people will be over 85 years old.

This means there will be more needs for healthcare facilities such as doctor offices, outpatient facilities, surgery centers, medical homes, clinics, and so on.

New improvement doesn’t have all the earmarks of being surpassing interest, so overbuilding is most likely a lesser worry for real estate investors.

In addition, an extreme re-building of the system, for example, “welfare for all” with a transition to a single-payer system, would almost certainly expand access to medical care and thusly increase the demand on medical real estate needed. 

Administrative issues bring a specific measure of hazard and questions. However, regardless of how you feel about potential changes, whether gradual or radical, it’s probably going to carry more human services to more individuals, requiring more space to house healthcare providers and consumers.

Expanding Opportunities

The growth of the healthcare sector has caught the attention of retail property investors who were looking to move away from the sector. Investors who want to acquire more medical properties to their investment portfolios are diving into healthcare real estate. 

Before now, healthcare real estate investors have always avoided investing in medical office buildings and healthcare facilities largely because they are used for a specific and specialized function. This has drastically changed in recent times as needs for more healthcare facilities are required. 

The increasing private equity interest in healthcare operators should fuel an expansion of the facilities, giving a broader pool of net-lease investors more opportunities to own the buildings.

According to JLL research, single-tenant medical office transactions have totaled around US$2.5 billion for four straight years through 2018, which is about US$1 billion more annually than the three years before that period.

Medical real estate offers a better alternative to retails, with strong, dependable returns that are less susceptible to disruption from e-commerce. As long as trends in healthcare continue to point toward longer lifespans and increased care, medical facilities will remain critical and demand will continue to increase.

Healthcare Real Estate Investment Insights

Investing in healthcare real estate is a profitable investment plan. Below are some insights about healthcare real estate investment:

  • Real estate is the key to capture demand for the increasing number of patients 

Looking at patient-care facilities across the U.S, it is clear that the hospital-centric image of traditional healthcare is dwindling.

The growing and aging population is placing new demands on the nation’s healthcare system, while technology advances are shifting consumer preferences and increasing demand for easier access to care in lower-cost settings in communities.

Meanwhile, healthcare providers face ever-mounting pressure to expand care and quality of service while containing costs. 

Hospitals are not the only healthcare providers in town. While total patient numbers are rising, many hospitals face mounting risks of volume decline and margin erosion in their specific geographies.

Now more than ever, healthcare providers of all sizes are responding to the challenge and using real estate to serve patients more efficiently and effectively. 

  • Increasing baby boomers requires more care 

In the U.S. economy, healthcare is the fastest-growing sector. Spending has jumped 33 percent since 2000 alone and today accounts for 17.9 percent of the gross domestic product (GDP).

More growth is on the horizon, from now through 2025, we expect spending to continue to grow by another 5 percent or more annually.

The job force is also surging, with healthcare employment enjoying faster growth than any other sector in the U.S. workforce. Today, it comprises 12.2 percent of the nation’s workforce with another 18 percent increase over the next decade.

This momentum points to an overwhelming hunger for more modern, intelligent locations, as rapidly as possible. Add in our aging population, and long-term stability of this demand is all but ensured.

Roughly three-quarters (73 percent) of the nation’s healthcare spending now comes from the 50-plus population. More than 10,000 baby boomers are turning 65 this year, which makes them Medicare-ready.

And many more are on the way, considering estimates that the number of people 65 years old and up will nearly double by 2050, 80-and-up will triple, and 90s and 100s will quadruple between 2010 and 2050 alone.

By 2050, the U.S. population over 65 years is projected to nearly double from 48 million to almost 88 million. Doctor visits and medical expenses dramatically increase with age.

  • Millennials are redefining healthcare today

They don’t want a one-size-fits-all hospital campus. They want more convenient locations, with smaller, more concentrated offerings, at convenient times and self-directed and when they find the right fit, this brand-loyal generation is likely to keep the faith.

These preferences hold significant weight in an industry where young people are quickly becoming the dominant healthcare consumers, both for themselves and for their families as caregivers.

The majority of babies born in the United States this year (82 percent) were born to millennial parents, and many are looking to establish a relationship with a healthcare system for the first time.

Intergenerational dynamics, rising patient numbers in general and intense cost pressure all point to the need for new types of real estate, in new and more locations.

  • The setting of healthcare is changing 

Healthcare leaders are making major strides in meeting patients where they are while supporting financial health.

Value-based care with a focus on population health and the rise of consumerism has altered healthcare delivery, leading to new real estate strategies that include urgent care and building outpatient centers or smaller-scale micro-hospitals and health-system sponsored wellness centers. 

The migration from inpatient to outpatient care, which has been taking place over the past 20 years, has contributed to a decrease in the national occupancy rate for hospitals from 77 percent to 61 percent since 1980, according to data from the Medicare Payment Advisory Commission.

Why Dallas healthcare real estate investment is the best choice for everyone

Dallas, situated in North Texas, is the ninth-largest city in the United States and the third-largest city in Texas. The population of Dallas in 2014 was estimated at 1.28 million and grew to 1.3 million in 2016.

In 2010, Dallas had an official population of 1.197 million people which grew to an estimated population of 1.24 million in 2012 and 1.28 million in 2014. 

The Dallas metropolitan territory is a lot bigger and is one of the fastest developing city in the U.S. The 13-district Dallas-Fort Worth-Arlington metro territory has a populace of 6.8 million, which is the seventh biggest metro region in the United States.

A high percentage of the population in Dallas are baby boomers and they need healthcare services. Dallas is a city filled with foreigners and immigrants who need healthcare services.

Texas baby boomers are projected to yield a population of 5.9 million or 19.4 percent of the state’s total population in 2030 and Dallas is one of the cities with the highest number of baby boomers in Texas.

Dallas has a very good economy. It has GDP estimated at $450 billion, ranking Dallas 6th in the best GDP in the United States.

Dallas ever-increasing population, increase in baby boomers and with its good economy, makes the city a good choice for Healthcare Real Estate Investment in Dallas. 

How healthcare commercial real estate is different

Below are some vital things investors should know about healthcare real estate and why it is different from other forms of investments.

  • Medical office buildings (MOBs) boast uniquely stable long-term occupancy rates.

Indeed, from 2009 on, this sector has been the picture of stability. The quarterly weighted average occupancy ranged between a low of 90.4 percent in 2009 and a peak of 92.6 percent in 2016 a mere 200-basis-point spread from recent peak to trough.

Occupancy rates are expected to remain stable for the near future, with limited room for growth given the presently high rates.

Pricing has been steadily trending up, by an average of 49.8 percent over the last five years, with overall steady growth over the last decade despite the Great Recession. All told, MOB average sales price numbers bear out this sector’s appeal and relative resistance to downturns in the real estate market.

  • As other property sectors have tightened, MOBs offer high returns 

As competition for Core product in gateway markets has resulted in several years of cap rate compression, investors are moving into new sectors, with a greater focus on alternative property sectors.

The low yields for commercial office and other traditional real estate persist, institutional and foreign investors are increasingly turning to alternatives offering attractive returns.

Medical offices have consistently offered a 2 percent spread in cap rate or greater over similar benchmarks for the last five years, making it a desirable prospect given its consistent performance over a long time.

  • MOBs attract a high-quality tenant base 

As more physician practices move to hospital ownership, MOB’s hospital affiliation is increasingly important. As of mid-2015, one in four medical practices was hospital-owned, according to a study by Avalere Health. Further, hospitals acquired 31,000 physician practices, a 50 percent increase, from 2012 to 2015, according to the report.

According to an American Medical Association (AMA) study, the newest generation of doctors is shifting from owning their medical practice to joining larger multispecialty practices to leverage administrative and payer partnerships as well as lifestyle choices.

  • Construction of new medical facilities is keeping pace with demand 

Despite strong demand, MOB inventory crept up only slightly in 2017.  2018 expects to see higher completions and starts with virtually no speculative development, unlike other property types. These deliveries are in step with absorption, and overall, steady occupancies and increasing rental rates.

  • Healthcare real estate will continue to grow and evolve 

Despite the momentum around MOBs, the need for acute care real estate hospitals and hospital campus properties is also growing, and for good reason.

While healthcare services are trending from inpatient to outpatient facilities, hospitals will also see growth in total patient-day numbers. 

The volume of inpatient services will continue to grow regardless of declining inpatient utilization rates. Inpatient facilities will increasingly be focused on the sickest and most acute care needs, often requiring longer stays. With more hospital starts as health systems race to expand and replace obsolete facilities.

Roughly 75 percent of these hospital project starts are expansions or replacements, although entirely new hospitals are also being built, too, with 92 underway at the end of 2017. 

There are a handful of related drivers fuelling this demand for new hospital facilities, as well as the push for more micro-hospitals and licensed post-acute and sub-acute facilities.

Ultimately, however, the $21.4 billion of new hospital construction underway now is helping meet patient demand.

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1031 Exchange Investment Tips in Dallas, Texas

1031 Exchange Investment in Dallas, Texas | 1031 Exchange Tips & Rules

An American taxpayer or real estate investor who is planning the sale of a property must be ready to lose a certain percentage of the profit to the government. This is sad for most people as they have to lose part of their money to the government as capital gains tax. Let’s discuss 1031 Exchange Investment in Dallas.

Capital gains tax could be as high as 15% to 30% of the profit you made from the sale of your property. To avoid losing such amount, it is wise to use an investment strategy that prevents you from paying capital gains tax.

As a real estate investor or someone interested in buying properties or 1031 Exchange Investment in Dallas, you can acquire several properties without losing money on capital gains tax.

1031 exchange is a powerful tool or strategy to use in purchasing properties without paying tax. It is one of the best ways real estate investors and taxpayers can acquire properties and maximize their investments.

The 1031 Exchange has been cited as one of the most powerful wealth-building tool available to taxpayers and real estate investors.

 What is 1031 Exchange

The 1031 exchange took its name from Section 1031 of the United States Internal Revenue Code. It is a rule that allows a taxpayer to sell income, investment or business property and replace it with a like-kind property. It is a way which a taxpayer can defer payment of capital gains taxes on the profit made from selling an investment property.

The capital gains from the sale of an investment property are deferred as long as the rules binding the 1031 exchange are upheld.  In theory, an investor could continue deferring capital gains on investment properties until death, potentially avoiding paying capital gains taxes on all his/her properties.

This means you can rollover the profit from one investment property into purchasing another like-kind property and so on until death without paying capital gains on any of the property. You only pay capital gains tax when you decide to sell the properties for cash after several years.

What types of properties are known as like-kind?

For a property to qualify as an exchange property, it must be an investment property. An investment property is a property that is held and used for investment purposes. They are properties that are bought for the sole purpose of making profits.

Examples of investment properties are commercial buildings, office building, malls, apartment buildings, industrial buildings, warehouses, and other types of buildings used for businesses.

A residential building for private use is not used for an exchange. A vacation home or a family house is not a valid property for an exchange.

Like-kind properties must not be the same kind of properties. Most people get it wrong thinking that like-kind properties must be exactly the same type of properties.

The following properties can be exchanged as like-kind properties:

  • Land can be exchanged for a shopping center
  • A land can be exchanged for an industrial building
  • A shopping center can be exchanged for an office building
  • An apartment building can be exchanged for an industrial building
  • A single-family rental home can be exchanged for a multi-family rental home
  • Land can be exchanged for an apartment building

You can exchange any investment property for another provided that the profit made from selling the original property is the same or lower than the cost of the replacement property. If the cost of the replacement property is lower than the profit made from the sale of the original property, you will have to pay capital gains tax on the balance amount of the profit.

1031 Exchange rules

These are rules that must be followed for the exchange to be valid. If you do not follow these rules, the exchange may not be valid.

  1. Both properties (original and replacement) must be investment properties

1031 exchange only applies to investment properties. The properties must be for business use only. Properties such as office buildings, apartment buildings, commercial buildings, lands, warehouses, hotels, malls, and so on. A residential building for tenants is also regarded as investment properties so long as you and your family are not occupying the building.

  1. Both properties must be like-kind

Like-kind properties are properties of the same type. This means an investment property exchanged for another investment property is like-kind. Different kinds of investment properties can be exchanged for another. For example, a shopping complex can be exchanged for a warehouse.

  1. You must be the owner of the property for at least a year

You must be the owner of an investment property for at least a year before you can sell it for an exchange. A property owned for less than a year may not be valid for an exchange.

  1. The replacement property must be identified within 45 days

After you have sold your property, a replacement property must be identified within 45 days. Your intermediary must be notified with a legal form that proves the availability of the replacement property within the given period. The rule allows you to identify multiple replacement properties within the given period as long as one of the properties is eventually purchased.

  1. You must purchase replacement property within 180 days or 6 months

The 180 days’ rule state that replacement property must be purchased within 180 days for the exchange to be valid. This means that from the day you sold your property, you have 180 days to purchase a replacement property. You should also know that the money you made from the sale of your property will be withheld by an intermediary. The intermediary will only release the money to you when you want to pay for the replacement property.

  1. The name on the original property must be the same with the name on the replacement property

The name in the documents used in selling original property must be the same name used in the documents used in purchasing the replacement property

  1. The cost or value of the replacement property must be the same or more than the profit from the original property

The cost of the replacement property must be the same or more than the profit acquired from the sale of the original property. If you have leftover cash after purchasing a replacement property, you will most likely pay capital gains tax on the balance cash.

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1031 Exchange Investment in Plano, Texas

1031 Exchange Investment in Plano, Texas | Rules binding 1031 Exchange

Do you know that as a real estate investor you can buy properties in Plano without paying capital gains taxes? You can purchase a like-kind property after the sale of another property without making extra cash payments. Here we discuss 1031 Exchange Investment in Plano.

With 1031 Exchange rule, you can purchase a like-kind property from the proceeds of another property without paying capital gain tax.

If you are selling or purchasing an investment property, business property or income-producing real estate in Plano, you are qualified for the 1031 exchange rule.

Using the 1031 exchange to acquire properties in Plano, is a profitable and good investment strategy. You can acquire properties without paying capital gains taxes on those properties.

What is the 1031 Exchange?

1031 exchange is a rule under the United States Internal Revenue Code (IRC) Section 1031 that states that a property investor or taxpayer can defer paying capital gains taxes on a property sold by using the proceeds in the purchase of the like-kind property.

However, the property must be an investment property, business property or income-producing real estate. It does not apply to properties for personal use.

The rule allows an investor to swap property for another like-kind property that is of equal or greater value.

It means you can exchange your property with another property without cashing out or realizing capital gains.

How does the 1031 Exchange works?

1031 exchange has several rules that bind it. You need to meet up with the rules for the 1031 exchange to be actualized.

Let’s take, for example, you buy an investment property for $500,000 and sold it after 10 years for $800,000. Your profit or capital gain is $300,000. Normally, you are expected to pay capital gain tax on the $300,000 profit you made. The capital gain tax could be 15% or 20% of the profit.

However, you can avoid paying the capital gain tax using the 1031 exchange. You can do this by buying a like-kind property using the profit of $300,000 you made selling your original property. The like-kind property must be valued at $300,000 or more.

By purchasing a like-kind property, you won’t need to pay capital gains on the $300,000 profit you made any longer.

If you buy a like-kind property with the $300,000 profit and after another 5 years you sold the property for $500,000, you have made a profit of $200,000. You can still use the profit of $200,000 to buy another like-kind property without paying capital gains taxes.

Hence, 1031 exchange allows you to own several investment properties without paying capital gain taxes.

However, there is a time limit. You must sell the original property and buy replacement property within 180 days.

Rules binding 1031 Exchange

There are rules binding 1031 exchange which must be followed. The rules are:

  • The properties must be investment properties. Both the original property sold and the replacement property must be investment properties. This means you can’t purchase a property for private use.

The 1031 exchange does not apply if you purchase a home where you will be living with your family. You can buy a property for rentals, commercial buildings, and other kinds of investment properties.

  • You must be the owner of the property for at least a year before selling the property. This means that you must possess the ownership of a property for at least one year before you can sell it for a replacement property.

If you own a property for less than a year, the 1031 exchange does not apply to it.

  • The original property sold and the replacement property must be like-kind. Two assets that are considered to be the same type is referred to as like-kind property. The two assets must be of the same kind but not necessarily of the same quality.

For example, a single-family property and a multi-family property are referred to as like-kind properties. The proceeds from a single-family property can be used to purchase a multi-family property under the 1031 exchange.

  • The value of the replacement property must be equal or greater than the capital gains made from selling the original property.

For example, if you made a profit of $300,000 from selling a property, you must buy a replacement property that cost $300,000 or more. You cannot buy a property that is lower than the profit you made.

  • The replacement property must be purchased within the 180 days’ limit. For the exchange to be valid, you must finalize the purchase of replacement property within 180 days of selling the original property.

If you do not finalize the purchase of replacement property within 180 days, the exchange is unlikely to be allowed. For this reason, you should secure a replacement property before selling your property to be on the safer side.

  • You must identify a replacement property within 45 days after selling the original property. This means that within 45 days after selling your property, you must tender a legal form that identifies the availability of a replacement property.

It is best to secure a replacement property before selling your property since you have just 45 days to identify a replacement property.

  • Both the original property and the like-kind property must be sold and bought in the same name. The name on the original property must be the same name on the replacement property.
  • All the profits made from selling the original property must be used to purchase the replacement property. This means you cannot keep any amount of the profit you made from selling the original property.

If the amount you used in buying the replacement property is lower than the profit you made, you may be required to pay some capital gains tax.

Are there any Drawbacks to 1031 Exchange?

You are only allowed to pay capital gains tax on a property when you make a profit from selling the property. If you suffer a loss from selling a property, you will most certainly want to recognize the loss on your taxes. If you suffer a loss, it means you can’t use the 1031 exchange.

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