April 30, 2008

Real Estate Syndication Questions & Answers: Part 11

As we prepare for our seminar program that covers the concepts of successful syndication, many people are sending in questions that they have about the topic. We are organizing them into categories and I am answering them so that everyone who is interested in learning how to make money the same way that Wall Street makes money, can begin to understand how the business works.

In the coming weeks, I will continue to answer the real estate questions that come in using our weekly column. Feel free to submit your own questions as well. To register for our upcoming live event, go to www.SyndicateFast.com. To submit a question of your own, go to www.joelblock.com/capital.

More Questions about Real Estate Syndication

What is the best form of ownership for a syndication? In the old days, meaning before the 90s, limited partnerships were the vehicle of choice. They weren't perfect, and the tax structures that were selected were frequently broken up by the Internal Revenue Service. Currently, the vehicle of choice is a limited liability company, and that's nearly a perfect, easy and thorough way of creating a structure with very little exposure to the members, and it also is a flow-through entity which provides very excellent tax treatment. The only problem with limited liability companies is that some states charge a gross revenue tax, which can be very onerous. For example, that gross revenue tax is 5% in Texas. Aside from this gross revenue tax, which you have to pay attention to, these limited liability companies offer great flexibility.
What's the primary flexibility provided by limited liability companies? Limited liability companies are governed by an operating agreement, and the operating agreement allows the members to agree between themselves on any structure that works, as long as there's a legitimate business purpose behind it. That means that taxed losses can be allocated as appropriate. Interest between the parties can be subordinated to one another. There can be preferences, and there can be other choices made that are very attractive to investors, as well as to the syndicator. In the operating agreement, it's possible to subordinate the interest of the sponsor to that of the cash investors. By doing that, the syndicator is able to take a larger share than he or she actually pays for, and not be taxed at ordinary income rates for the acquisition of those shares.
What are the tax consequences of an LLC? An LLC allows you to allocate the income and the taxes differently, depending on the structure that you set up in advance with the other members of the organization. As long as all the members of the group agree to a structure that's reasonably business oriented, then this is acceptable in the eyes of the government and the IRS.
How can I immediately apply the material that I learn from you? The material that you learn in our program will enable you to immediately begin, because it is laid out in a step-by-step, systematic formula that's easy to follow and easy to understand, provided that you have the proper background that we've described. That means a background in real estate or a background in capital. Once you have these criteria in place, following our well documented program and formula will be very easy for you.
Do you have any investors who are interested in joining a syndication? Yes, I have many investors who are interested in joining syndications. But generally they follow me and do my syndications. It's very difficult to get a friend of one person interested in someone else, until you have a business relationship with them built on trust and success. Part of my goal for people who are just getting started in syndication, who don't have a long record of accomplishment and don't have a long list of prospective clients, is to get them to start building that track record. You start small and build big. By succeeding at the low level, you're going to have an excellent opportunity to attract more investors and start to build even a bigger pool of investors who come in for larger dollars over time.

All this material and a lot more will be addressed at our live seminar in May called “How to Raise Money for Real Estate: Harnessing the Power of Syndication.” If you are a real estate professional or someone who is involved on the capital side either as an investor or facilitator, then this incredible two-day event is for you. For more information, go to: www.syndicatefast.com.

Real Estate Syndication Tele-Seminars!

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About Joel G. Block

Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.

Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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