How to Invest in Real Estate and Win - Part 2

There are loads of ways to invest in real estate. You can buy bare unimproved land and wait for it to appreciate. You can buy unimproved land and develop it. You can buy commercial or potentially commercial property and hold it. If it’s already zoned commercial, you can build on it with the idea of leasing. You can also buy into limited partnerships formed for the express purpose of developing property. You can buy a single home or multi units and rent. You can hop on the popular trend of flipping houses. You can buy into a real estate investment trust (REIT).

Your choices are only limited by your interest, imagination, knowledge, and ability to drum up needed capital (money). I have covered some of the basics of real estate investing and flipping houses in my other hubs so this time we’ll take a look at limited partnerships and limited liability partnerships (LLPs).

Limited Partnerships

What are they? A limited partnership has two main components, the general partners, and the limited partners. The general partners are the ones in the hot seat in that they are the managers of the partnership and take the heat if there’s a problem. The limited partners are investors who hope to earn a good return on their money by putting some of their investment dollars into the partnership.

There are two types of limited partnership, the privately held direct participation program (DPP) and the publicly traded master limited partnership (MLP).

Why are they formed? Limited partnerships are usually formed to perform a specific task such as create a large development, build a skyscraper, make a movie, etc. Once the project is complete, the partnership is dissolved and everybody takes his or her share of the profit and moves on.

Should I invest in a limited partnership? Limited partnerships can be very good investments and they can also be poor depending on the general partners. I have seen limited partnerships formed by people I wouldn’t trust with one cent of my money. I have seen others in which I would happily invest. One thing to keep in mind is that once you invest in a limited partnership, you’re probably in for the long haul. These investments are often tough to sell if they’re privately owned and they trade thin in the market. However, one benefit is that tax losses can be passed down to you allowing a tax deduction.

Real Estate Investment Trusts (REITs)

What are they? REITs are similar to mutual funds except they are required to have 75% of the gross income from real estate activities. They are also required to distribute 90% of the profit to investors.

Should I invest in a REIT? If you go to the National Association of Real Estate Investment Trust (http://www.nareit.com/), you can see what REITs are available in your state and will get an idea of where the impetus of each is. You should use the same criteria in deciding whether to invest in a REIT as you do with any other investment. Gain knowledge, evaluate risk, and research the specific REIT(s) that interest you.