Nine Steps to Form Your Own REIT

Name a type of real estate and you'll almost certainly find a REIT for it. And a REIT can own real estate or lend on real estate. Or it can do both—own and lend—as a hybrid REIT.

1. Decide what kind of REIT you want to form. Try to develop a unique idea for your multi-unit REIT. For example, there are dozens of apartment house REITS. But an apartment house REIT for handicapped people could be a unique type of REIT. An apartment house REIT for senior citizens could also be unique.

2. Figure out where your REIT will invest. Nationwide? East Coast? West Coast? Midwest? The area you select should strongly need the type of multi-unit REIT you plan to start.

3. Compute how much money you'll need for your REIT. Most multi-unit REITs need at least S5 million starting capital. And many seek 50 million; some even need $100 million from the public. And most stock brokers who sell REITs to the general public or to their regular clients (called a private offering) will not handle a REIT deal that's trying to raise less than $5 million. Why? Because the effort needed to raise $5 million is about the same as for $50 million. Since the commission earned is about 13 percent of the amount raised, the stock broker might as well go for the bigger offering and earn more from about the same amount of effort.

4. Prepare your Declaration of Trust (called DOT for short.) Don't let the name DOT frighten you! The DOT is simply a fancy name for an Executive Summary. Running 400 to 500 words, your DOT tells what kind of multi-unit REIT you're starting, the types of property or mortgages you'll invest in, the percent return you're aiming at for your investors, the unique features of your

REIT, how much money you'll need for your REIT, the types of properties or mortgages you'll invest in, and the essential benefits of your REIT for investors.

5. Send your DOT to interested stock brokers who might want to take your multi-unit REIT public or sell it privately to their clients. Write a short letter outlining the strong points of your REIT and its features for investors. Tell the broker what features make your REIT unique and why these will help your broker sell your REIT to clients.

6. Wait for a response from your broker. You can send your DOT to dozens of brokers at the same time. "Won't the brokers be offended if 1 use multiple submissions of my DOT?" you ask. "No way," I reply. "Brokers want new REITs to take to market—either publicly or privately. So they want your proposal!"

7. Do what the broker asks when he/she likes your DOT. One of the users of my REIT Kit, entitled How to Build Your Real Estate Fortune Today in a Real Estate Investment Trust, wanted to raise $76 million for his REIT located in California, The brokerage house he sent his DOT to said "You have a great REIT here. We can raise the S76 million you're looking for. But we think you need more real estate management experience in your REIT. So we suggest that you hire an experienced real estate manager." Three months later this BWB found an experienced manager in Texas. In his latest report to me he was ready to have the broker go to market with his REIT to raise the needed 576 million. 

8. Go to market with your REIT if a brokerage house agrees to do the work for you. The brokerage house will not ask you for any money up front for your multi-unit REIT offering. Instead, their income will be taken from the proceeds of either the public or private multi-unit REIT offering they do for you. Their total charge, as noted above, is about 13 percent of the money raised for you. This is a fair—and nominal—charge for their work that you could never do yourself. NOTE: The percent charge given can vary from one brokerage house to another. Be sure to have your real estate attor?ney fully review all documents before signing any agreement for a public or private offering.

9. Get your money and do what you planned for your multi-unit REIT, Pay yourself a nice salary and rewards in the form of a portion of ownership of the REIT for the work you do. Build your REIT for the benefit of your investors and yourself!

Just BE SURE TO FOLLOW ALL REGULATIONS GOVERNING REITs. HIRE A COMPETENT REIT ATTORNEY AND ALWAYS FOLLOW THAT PERSON'S LEGAL GUIDANCE!

 

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