DIRECT INVESTMENTS – REAL ESTATE FUNDS
Direct Investments – Real Estate Funds
One way to put money into tangible assets is through investment programs called direct participation programs (DPPs). When you have a direct investment in tangible or real assets, such as real estate, leased equipment, and energy resources, you own a share of the actual assets of an operating company and may benefit from the assets’ value, typically the income they produce.
Some examples of common DPPs are real estate funds – such as limited liability companies and limited partnerships, and non-traded real estate investment trusts (REITs). Investing through a DPP gives you partial ownership of actual physical assets so you’re a part owner of the real estate holdings of the REIT. Generally the LLCs, LPs, and REITS are diversified and hold 10 – 30 assets each or more. Typically a Fund will be raising significantly less funds than a REIT and therefor has less assets in the fund than a REIT. The goal is to receive income from the operations of the real estate asset(s) as well as participate in any future profit upon sale.
Most real estate funds are exempt offerings utilizing Rule 506 of Regulation D. This means investors must be accredited – having a net worth over $1 million – excluding their home equity OR income greater than $200,000 ($300,000 if a spouse works) in each of the two most recent years with the reasonable expectation of meeting this income level in the current year. Please review the accredited investor definitions for other types of entities.
Direct Participation Programs and Real Estate Funds typically with provide a Private Placement Memorandum which will detail their plans for investment: acquisition, operations,management and other strategies. Direct Participation Programs are not suitable for all investors and carry certain suitability requirements. As with all investments that do not carry guarantees these investments are subject to the possibility of loss of principal. Additional risks are illiquidity, fees and expenses, conflicts of interest, lack of control, market risks ect. For a complete listing of risks and for more information, please always review the private placement memorandum prior to investing in any DPP product. Corcapa 1031 Advisors, along with your tax and legal counsel, can assist investors in reviewing the opportunities and risks associated with each investment.
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