mallAuthor: Staff

Real estate syndication involves multiple investors pooling funds and putting them into real estate projects, either to acquire a property completely or as an equity contribution to fund the cost of a project. But there is a great deal of variety in which types of projects are considered real estate syndication, and certain private placements may be heavily regulated.

Sometimes disputes involving real estate syndicate projects are arbitrated before the Financial Industry Regulatory Authority (FINRA), which regulates all securities firms by regulating brokers and brokerage firms and monitoring stock market trade.

In an unpublished 2015 case in a California state appellate court called Stark v. Beaton, a defendant appealed after the court denied his petition to vacate an arbitration award associated with a real estate syndication project. The case arose when the parties submitted the defendants’ claims to expedited arbitration under the FINRA rules.

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Red Rock CanyonAuthor: Staff

Real estate syndication allows you to put your private savings into real estate investments when other financing isn’t available for them. The syndicator’s responsibilities and obligations to an investment group and the investors’ responsibilities to each other are determined by how the syndication is organized.

Choosing the form of organization requires the syndicator to look at the advantages and disadvantages of each. Many people prefer a limited partnership. When there is a corporate form, you can have central management, but most syndicates do not use this form because of negative tax consequences. General partnerships allow you to avoid double taxation but incur unlimited liability, and in addition, there is no central management. A limited partnership allows you to have centralized management but also keep certain tax advantages.

Some syndicates are organized as limited liability companies. This form allows members to actively participate in managing the syndicate and provides for limited liability with specific exceptions. It can incur taxes like a partnership, while avoiding certain double taxation problems that happen when the form of the syndicate is a corporation. But an LLC cannot hold a real estate license in California.

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houseAuthor: Staff

In a recent California appellate case, a plaintiff sued multiple parties after the nonjudicial foreclosure of his home. The court sustained the defendants’ demurrer without providing leave to amend.

The plaintiff challenged the judgment against the bank that instituted the foreclosure sale and one of the entities that serviced the plaintiff’s secured loan. He argued that it was a mistake for the court to determine he hadn’t stated a cause of action against these two defendants and couldn’t amend his complaint to state a cause of action. The court affirmed the judgement.

The case arose in 2007, when the plaintiff borrowed $528 to refinance the loan on his home. The loan was reflected in a note that both parties signed, and it was secured by a deed of trust on his home. The deed of trust identified him as the borrower and also identified the lender, trustee, and beneficiary. It stated that the borrower understood the beneficiary held legal title to the interests specified in the deed of trust but had the right to foreclose and sell the property and take any action required of the lender, if necessary to comply with law or custom. It also allowed the note to be sold multiple times without giving the plaintiff notice.

The beneficiary entity assigned the note to Mellon Bank, which was a trustee for a securitized investment trust and one of the defendants. The assignment was signed by an assistant secretary and recorded. The trust was organized under New York laws and was governed by a servicing agreement that required a servicer to make certain advances on delinquent loans. One day after the assignment was executed, another entity recorded a notice of default, stating an owed amount of $35,254.26.

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Author: Matthew Riley

Matthew Riley is an attorney with Bona Law, primarily focused on antitrust, commercial litigation, real-estate, and federal administrative law.

In my first blog post for Titles and Deeds I introduced what I consider the “Golden Rule” of real estate investing—Section 1031 Like-Kind Exchanges. As promised, I’ve returned to help you understand the fundamental rules governing these exchanges, so you can determine whether you may be eligible to enjoy the financial benefits of this rule.

freewayAuthor: Staff

In a recent California appellate case, DNI Food Service, Inc. dba Zaya’s Bistro v. Kim, the owner of a multi-tenant retail building in Los Angeles County was notified that two parcels of its land would be affected by a freeway expansion project. The building wasn’t located on either of the parcels, and there were five tenant vacancies.

Caltrans planned to take some land located between the street and building and create an easement over the sidewalk. Real estate agents working for the builder were communicating with Caltrans. At about the same time, these real estate agents advertised tenant space in the building, marketing the property on the basis of its location and its reduced rents. A food services company and its owner saw the ad and contacted the agents. They were hoping for a two-year lease but signed a five-year lease with a personal guarantee. The food services company spent money and time and opened a restaurant in the spot that they rented.

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Author: Matthew Riley

Matthew Riley is an attorney with Bona Law, primarily focused on antitrust, commercial litigation, real-estate, and federal administrative law. Prior to joining Bona Law, Mr. Riley’s legal practice emphasized transactional work involving real estate and mergers and acquisitions. Matthew’s professional passion is to educate and to clarify complex areas of the law to help clients achieve their goals. Matthew Riley graduated from the University of Kansas School of Law in 2013 and is licensed to practice law in Illinois. He is in the process of obtaining his admission in California.

No one wants to pay taxes, and most, if given the option, would pay less.  The United States Tax Code declares certain events taxable (ex. receiving wages, selling property), and establishes rules to assess how much a taxpayer owes on those events.  In some cases the Tax Code empowers taxpayers to choose which tax rules apply, and thereby, how much tax is owed.  Therefore, knowing the tax rules and how they apply to certain taxable events can result in significant and beneficial tax consequences for you and your business.

Like-Kind Exchanges are governed by Section 1031 of the United States Tax Code, as well as Judicial Opinions, Revenue Regulations, Procedures, and Rulings issued by the IRS. Section 1031 should be known as the real estate investor’s “Golden Rule”.  By “Golden Rule” I mean it is a rule investors can apply to accumulate wealth significantly faster than investors who do not follow the rule.

A Like-Kind Exchange is an investment strategy whereby one property is sold and replaced by the acquisition of another of the same kind.  In such an exchange, any taxes that otherwise would be charged to an investor’s capital gains on the relinquished or sold property, are deferred.  The deferment of these taxes allows the investor to enhance their purchasing power in acquiring a replacement property.  To illustrate the ramifications to an investor choosing to apply the Like-Kind Exchange rules, consider the following (fictional) scenario:

Ronald Lump is an investor who got a “steal-of-a deal”, paying $500,000 for an apartment building in an up-and-coming neighborhood in San Diego. After holding onto the property for a couple years and finding his property greatly appreciated from a neighborhood renovation project, Ronald decides to cash out and purchase a bigger-and-better beach front apartment complex in La Jolla. Ronald finds a buyer who purchases his apartment building for $1,000,000.

Below is a table showing the differences in Ronald Lump’s financial position post-sale when applying and not applying the Like-Kind Exchange rules.

Ronald’s Selling Price $1,000,000.00
Ronald’s Original Purchase Price $500,000.00
Total Taxable Gain After Sale $500,000.00
When Like-Kind Rules Are Applied When Like-Kind Rules Are Not Applied
Capital Gains Tax Rate on Taxable Gain N/A 20%
Tax Due After Sale $0 $100,000.00
Total Amount Available to Ronald Post–Sale that can be Reinvested Into the Beach Front Apartment Complex  

 

$1,000,000.00

 

 

$900,000.00

As you can see, applying the Like-Kind Exchange rules enhance an investor’s financial position or purchasing power to acquire a replacement property.  Ronald Lump, by following and meeting the requirements under Section 1031 will have $100,000.00 more than he otherwise would to reinvest in another like-kind property.  Over time, through structuring multiple property exchanges in this way, the value of an investor’s investment portfolio is better preserved and substantially enhanced.

In later blog posts I will provide a basic understanding of what Section 1031 requires and how you can apply it in your next investment.  I will focus solely on real estate exchanges, though Like-Kind Exchanges can be used in exchanges involving other business or investment assets.  The rules and requirements established in Section 1031 are complex, and if not closely followed by an investor, will disqualify an exchange from tax deferment treatment.  Real estate investors structuring a Like-Kind Exchange are strongly encouraged to obtain an attorney’s assistance in preparing and executing such an exchange. By following this “Golden Rule” of real estate investing, you can work to maximize your investing power now and into the future.

Here is a table of contents of our Section 1031 Exchange Articles:

INTRODUCTION – GOLDEN RULE TO REAL ESTATE INVESTMENT

PART 1 – THE RELINQUISHED PROPERTY (SOLD PROPERTY) MUST HAVE BEEN HELD BY THE EXCHANGER FOR PRODUCTIVE USE IN A TRADE OR BUSINESS OR FOR INVESTMEST PURPOSES.

PART 2 – THE EXCHANGER MUST INTEND TO HOLD THE REPLACEMENT PROPERTY (ACQUIRED PROPERTY) FOR PRODUCTIVE USE IN A TRADE OR BUSINESS OR FOR INVESTMENT PURPOSES. 

PART 3 – BOTH THE RELINQUISHED AND REPLACEMENT PROPERTY MUST HAVE A NATURE AND CHARACTER THAT IS “LIKE-KIND” WITH THE OTHER.

Apartment-Building-Real-Estate-300x201

Author: Jarod Bona

Our first blog post at Titles and Deeds will examine why you might want to invest in real estate in the first place. Our website is focused on real-estate investors, so it makes sense for us to articulate why we believe real-estate investing is a good idea.

This article will focus more on beginning or basic investing as readers that are already flipping shopping malls or buying and reconstructing large apartment buildings already know why they should invest in real estate.

Before delving into some of the advantages, however, we will be very lawyer-like here and explain that real-estate investing isn’t always successful. It doesn’t always work like you see it on television. You might lose money. In fact, if you are in the game long enough, there is a good chance you will lose money on one or more projects. And real estate isn’t necessarily easy money in the first place.

You might eventually find yourself sipping margaritas on the beach thinking about all the passive income flooding into your checking account as you watch one wave after another splash into the sand. But it will take some smarts and hard work to get there. You will have to supply the hard work, but with this blog we will help to facilitate some of the smarts.

Real-estate Investing Presents Many Options

If you don’t like flipping houses, you can buy and hold apartment buildings, or develop commercial properties, or buy tax liens, or lend private money, or lease vacation-rental properties, or participate in any number of different types of investments.

You might pick one type of investment, learn everything about it, and specialize. Or you could bounce around, depending upon the state of the market and the economy—there is an optimal strategy for every market. Or, more likely, you start with one type of real-estate investment and move on to another as you gain experience. For example, some investors start with a flip to gain cash, then purchase multi-family or apartment buildings for long-term wealth.

Real-estate Investing Offers Unique Financial Benefits

The most obvious financial benefit of real-estate investing is leverage. Leverage is the use of borrowed capital (or some other instrument) to increase the returns of your investment. Using leverage is particularly common for real-estate investments, as most purchases incorporate some type of debt financing.

When it works, the financial benefits of real-estate investing are fantastic. You can often purchase a properly by putting down thirty-percent or less of your own cash. If you have renters in your property and you have invested wisely, the renters will effectively pay your mortgage interest, insurance, and taxes, along with some of the loan’s principal, and leave some cash left over for you or your business.

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