As most of you know I am an Englishman on this forum and trying hard to catch up on all your jargon, rules and regulations so please forgive me if I have made any serious mistakes in this post and if I have please correct me.
First let me say that I think the Idea is a great one and should be investigated more and really the only person that can do this is Joshua because it will involve lawyers and will have a significant effect on Bigger Pockets so I would like to ask him if he is willing.
Next point is what is this going to be so far we have had LLC, REIT, 501(c)(3)........!!!
501(c)(3)
To my understanding after looking it up is and I quote “Section 501(c)(3) is a tax law provision granting exemption from the federal income tax to non-profit organizations. These exemptions apply to corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.â€
Don’t see that one working myself...
REIT
This one I am very interested in but to qualify as a REIT it has to follow these basic rules
1, Be an entity that is taxable as a corporation
2, Be managed by a board of directors or trustees
3, Have shares that are fully transferable
4, Have a minimum of 100 shareholders
5, Have no more than 50 percent of its shares held by five or fewer
individuals during the last half of the taxable year
6, Invest at least 75 percent of its total assets in real estate assets
7, Derive at least 75 percent of its gross Income from rents from real
estate property or interest on mortgages on real property
8, Have no more than 20 percent of its assets consist of stocks in tax
able REIT subsidiaries
9, Pay annually at least 90 percent of its taxable Income in the form of
shareholder dividends
But the benefits are that a REIT Pays
NO CAPITAL GAINS TAX.
NO RENTAL INCOME TAX.
NO CORPORATION TAX.
The downside is that when marketing a REIT all the different state legislation about obtaining funds come into play so Lawyer bills will become a big part of the money invested. Plus to put a small private REIT together with prospectus and all could cost in the region of $50k
LLC
LLC Much the same a REIT put without the benefits
I PROPOSE A PROPERTY INVESTMENT FUND.
KEY ISSUES TO CONSIDER IN RELATION TO INCORPORATING A FUND
Target Investors
It is important to identify your target investors at an early stage as this has an impact on the possible fund structure and where to establish the fund. Certain investors will be reluctant to invest in particular jurisdictions.
It should be noted that traditionally the US market prefers to invest via the Caribbean jurisdictions such as the Cayman Islands. However, the UK and European markets tend to prefer a European jurisdiction such as the UK, Channel Islands or Luxembourg.
Taxation
One of the key objectives in relation to choosing a fund vehicle is to ensure that it is as tax efficient for investors as possible. Again, this will depend on the jurisdiction(s) in which the investors are based. However, a general objective is to ensure that the fund vehicle is tax transparent (i.e. the fund vehicle does not incur a tax charge and the investors are taxed directly on the gains or income made from their investment in the fund vehicle).
An alternative to an LP is a limited liability partnership ("LLP") which are increasingly used as vehicles for investment funds. The key difference between an LP and an LLP is that the latter has separate legal personality. In addition, whether the investors participate in the management of the LLP or not, they would still retain limited liability status. However, in a typical fund scenario it is unlikely that the investors would participate in the management of the fund vehicle in any event. As such, the limited liability status can be achieved via an LP.
A number of the offshore jurisdictions have structures similar to LP and LLP. In relation to offshore vehicles, provided that the chosen jurisdiction does not have corporation tax, the tax transparency will generally be achieved. Therefore, the Cayman Islands and the BVI are attractive options.
Regulatory Issues
In deciding which jurisdiction to incorporate the fund vehicle in it is crucial that regulatory issues are considered. The regulatory regime in which key investors are situated may have a crucial influence on the final structure.
For example, in order to fall outside of the US regulatory net, and for a fund not to be SEC regulated, which is a fairly onerous process, the fund would need to be incorporated outside of the US and the investment management services would either need to fall outside of the scope of the SEC Markets Act of 33 (i.e. to not be regulated activities which require
authorisation)
In relation to regulation, most jurisdictions will have a regime in place for marketing investment funds. Careful consideration will be needed to ensure that any marketing documentation complies with the financial promotion regime in the relevant jurisdictions.
Offshore/Onshore
As touched on above, the key drivers in assessing whether to establish a fund vehicle on or offshore are tax, regulatory and also marketability. The regulations in the offshore jurisdictions, particularly in the Caribbean, are less onerous than the US. In addition, the administration costs going forward need to be considered.
Due to the offshore jurisdictions having lower or no corporation tax charges, an offshore company, rather than an LP/LLP or unit trust may be used, which may be an attractive vehicle for investors who are more familiar with the corporate structure.
Certain offshore jurisdictions principally Guernsey, Jersey and the BVI have introduced cellular structures. In summary, the principle behind these structures is that there is a "parent company" and beneath this separate cell companies can be incorporated. Each cell can invest in different investment opportunities and an investor can choose which cells to invest in. The assets and liabilities of each cell are ring fenced and an investor who invests in one cell is not entitled to the assets of another cell. These structures are attractive when not all investors want to invest in every investment opportunity and may enable the fund to be offered to different investors at the same time as each can invest through a separate cell.
Management
In order for the investment manager to obtain fees from the fund, the usual approach is for the manager to take an annual investment management fee which is a fixed percentage. In addition, it can also have a carried interest. This can be structured in different ways, but broadly allows the manager to take a percentage of the profits if the fund is successful.
Anyway that’s my four pennies worth but please take particular notice of the last paragraph under ONSHORE/OFFSHORE that would work very well with this as for each idea that is brought to the board and passed could be put out to the investors and they could decide if they want in on that investment or not and then the profits from that are ring fenced from the other investor cells.
Oh and one other thing.
Josh Green
Excuses are for losers, Winners don't need them!
Not everyone who comes onto these forums is confident when they first start out so taking a pop like that at Mamma Mia was unnecessary and not at all helpful. Perhaps in the future you could encourage people to become more proactive instead of using a single sentence to pull them down.