Tax Benefits Of Commercial Real Estate

Tax Benefits Of Commercial Real Estate

How Is Income From Commercial Real Estate Taxed?

Investing in commercial real estate can provide stable, long-term passive income streams, in addition to windfall profits when properties are sold. But while the benefits of investing in commercial real estate are many, the tax implications can prove complicated and costly if they aren’t carefully considered.

To help you get a firm grasp on the tax rules and loopholes involved in commercial real estate investment, we’ve put together this article about the different considerations to keep in mind when deciding on which commercial property deal structure is best for your financial goals.

The Two Ways Investors Earn Returns Determine Taxation

The first criteria for determining what taxes will be required on a commercial real estate investment is how the gains were earned.

The two ways investment properties earn money are cash flows and capital gains. Let’s cover the differences between the two and how each might impact you at tax time.

Taxation On Commercial Real Estate Cash Flow 

The cash flow a property generates is taxed as ordinary income, so the effective tax rate will be determined by the investor’s income tax bracket. Cash flow is the total rents less allowable expenses, which is the net income.

As with any other income, these taxes are due at both the federal and state levels. The federal tax rates on income in 2021 range from 10% to 37%, the highest level of taxes when it comes to commercial real estate investing.

Taxation On Commercial Real Estate Capital Gains

Capital gains are simply the difference between what you paid and sold a property for. In many cases, capital gains are taxed differently than income, but not always.

For example, if you buy a commercial property for $1.5M and sell it two years later for $1.8M, you’ll have a capital gain of $300,000, taxed at a rate of 15% if filing single or married jointly.

Comparatively, if this amount was cash flow income, you’d pay 35% in taxes if filing as single. It’s easy to see how the timing of the sale of only a few months can make a massive difference in taxes when it comes to capital gains.

As long as you sell after the one-year mark from the purchase date, the capital gains are considered long-term, which taxes them at a far lower rate than cash flow income is taxed, sometimes as low as 0%, but not exceeding 20%.

That said, if the capital gains are earned on a property that’s sold within a year of purchase, the proceeds will be taxed as income instead, subjecting it to as much as 37% rates of taxation.

Tax Benefits Of Commercial Real Estate Investing

Now that we’ve covered how commercial real estate investment earnings are taxed let’s go over the numerous tax benefits of real estate that could help reduce your tax burden.

Depreciation Write-Offs

Maybe the best tax benefit of commercial real estate is depreciation because it’s a non-cash expense, providing a substantial write-off without actually having to spend any money for it.

The value of a piece of commercial real estate is depreciated over 39 years. So each year, the commercial property owner is allowed to write off 1/39th of the property value as a depreciation deduction. The downside, of course, is after 39 years, this deduction is no longer available.

The depreciation expense is written off against ordinary income, so any taxes that are paid on cash flow generated by the property is reduced every year the deduction is applicable.

While depreciation is mostly a major benefit, when you sell the property, you may have to pay depreciation recapture taxes on the amount you depreciated during your ownership. That said, this rate is typically lower than the income tax rate, likely far outweighing any recapture taxes.

Interest Expense Deductions

If there is a commercial real estate loan on the commercial property, an investor is allowed to write off the interest each year against their income, potentially providing a substantial write-off. This holds true especially during the early days of the loan when the mortgage payments are almost entirely interest rather than principal.

Section 1031 Exchange Tax Deferment

Of course, the most significant downside to interest and depreciation deductions is that they’re only able to be taken against income taxes—not capital gains taxes. Thankfully, the Section 1031 exchange might still help reduce your capital gains tax burden.

With a 1031 exchange, investors can use the capital gain to invest in another property, often one that produces income or the potential for greater capital gains at a later date. 

This can make a big difference in the total capital you have to invest in your next commercial property.

Commercial real estate investors are able to use the Section 1031 exchange to purchase larger and larger properties without having to pay capital gains tax along the way, making it far easier to grow a high-quality portfolio.

Reduced Tax Burden For Beneficiaries

Keep in mind—a 1031 exchange is really just a tax deferment, not a total tax write-off. When you do finally sell to cash out, the tax will be calculated on the cost basis of the original commercial property.

If, however, the property is passed to beneficiaries, they may get some tax help with what’s called a “step-up” cost basis.

With the step-up cost basis, capital gains are calculated starting at the time of inheritance of the property rather than the original purchase.

Depending on how long you hold the property or when you started with the first 1031, this could mean massive tax savings for your heirs.

Are You Considering Investing In Commercial Real Estate?

Commercial real estate investing can provide numerous ways to minimize taxes when you’re also aiming to diversify your investment portfolio. But hands-on real estate investing isn’t for everyone. Thankfully, getting help from a team of commercial real estate experts is easy with Saint Investment Group. 

We carefully analyze every deal and provide you with detailed reporting about your commercial real estate investment performance. Saint Investment Group is here to help you start investing. Call (323) 483-0291 today to learn more.

7 Valuation Methods For Commercial Real Estate

7 Valuation Methods For Commercial Real Estate

When you’re getting started in commercial real estate investing, it can be confusing trying to understand how property values are determined. There are a handful of different methodologies, and each comes with its own set of merits and drawbacks. Some valuation methods are good for quick analysis of a property when first determining potential investments, while other valuation methods are solid for landing on a fair offering price.

In this article, we’ll cover some of the most common methods of commercial property valuation, along with some of the terms most frequently used in this realm of finance. With this information, you’ll be better equipped to analyze your own investment deals and understand how funds make decisions about the properties they add to their portfolios. Let’s get started!

Method 1—Income Capitalization

The Income Capitalization valuation method is the most commonly used method for determining property value in commercial real estate deals. In this valuation method, the property’s income is estimated using the capitalization rate, usually referred to as simply the “cap rate.”

To find the cap rate, the net operating income of the property is divided by its current market value (or sales price). For example, on a property that has a Net Operating Income (or NOI) of $500,000, we would divide this figure by the cap rate (9%) to arrive at a valuation of $5,555,556.

Method 2—Replacement Cost Approach

Often called The Cost Approach, this method is a more complicated way to determine the value of commercial real estate.

First, the value of the land a building sits on is determined. Next, the costs of building an exact replica of the current structure are added to the land value.

Next, the depreciation factor is determined and used to adjust the combined values to provide the final value.

Method 3—Market Value Approach

Also known as the Sales Comparison Approach or the Comparable Approach, the Market Value Approach to property valuation is probably the simplest method of determining the value of a piece of commercial real estate.

First, a range of values is established from market research based on properties similar in use and size that have recently been sold in the surrounding area. Next, the value is adjusted based on the physical characteristics of the property being valued.

Essentially, this method of valuation seeks to determine what a purchaser is likely willing to pay in the current market environment.

Method 4—Income Capitalization Approach

This method of property valuation is based on the amount of income an investor can expect to earn from a particular piece of real estate. The income figure is usually derived in part from a comparison of other similar local properties, as well as any expected changes in maintenance costs.

Because the income projection is for the future, the expected income figure is discounted to the present value to determine the property’s price.

Method 5—Value Per Gross Rent Multiplier

The Gross Rent Multiplier (GRM) valuation method helps determine a commercial property’s value by taking the cost of the property and dividing it by its gross income. This method of finding commercial real estate values is generally used to find properties with a low price relative to their potential income production for an investor.

For example, if you purchase a commercial property for $400,000 and it produces $60,000 in gross rental income per year, the GRM would be about 6.67 ($400,000 / $60,000).

Method 6—Value Per Door

The value per door method of commercial real estate valuation is used mainly for apartment buildings and not single-unit properties. Essentially, the value per door method determines the entire property’s value based on the number of units.

For example, an apartment building with 40 apartments priced at $4 million would be valued at $100,000 per door, no matter what each unit’s size or amenities are. This is a fairly rough method for quick approximate reads on value because it doesn’t account for the various qualities of each rental unit.

Method 7—Cost Per Rentable Square Foot

With the cost per rentable square foot valuation method, the size of the entire property is used to determine value, including not only the rental unit square footage but also the common areas such as stairwells, elevators, courtyards, and exercise rooms.

Once the total rentable square footage is determined, it’s used to find the cost per rentable square foot so it can be compared to the average lease cost per square foot for a comprehensive examination of the property’s value.

For example, if a property has 20,000 rentable square feet and the average cost to rent per square foot is $11 per square foot annually, a sales price of $2.8 million will generate nearly an 8% gross rental yield. If you know the property can fetch $13 per square foot annually in rental income, a valuation of $3.3 million will still yield you the same gross return rate.

Helpful Commercial Real Estate Investment Terms To Know

Cap Rate

The cap rate is calculated by dividing a property’s net annual rental income by its current value. Cap rates help investors forecast their expected rate of return on the purchase of a commercial property.

Cost Per Unit

For multi-unit commercial property, the cost per unit is found by dividing the sales price by its total number of rental units.

Debt Service

Debt service is the costs associated with real estate loans, including the principal and interest during a given time period.

Gross Rent

Gross rent is the total rent price that’s stipulated in a tenant’s lease agreement, divided by the number of months that the tenant is responsible for. This number doesn’t account for any costs.

NOI (Net Operating Income)

Net operating income, also called NOI, is the rental income of a property minus any expenses involved with ownership, such as maintenance, property staff labor costs, etc.

Price Per Square Foot

The price per square foot of a property is found by taking the price of the property and dividing it by the total square footage.


This term is an acronym for the typical expenses on a piece of property. TUMMI is short for “Taxes, Utilities, Management, Maintenance, and Insurance.”

Vacancy and Collection Loss

If the rental income on a commercial property is lost due to units remaining vacant or rents going uncollected, these are called vacancy and collection losses.

Our Commercial Real Estate Valuation Experts Work For You

When you’re looking for ways to diversify your portfolio while increasing passive income, commercial real estate investing is a great place to start. If you’re not a fan of the idea of calculating byzantine numbers on every property you invest in, Saint Investment Group can help. 

Saint Investment Group provides access to investing in exceptional commercial properties for investors that want solid returns and stable income streams without the need to be involved with the properties directly. You’ll have access to monitor fund performance through detailed monthly reporting and deal transparency so you can enjoy earning passive real estate income with peace of mind. Call (323) 483-0291 today to learn more about getting started.

Creative Strategies For Real Estate Investing

Creative Strategies For Real Estate Investing

One of the best aspects of real estate investing is the diversity of possibilities when it comes to strategies you can implement. Many folks are aware of the common ways to invest in real estate, like buying and renting to tenants or rehabbing to flip a house.

But there are far more creative ways for you to get involved with real estate investing. Depending on what your investment objectives are, some strategies may deliver better returns than others. Let’s cover some of these creative strategies so you can find the perfect one for your investment goals.

Live-in Property Flipping

With the live-in property flipping approach, you live in the investment property while it’s being rehabbed. Often, investors will rehab to attract higher-quality rental tenants for when they move out, allowing them to command higher rental rates.

What’s really great about this strategy is that there’s an opportunity to pay zero capital gains taxes on properties that earn up to $250,000 for single filers and $500,000 for married couples filing jointly, called the Section 121 exclusion in the tax code.

The main qualifications for the Section 121 exclusion include:

  • Primary Residence—the property must be your primary living place. 
  • Two Years Of Ownership—the property must be your primary residence for two out of the five years that precede the sale.

If by some chance, during your live-in flip, something comes up that makes you move before the two-year requirement, you may still be eligible for a partial Section 121 exclusion, depending on the reason for the move. Acceptable reasons include:

  • Job relocation 
  • Change in health 
  • Military deployment
  • Unforeseen financial circumstances

Property Tax Lien Investing

Property tax lien investing is when an investor pays the outstanding taxes out on a tax lien as well as any interest and fees, and then when the property’s owner finally pays their property taxes, you get to collect the principal and interest from the state or municipality.

To invest in property tax liens, you can either buy the property tax liens yourself at an auction or invest in special property tax lien investment funds managed by professional real estate tax lien investment companies.

With property tax lien investing, there’s not too much risk involved. While there’s a possibility, the property owner could fail to make their payments, allowing the investor to put the property into foreclosure, but this isn’t very common. Typically, property owners make their back tax payments in six months to three years.

Buy, Rehab, Rent, Refinance, Repeat (BRRR) 

Buy, Rehab, Rent, Refinance, Repeat (BRRR) is one of the most popular long-term property investment strategies.

Essentially, this strategy involves buying real estate at below market value, rehabbing it, and then renting it to tenants. Next, the investor uses the funds generated from renting plus a cash-out refinance to repeat the process.

A key benefit of this strategy is that as your real estate investment portfolio grows, the more resources there are to invest in it, enabling access to more lucrative properties that come with larger returns.

BRRR also delivers economies of scale as your portfolio grows, making costs of rehab and tenant dealings more manageable. The more times you repeat, the more power you have to negotiate better deals on labor and materials.

Rental Debt Snowball Or All Cash Rental Plans

Essentially, the idea of “snowballing” in real estate investing comes down to building up cash reserves to eliminate any outstanding debts on the properties in the portfolio. This is accomplished in a couple of different ways—rental debt snowball and all cash rental.

With rental debt snowballing, the positive cash flow from all of the properties in the portfolio is used to pay down the mortgages of each property one by one until there’s no real estate investment property debt left. When it comes to the all-cash rental plan, positive cash flow is saved up to buy more rental properties debt-free.

The benefits are huge for owning rental real estate without any debt. Risk is lowered considerably, and investors are afforded more time to carefully select tenants for the best possible chance for uninterrupted cash flows, unexpected vacancies, or property damage.

Buy Into A Real Estate Investment Group

Real Estate Investment Groups, also known as REIGs, are private groups of real estate investors who pool their capital and expertise to invest in multiple types of real estate with varying strategies, including some we’ve described here.

REIGs can operate in many different structures, membership fee configuration, and levels of required direct participation. Unlike REITS, a REIG isn’t taxed like a corporation or governed by strict investment criteria.

For example, REITs are required to reach 100 investors in their first year, with at least 50% of the fund owned by more than five individual investors.

Conversely, REIGs are governed by private agreements rather than stringent government guidelines and regulations, providing more latitude in strategy while owning a more direct stake in physical property rather than shares that simply pay dividends.

Real Estate Investment Funds

Similar to REIGs, real estate investment funds provide access to more direct investment but deliver consistent monthly dividend payments that can be reinvested into larger stakes in the fund.

Real estate investment funds deliver some of the best aspects of investing in real estate with far less risk because they’re operated by expert investors who work at investing full-time.

What’s The Best Real Estate Investing Strategy For You?

With so many real estate investment strategies available, there’s sure to be a strategy out there that suits your cash reserves, risk preferences, time, and how hands-on you prefer to be with real estate investing. If you’re unsure which route to go, the real estate investing experts at Saint Investment Group can help you find the right strategy.

If you’d rather invest in real estate with an expert team who knows the ins and outs of real estate, investing with Saint Investment Group is a solid approach. We provide detailed reporting on your real estate investment performance that helps you understand how your capital is being allocated. Call (323) 483-0291 today to learn more about getting started in real estate investing.

What Is The Capital Gains Tax On Investment Property?

What Is The Capital Gains Tax On Investment Property?

One of the primary concerns about getting into real estate investing is how you’ll be taxed on the returns produced by the investments. There are many different scenarios that affect the way real estate investment gains are taxed, with some being far better than others.

Being aware of the capital gains tax implications could be the difference between paying zero taxes and paying more than 37%. In this article, we’ll cover the ins and outs of how real estate investment gains are taxed so you can maximize your net returns on your capital.

What Are Capital Gains?

When you sell real estate for more than you paid for it, the difference is called a capital gain. For taxation purposes, there are two categories of capital gains—short-term capital gains and long-term capital gains. Each category of capital gains is taxed differently.

Short Term Capital Gains

When you buy and hold a piece of real estate for one year or less, the capital gains are classified as short-term. Short-term capital gains are taxed like your regular wage income, with seven different rate brackets that range from 10% to 37% depending on if you’re filing single or married and what your income was for the year.

If you flip a house, any money you earn from the sale will be taxed as short-term gains if you don’t hold the property for at least a year. Holding the property for at least a year will classify the capital gains as long-term, which have substantially lower tax rates.

What Are The Long-Term Capital Gains Tax Rates For 2021?

SingleUp to $40,400$40,401 – $445,850Over $445,850
Married filing jointlyUp to $80,800$80,801 – $501,600Over $501,600
Married filing separatelyUp to $40,400$40,401 – $250,800Over $250,800
Head of householdUp to $54,100$54,101 – $473,750Over $473,750


High-Income Investors May Have To Pay An Extra 3.8% Tax

If your modified adjusted gross income is over a certain amount, you’ll owe an extra 3.8%, called the Net Investment Income tax, regardless of the gains being short or long-term.

When Does The Net Investment Income Tax Kick In?

  • $250,000 if you’re married and filing jointly
  • $125,000 if you’re married and filing separately
  • $200,000 if you’re a single filer
  • $200,000 for heads of households
  • $250,000 for qualifying widow(er)s with dependent children

How Real Estate Capital Gains Are Calculated

When you sell real estate, the profits are subject to capital gains taxes, but there are some criteria that reduce what’s considered taxable profit.

To calculate the capital gain, you subtract the “cost basis” of the property from the “net proceeds” from the sale. This means your taxable profit could be smaller than what you first think.

The Cost Basis Method

Cost basis is calculated as the amount you paid for the property, plus:

  • Costs related to the purchase, such as closing costs, appraisal fees, and legal fees
  • Costs of any major improvements made to the property

Note that qualifying improvements must add value to the property, change its use, or make it last longer. Routine maintenance and cosmetic changes to make the property look better don’t qualify.

The Net Proceeds Method

When you sell your property, the costs associated with the sale, like real estate agent’s commissions, home staging, cleaning, and legal fees, can be subtracted from the proceeds to arrive at the net proceeds.

For example, selling an investment property for $200,000 with $12,000 in agent commissions and $2,000 in other costs, your net proceeds would be $186,000.

To calculate the capital gains on a real estate asset, you’ll subtract the cost basis from the net proceeds.

Reduce Capital Gains Tax Using The Section 1031 exchange

One major tax benefit for committed real estate investors is the Section 1031 exchange, which allows you to defer capital gains taxes when you buy another property with the sales proceeds.

The Section 1031 exchange is a tax code provision that allows you to sell an investment property (called the “relinquished property”) and defer paying taxes when you buy a “like-kind” property. Occasionally this is also called the Starker Exchange or like-kind exchange.

For your property to qualify as like-kind, it must be real estate that you’ve held for productive use in a trade for business or for an investment. Personal residences don’t count, nor do vacation homes.

While the 1031 exchange is incredibly useful, there are strict time limits to qualify.

You’ll only have 45 days to find up to three potential like-kind exchange properties. Then, you have to close on the new property within 180 days of selling the investment property or before your tax returns are due for the year in which you sold the property, whichever comes first.

Failure to meet these deadlines will disqualify the transaction from being classified as a 1031 exchange, and any applicable capital gains taxes will become due.

Keeping Capital Gains Taxes To A Minimum

Capital gains taxes can cost you hundreds of thousands of dollars in lost profits when you sell your investment real estate. Thankfully, understanding the ways capital gains are calculated on investment property deals can help you keep these taxes to a minimum.

That said, taxes for real estate investments can be complicated, with rules changing sometimes. So, it’s always best to find a well-qualified real estate investment tax specialist to ensure you don’t overlook opportunities to save on capital gains taxes.

Are You Ready To Invest In Real Estate?

Real estate investing is one of the most advantageous avenues for minimizing capital gains taxes if you’ve been searching for ways to diversify your portfolio. 

When you want a team of real estate experts who will scrutinize every deal with precision and also provide you with detailed reporting regarding your real estate investment performance, Saint Investment Group is here to help you start investing. Call (323) 483-0291 today to learn more.


**** Saint Investment Group is NOT a CPA, or attorney. The above is opinion only, and should not be construed as legal, investment, or accounting advice. We absolutely recommend consulting your tax and legal professionals for questions, and to confirm accuracy of any information.

First Trust Deed Investing Explained

First Trust Deed Investing Explained

For investors who seek unique ways to diversify their portfolios without greatly increasing their risk, first trust deeds can be an excellent option. With first trust deed investing, you can generate a steady stream of passive income with a relatively strong risk mitigation factor.

While investing in first trust deeds comes with many upsides, there are some drawbacks that can prove complicated for those less experienced in the real estate world, making investment funds that hold first trust deeds a more secure alternative for those who place safety and security at the top of their priority list for investing.

To help you decide if investing in first trust deeds is right for you, we’ll uncover the various merits of first trust deeds, along with how to keep your risk to a minimum when getting started.

Is A First Trust Deed Different From A Trust Deed?Is A First Trust Deed Different From A Trust Deed?

To start, let’s talk about what a first trust deed is. When someone refers to a trust deed as a “first” trust deed, this simply means the deedholder has the first lienholder position if the property is defaulted on. In other words, they’re the FIRST to get paid back, and the FIRST to have a claim towards the collateral.

A first mortgage is similar in concept. If the homeowner has a second mortgage on their property, and they default on their first mortgage, the lender on the first mortgage will get any funds from the foreclosure sale of the property first. The second mortgage lender will only get sale proceeds after the first mortgage debt is fully satisfied. This means the second mortgage lender may take a loss if the property was poorly maintained or the sales market is soft. Obviously, it’s better to be in the first position in these scenarios.

It’s important to note that trust deeds aren’t in the first lienholder position by default, so when someone makes a point to say “first trust deed,” they’re highlighting the fact the deed takes precedence over any other claims to the property in the event of default. A first trust deed, then, is one of the most secure rights to property, helping curb investment risk substantially.

What Is The Purpose Of A First Trust Deed?What Is The Purpose Of A First Trust Deed?

First trust deeds are similar to mortgages in that they’re a claim to a property that provides legal recourse in the event of borrower default. While first trust deeds and mortgages are similar in nature, there are some benefits to first trust deeds that mortgages don’t possess from a legal perspective, which has an impact on risk to those who invest in these financial instruments.

In the event of default, when a property has a mortgage on it, the mortgage lender must follow a legal process called “judicial foreclosure,” which can be lengthy in nature and cause significant delays in recouping costs shouldered by the lender. In some cases, a Judicial foreclosure can take years to process.

Conversely, first trust deeds have a much more favorable legal process involved when it comes to borrower default. This process is called “non-judicial foreclosure” and comes with far fewer legal hurdles and time constraints, making it the superior option for real estate investors who want the least possible downside risk.

Essentially, first trust deeds are an alternative to mortgages for lending money on real estate, with slightly different legal ramifications that positively impact the risk profile for the investors who back the loans.

What Are The Advantages Of First Trust Deed Investing?

Investing in first trust deeds comes with many benefits for those looking to diversify their portfolios while minimizing risk exposure.

Generating Predictable Cash Flow

Perhaps the primary reason investors choose first trust deeds for their portfolios is because of the appealing yields and consistent cash flow they can provide. Typically, investors receive returns at a fixed monthly yield until the underlying loan is fully paid off. 

Many investors opt to have these returns reinvested, but receiving them as dividend payments is possible too. Investors seeking consistent, predictable cash flow are attracted to first trust deed investing for this reason.

Enhanced Risk Mitigation

First trust deeds are more attractive investments than other forms of mortgage-backed securities because the foreclosure process is significantly faster, with fewer legal costs involved. Because of this, risk profiles of first trust deeds are highly attractive from a real estate investment standpoint.

Real Assets As Collateral

Another way first trust deeds help curb risk for investment portfolios is that they offer a tangible asset as collateral for the underlying loan on the property. In the event the loan isn’t repaid, the holder of the first trust deed can foreclose on the property and sell it to recoup their investment. This is far different from stock investments that can go to zero with little to no way of recovering the loss.

What Are The Ways Investors Can Start With First Trust Deeds?What Are The Ways Investors Can Start With First Trust Deeds?

There are a few ways you can start with trust deed investing, one of which is direct lending to individual homebuyers. This means you’ll be lending your own money directly, requiring your own underwriting, analysis, legal paperwork, and servicing of the loan. Because the legal landscape of real estate fluctuates constantly, investors new to the space can easily find themselves facing legal issues when they get involved with individual first trust deeds. Additionally, there is a major risk of investment loss if you’re going the direct lending route.

It’s important to be aware that investing in individual first trust deeds isn’t nearly as secure as spreading your risk across a pool of multiple first trust deeds instead. Investing in a fund that holds multiple deeds can significantly reduce the risk of losing large amounts of investment capital for real estate investors.

For most investors, the far more secure option that delivers consistent returns is investing in a first trust deed fund (like one offered by Saint Investment Group). Investing with seasoned managers of first trust deed funds often affords investors greater stability and stronger overall returns, with less need for detailed analysis of each property on the investor’s part. 

Saint Investment Group has the first trust deed experience to offer our investors premium opportunities and optimal risk hedging. We hold numerous types of property in our first trust deed fund, delivering stable, consistent passive income every month to our investors.

Invest With The Experts In First Trust Deeds Today

When you’d rather have a team of first trust deed experts on your side to analyze every deal that goes into your portfolio, along with detailed reporting, Saint Investment Group is here to help you get started in first trust deed investing. Call (323) 483-0291 today to learn more about investing in our first trust deed fund.

Real Estate Investment Funds Structures

Real Estate Investment Funds Structures

The general idea underlying real estate investment funds is providing access to larger properties while reducing risk for investors. The largest and most technically complex versions of real estate fund structures are REITs (Real Estate Investment Trusts), which are pooled investment vehicles that must meet stringent regulatory requirements. 

These requirements include needing a large number of investors, a substantial asset base, marketing restrictions, and often access only being given to certain classes of investors. Conversely, real estate funds may be as simple as a group of local investors putting together their capital to purchase a handful of single-family homes for rental properties. Or as large as deca billion dollar opportunities.

In this article, we will cover the various types of real estate fund structures, the objectives of different types of fund strategies, and some of the benefits and drawbacks of each so you can make informed decisions when analyzing real estate investment funds.

Real Estate Fund SpecializationsReal Estate Fund Specializations

As with investment funds in general, real estate funds are trending in the direction of greater strategy specialization. Strategies may vary by asset class, market area, or both. Examples of asset classes of real estate can include multi-family, office, industrial, retail, and special-use properties.

Real estate fund strategies are often categorized into one or a combination of the following types.

Real Estate Development Funds

Funds that focus on acquiring unimproved land or clearing older property lots to re-develop into more modern real estate concepts are called real estate development funds. These types of funds are heavy with documentation, entitlements, and are complex to establish because of the numerous permitting requirements and construction factors involved. Development funds are generally better for expert-level real estate investors who understand the nuances of construction and how to deal with municipality regulations, as well as investors with a VERY high risk tolerance, as Development investments are one of the highest risk categories in all of real estate.

Joint Venture Real Estate Funds

Joint venture real estate funds co-invest with other funds in a syndication. This can sometimes result in the fund being considered a security, which changes how it’s regulated. Typically, joint venture funds are created to raise funding for a specific purpose or property investment, in which each partner fund contributes a certain dollar amount or percentage toward the joint venture fund.

Structured Finance Real Estate Funds

A structured finance fund utilizes debt financing to purchase real estate with substantial leverage. Usually, these properties have stable value projections that support taking on the debt risk levels necessary. That said, structured finance funds are often cyclical in nature, as they require access to affordable debt financing to be profitable.

Opportunistic/ Special Opportunity Funds

Opportunistic or special opportunity funds use a strategy of seeking out properties that are selling at a discount due to extraordinary or uncommon circumstances. Examples of these properties include foreclosures, unfinished commercial construction projects, or real estate that’s been damaged in a significant weather event. The best opportunity funds find real estate in markets that are otherwise desirable, allowing them to deliver strong returns.

Distressed Asset Funds 

Distressed asset funds acquire property that is over-leveraged or has cash-flow problems that prevent it from accessing financing. For these real estate investments to work, the property must be undervalued, along with the fund having access to inexpensive capital, which makes these funds generally cyclical in nature.

Multi-Strategy Funds

Perhaps the antithesis of the strategy-specific funds in this list, multi-strategy funds use a combination of different investment strategies with the intention of better mitigating risk and preserving capital for investors. Although multi-strategy real estate funds have the latitude to leverage a variety of strategies, typically, fund sponsors focus on one or two core investment strategies oriented toward security, with a small portion allocated toward more growth-oriented strategies.

Real Estate Fund StructuresReal Estate Fund Structures

The structure of a real estate fund depends on an array of considerations regarding tax, regulatory, and financial factors that can impact fund performance and the complexity of management. One of the primary considerations regarding fund structure is the tax objectives of the investors in the fund.

Closed-End Structure

Most real estate funds are structured as closed-end funds. These funds are structured to last for a fixed term, often ranging from five to ten years. Investors in these types of real estate funds generally aren’t allowed to either withdraw funds or make additional contributions during the life of the fund. Once the fund is fully capitalized, the investor receives their capital back only if the underlying asset is sold, refinanced, or positive cash flows provide dividends.

Many types of funds like private equity funds, venture capital funds, and other illiquid asset funds are structured as closed-end funds.

Successive Fund Structure

In the less-common successive fund structure, the sponsor creates subsequent funds when assets within a current fund are sold, using the investment proceeds for reinvestment in the new fund. Typically, successive fund sponsors establish a portfolio of various funds to continually manage as assets are sold. A benefit to this approach is sponsors enjoy substantial cost savings overall due to less legal structuring is required to establish the subsequent funds.

Domestic Real Estate Funds

Domestic-only investment funds are usually made up of a collection of specific legal entities with the aim of maximizing tax advantages. These entities include:

    • A Limited Partnership, sometimes established in the state of Delaware, to be named as the fund entity (LLCs are increasing in popularity for this purpose as well)
    • An LLC that acts as the fund investment manager, established in the jurisdiction of the fund sponsor
    • A general partner or managing member of the fund entity, also located in the jurisdiction of the fund sponsor.

In the case of real estate funds, the general partner and the investment manager entities are formed separately to allow subsequent funds to keep separate general partners for liability factors. These funds are typically created by groups of highly sophisticated investors rather than individuals or small-scale investors.

Smart Investing In Real Estate FundsSmart Investing In Real Estate Funds

Do you want to diversify your portfolio with real estate but want to keep your investing simple? Get a team of real estate experts to analyze every deal by reaching out to Saint Investment Group today. Beyond our real estate investment guidance, our real estate funds feature detailed reporting and operational transparency, enabling you to earn real estate income with peace of mind. Call (323) 483-0291 today to learn more.

3 Biggest Blunders Real Estate Investors Make (and How to Avoid Them Yourself)

3 Biggest Blunders Real Estate Investors Make (and How to Avoid Them Yourself)

Real estate is one of the greatest wealth builders of all time, so it’s not surprising that people gravitate towards it … in droves. What’s even more alluring is the flexibility: you don’t have to be a tycoon or even a full-time investor to significantly supplement your income and rub shoulders with a high-powered network. 

Do you want to be a passive investor, hands-on entrepreneur, or mogul in the making? Whatever that vision is, there are some common mistakes that can jeopardize your real estate career before it ever truly takes off.

Thomas Edison famously said, “I have not failed. I’ve just found 10,000 ways that won’t work.” While we could probably name thousands of mistakes real estate investors have made (us included), let’s start with the top three.

MISTAKE #1: Waiting Too LongMISTAKE #1: Waiting Too Long 

For those who aspire to break into this industry, there really is no time like the present. We see so many would-be entrepreneurs dragging their feet, waiting for the “perfect” moment or enough zeros in their bank account before ever taking the first step. This phenomenon is also known as “analysis paralysis.” Real estate is a business that WILL require a (well-researched and risk-assessed) leap of faith.

Determine your investment strategy first, then seek out the deals that align with it. When you find that tailored fit, don’t hold back—even if it means reprioritizing travel plans or working through the weekends. Those sacrifices will pay off. Then, re-invest those returns to diversify your portfolio, earn more revenue, rinse, and repeat.

Ultimately, the train doesn’t wait just for you. If you spend years twiddling your thumbs, waiting to have enough money to invest in multiple properties at once, those lucrative first deals will keep blowing right past you.

MISTAKE #2: Flying SoloMISTAKE #2: Flying Solo 

This might feel like Business 101, but it’s always worth noting. Entrepreneurs are often touted as one-person shows, and many real estate investors are led to believe that’s a sustainable business plan. But every successful person has several consultants on speed dial or a highly skilled team behind the scenes.

They say your network is your net worth, and that holds true in the real estate industry especially. By tapping your network, you can gain so much more insight into deals, strategies, and potential partnerships than you would get otherwise. Networking isn’t only about sharing trade secrets but for sharing past mistakes. Learn from those cautionary tales, and don’t make the same mistakes yourself.

There are TONS of free educational resources out there as well. (Hey, you’re even looking at one now). Use them! Don’t have a network yet or looking to dive deeper? Join a mastermind group, find a mentor, and attend conferences—the relationships won’t build themselves overnight, but the effort will pay for itself tenfold.

MISTAKE #3: Losing MomentumMISTAKE #3: Losing Momentum

We see this one all too often: investing careers that get left on cruise control. Corners are cut, and mistakes are made. Deals eventually go south. Fully commit to your due diligence process and never jump at anything without analyzing it thoroughly. Yes, even those investment opportunities that seem foolproof or *chef’s kiss* perfect.

Passive investors fall victim to this mentality too. Your sponsor will be doing the hard work, sure, but you need to stay privy to the latest real estate industry trends, news, market patterns, etc. 

These mistakes can cost you time, energy, and (most notably) a lot of money. But the good news is that these career killers are easy to avoid, and we’re here to help.

Saint Investment Group is leading a new era of real estate investing through proprietary analysis, technology, and access to off-market deal flow. Here is how you can join the movement: Subscribe to our newsletter today! and Follow us on Social Media

Cap Rates In Commercial Real Estate Investing

Cap Rates In Commercial Real Estate Investing

Evaluating whether or not a particular property is a good investment requires a calculated comparison with other investment opportunities. One of the most popular methods for calculating a financial comparison between investment properties is examining what’s called the Capitalization Rate, or “cap rate”, for each property. That said, there’s a common tendency to rely on calculating cap rates as the only factor when choosing a piece of real estate to invest in, but there are numerous other elements to consider beyond cap rates alone.

Let’s examine why cap rates are so important in real estate investing, how to calculate a property’s cap rate, as well as some of the key factors that could impact the cap rates of your investment properties. We’ll also cover some methods seasoned investors use to reveal hidden value in investment property opportunities that less experienced investors often miss.

What Does The Term “Cap Rate” Mean In Commercial Real Estate Investing?What Does The Term “Cap Rate” Mean In Commercial Real Estate Investing?

Cap rates in the commercial real estate world are similar to using multiples for valuing stocks or other equities. The concepts are very similar: 

Paying $20 million for a building at a 5% cap rate would generate $1 million of annual net operating income (or NOI) for the investor. Another example would be paying $5 million for a property that earns $1 million in net operating income, resulting in a 20% cap rate. 

In the world of stock investment, purchasing a company for $20 million that had $1 million in earnings last year would provide a 5% yield on the $20 million investment. 

Stock investors would refer to this as a 20-multiple, but most real estate investors would refer to this as a 5% cap rate. The formula is one divided by the multiple= the cap rate.

What Does The Term “Cap Rate” Mean In Commercial Real Estate Investing?

How Are Cap Rates Used To Evaluate Investments?

Note, there are no clear definitions of a good or bad cap rate because they’re largely dependent on the property and how it relates to the market in various nuanced ways. Generally speaking however, the higher the Cap Rate, the better the returns, and the more desirable the investment. With this in mind, let’s cover how to calculate cap rates to provide this financial aspect of property analysis.

Examples Of Calculating The Capitalization Rate

Example 1:

Assume rental income remains at the current level of $100,000, but maintenance costs and/or the property tax increase substantially, say by $25,000, on a property that’s $1 million. The capitalization rate will then drop from 10% to 7.5%.

Example 2:

If the current market value of the same property declines to $500,000, but the rental income and other costs remain the same, the cap rate will increase to 20% ($100,000/$500,000).

Essentially, income levels, expenses, and the current market valuation of a property can significantly impact the capitalization rate in a variety of ways. This cap rate is what indicates to an investor whether or not the investment passes or fails their general rate of return criteria compared with other investment options.

Factors that may impact the cap rate of an investment property in various ways include:

  • Age, location, and leasing status of the property
  • Property type (i.e., apartment complex, office, industrial, class-A retail space)
  • Tenant vacancy rates and rental payment history
  • Tenant lease terms and structuring
  • Market rates of similar properties and their rental rates
  • Economic factors of the area as well as the business environment for tenants

Capitalization Rate Analysis Varies By PropertyCapitalization Rate Analysis Varies By Property

Cap rates are based on projected estimates of future revenue, so they’re subject to high variance. Therefore, it’s important to grasp what constitutes a solid cap rate for the particular investment property you’re looking at.

Cap rates can also be used to reference the amount of time it might take to recover your original investment in a certain property. For example, a property with a cap rate of 5% would take 20 years for you to recover the initial investment.

The difference in cap rates between properties or across differing timelines on the same property reveals the different levels of risk on each investment. Cap rate values are higher for properties that generate more net operating income versus a lower valuation, and vice versa.

To illustrate this, let’s use two properties as examples, one in a high-end area and the other in an area just outside the city in a more rural area. 

The high-end property will have a higher property value (and often higher expenses like taxes), which could result in a lower cap rate than the property on the outskirts of town with lower rents and a lower valuation.

Cap Rate Isn’t Everything In Commercial Real Estate

Though cap rate calculation provides a critical financial evaluation tool for real estate investors, it shouldn’t be used as the sole factor when purchasing a piece of rental property.

One of the most significant blunders less experienced real estate investors make is taking cap rates at face value. Remember, cap rates are based on current rents—not the potential market rents. Wise investors evaluate real estate based on current cap rates along with their potential cap rates.

For example, an office building offered at a sales price that results in a 5% cap rate might really be a good deal if the main tenant, who’s currently paying lower than market rental rates, has a lease expiring next year and demand is strong for space in the area.

If rates can be increased to higher market rates once this lease expires, then the commercial property might actually be worth far more than cap rate calculations based on current rental income alone.

How Can You Invest in High Quality Cap Rates?How Can You Invest in High Quality Cap Rates?

If you want to diversify your portfolio and increase passive income but hate the idea of calculating cap rates on every property you invest in, Saint Investment Group is here to help. We offer exceptional commercial properties for real estate investors seeking solid returns and stable income streams without the need to crunch numbers daily.

Simply monitor fund performance with detailed monthly reporting and deal transparency, and enjoy earning passive real estate income with peace of mind. Call (323) 483-0291 today to learn how to get started.

Is Passive Real Estate Investing Your Best Option?

Is Passive Real Estate Investing Your Best Option?

What Is Passive Real Estate Investment?

Not everyone who wants to invest in real estate wants to play the role of landlord. Vetting potential tenants, dealing with maintenance issues, and collecting rent payments are time-consuming processes, not to mention stressful. Especially for a non-seasoned investor.

Fortunately, there are successful ways to invest in real estate that offer a more passive role, similar to that of stock investments or annuities. In this article, we’ll review the ways to invest in real estate passively, what the benefits of passive investing are, and what to watch out for when diving into the passive real estate investment world.

How Can You Passively Invest In Real Estate?How Can You Passively Invest In Real Estate?

Although real estate investment can generate quality risk adjusted returns and the ability to grow your wealth, taking an active role in owning and managing properties isn’t for everyone. Alternatives to active real estate investment include:

  • Partnerships with directly active investors
  • Real estate crowdfunding platforms
  • Investing in a real estate fund

Find An Active Real Estate Investor To Partner With

Partnering with investors who are professionals at an active role in real estate is perhaps the most common way people get into real estate investing. In this structure, the active investor does the legwork of finding the opportunities, managing tenant relations, and rent collection while you provide the investment capital to enable access to larger or more assets than the investor would have by themselves.

While these investments can be lucrative, they also come with significant risks involved, especially if the active real estate investor isn’t experienced and/or doesn’t have many properties in their investment portfolio to distribute risk.

Real Estate Crowdfunding Platforms

Crowdfunding for real estate has exploded in popularity in recent years. Similar to Kickstarter-style crowdfunding, platforms like Fundrise enable small-scale investors to get into the real estate world with relatively low initial investments. 

These platforms typically don’t provide anywhere near the level of transparency you’d get from individual property investment, but many offer institutional-quality investments with relatively stable returns. 

One downside to these types of real estate investments is that you’re only one of tens of thousands of investors, so the experience often has less detailed reporting compared with alternatives like real estate investment funds from Saint Investment Group.

Invest in a Real Estate Investment Fund

Real estate investment funds are similar to crowdfunding in the sense you pool your capital with other investors to buy into larger real estate investments. Where real estate investment funds differ from crowdfunding is that you gain access to institutional-quality investments with generally greater insight into each opportunity, along with more sophisticated portfolios of properties.

Are There Drawbacks To Passive Real Estate Investing?

The drawbacks to passive real estate investing are few but could make a difference for some investors. If you’re someone who’s trying to earn the maximum ROI in the least amount of time, passive investing roles aren’t the best option.

Passive real estate investing is better oriented with long-term investment goals and those seeking consistent, solid passive income streams that can be reinvested for secure wealth growth.

Also, for those who love to know every detail of a property investment down to the plumbing, passive investment in real estate isn’t ideal. Typically, more passive roles leave many smaller details out of the decision process for the investor (and most investors prefer it this way).

That said, if you prefer keeping your role simple with monthly statement reviews alone, passive real estate investing such as a fund from Saint Investment Group is an ideal avenue to pursue.

How Do You Get Started With Passive Real Estate Investing?How Do You Get Started With Passive Real Estate Investing?

When deciding if passive real estate investing is right for you, it’s important to first ask yourself some key questions relevant to every type of investment.

What Are Your Goals For Passive Real Estate Investing? 

  • Are you trying to generate monthly passive income, or are you trying to grow wealth long-term?
  • How much do you have to invest? 
  • What level of risk tolerance do you have? 

Where Else Is Your Capital Allocated?

Many people considering passive real estate investing are interested in diversifying existing portfolios that are heavy in stocks and bonds. Depending on your investment goals and how soon you’ll be retiring, your capital should be allocated accordingly. The team at Saint Investment is here to help you land on the best capital allocation strategy for both your short-term and long-term goals.

Is Passive Real Estate Investing Better Than Active Investment Options?

Passive Doesn’t Mean Zero Effort

Even though passive real estate investment options provide a very low-effort place to put your capital, there’s still some work involved.

Depending on how you choose to invest, whether with an active partner or buying shares of a fund, differing due diligence levels are crucial to accomplishing your investment goals.

Investing with a fund requires the least amount of effort, but it’s important to be sure the fund managers have investing goals that are well-aligned with your own.

Are Returns Less With Passive Investing?

The returns you can expect with passive real estate investment can range widely, with higher returns generally requiring higher levels of risk and more active involvement.

While the returns may be slightly lower, many investors find the security and risk-mitigation benefits of passive real estate investment more than compensates for this, as well as the additional benefits of significant diversification.

Ready To Start Earning Passive Income From Real Estate?Ready To Start Earning Passive Income From Real Estate?

Are you ready to diversify your portfolio with passive real estate investing? When you want a team of real estate experts that analyze every deal on your side, Saint Investment Group is ready to help you get started. And with detailed reporting and deal transparency, you can earn passive real estate income with peace of mind. Call (323) 483-0291 today to learn how to get started.

Everything You Need To Know About Commercial Real Estate Syndication

Everything You Need To Know About Commercial Real Estate Syndication

The Basics of Real Estate Syndication

At its fundamental level, commercial real estate syndication is simply a group of investors who pool their capital to buy larger assets than they can afford individually. Normally, a general partner or partners operate the syndication to ensure ideal properties are included in the investment portfolio and mitigate the investors’ risks.

In much the way investors can buy a share in a mutual fund that holds a diversified collection of stocks, commercial real estate syndications allow investors to own a portion of a much larger asset or collection of assets. Syndications can invest in multiple types of commercial properties that individual investors otherwise can’t get access to, such as offices, retail space, industrial buildings, or student housing complexes on college campuses.

Rather than tying up capital in a single property because that’s all you can afford to invest in, syndications enable you to invest in shares of large commercial properties to reap greater rewards while mitigating risks more effectively.

Further, you’ll benefit from the expertise of a local real estate expert who has analyzed hundreds of properties to find ideal candidates for the syndication. All of this adds up to lower risks, higher yields, and a far more secure means of investing in commercial real estate.

Commercial Real Estate Syndication Due DiligencewaCommercial Real Estate Syndication Due Diligence

Allocating your hard-earned capital to a commercial real estate syndication can be a highly lucrative investment, but due diligence is important—not all syndications are equal. Let’s cover some of the key elements of commercial real estate syndications to conduct due diligence on before investing.

How Is The Real Estate Syndication Structured?

There are a variety of ways that commercial real estate syndications can be structured.

For most, offerings should be as simple as possible with complete transparency, so no one is ever confused during the investment process. 

Equity Or Promote

Commercial real estate syndications can be divided between the general and limited partners in a variety of ways. Earnings may go to the general partner as straight equity or an earned promote (percentage of the profit).

Preferred Returns

Other commercial real estate syndications may provide a preferred return to the investors. This is the minimum return on the deal that must be attained before the sponsor can receive earnings. These can be referred to as a “pref”, and are often paid out on a monthly or quarterly basis.

Seek Operators Who Always Consider Their Investor’s Interests

Every commercial real estate syndication is different, so take the time to ensure the syndication you invest with has the same investment philosophies as you. The better this match is, the more closely your investments will meet your expectations.

Saint Investment Group provides streamlined access to real estate opportunities previously reserved for only the wealthiest investors. Featuring unique investments, hassle-free access, and an optimal blend of diversification and performance, our commercial real estate syndication has been thoughtfully designed to serve our investor’s interests in every way possible.

Risks Involved With Commercial Real Estate Syndication

Some of the risks of investing in syndications include:

  • Rising vacancy rates because of rent increases
  • Cost overruns on construction and renovations
  • Unforeseen project delays due to weather or zoning issues
  • General partners who take their client’s money and run

Always be sure to do your own due diligence to fully understand the risks involved and steer clear of these major issues. Look for experienced deal sponsors with a strong track record of successful projects like Saint Investment Group to ensure there’s no need to worry about these scenarios.

Ways To Profit From Commercial Real Estate SyndicationWays To Profit From Commercial Real Estate Syndication

Tenant Leasing Revenue

Steady rent payments every month provide a consistent source of passive income for those who invest in commercial real estate syndications.

Renovations In Emerging Markets

Buying properties in up-and-coming markets to renovate them and lease them out to businesses moving into the area is an excellent way to increase asset value and command higher lease prices. However, be careful! In real estate investment, being too early is often the same as being wrong.

Flipping Commercial Properties

The same properties that make good candidates for renovation and leasing at higher rates are also excellent for faster sales to start on the next property, providing more income potential.

Is Investing in Commercial Real Estate Syndication Right For You?Is Investing in Commercial Real Estate Syndication Right For You?

The commercial real estate syndication operated by Saint Investment Group can deliver more robust capital preservation and hedge against volatility far more effectively than investing in a single property.

When years of real estate experience and continual in-depth market research are combined, syndication sponsors like Saint Investment Group can source the most attractive commercial real estate properties and secure them before the competition, providing you premier access to the best investments on the market.

Commercial real estate syndications allow you to invest more passively as seasoned experts deal with all aspects of the assets that secure your investment, including everything from the acquisition, to renovating the property, to selling the property, and managing rent collections from tenants.

Secure, Predictable Investment Returns With Real Estate Syndication

When you demand diversification that delivers secure, predictable, and strong returns on your capital, commercial real estate syndication funds are one of the ideal options for accredited investors who expect more. Saint Investment Group can help you embark on your commercial real estate investment journey with a solid footing and transparent performance reporting.

Call (323) 483-0291 and speak to a member of our team today and learn what the commercial real estate market has to offer you. Saint Investment Group is here to match you with the perfect portfolio addition for your investment goals!