Will crowdfunding change real estate investing in ... - Oakland Local | Real Estate Investing

Will crowdfunding change real estate investing in ... - Oakland Local
3 ETFs For Investing In International Real Estate | Benzinga
Real Estate Investment Trust: A new kind of tax shelter | Hawaii ...
Anti-Semitism Drives French Investors Into the Arms of NY Real ...

Will crowdfunding change real estate investing in ... - Oakland Local

Posted: 05 Sep 2014 07:00 AM PDT

In Oakland and many other cities hit hard by the foreclosure crisis, investors swooped in with bags of cash and scooped up distressed properties to rehab and flip. Much of this investment came from foreign nationals and large US corporations such as Blackstone Group (which spent $8 billion gobbling up 43,000 properties in the past two years, according to Bloomberg). A real estate crowdfunding startup based in San Francisco aims to change the face of those investors.

"We like working with local operators," says Nav Athwal, Co-Founder and CEO of RealtyShares. The two borrowers for three Oakland properties funded by RealtyShares so far (it started operations in early 2013) are both Oakland residents. Crowdfunding is "a way to access capital that's much quicker than banks and much cheaper than private money lenders," he says, noting that the private money lenders are "sort of like a loan shark for real estate," charging much higher rates than banks.

RealtyShares offers investors a chance to choose which communities and which properties to fund. "We're still providing a way for investors to access their community," Athwal says. "A lot of our investors in Oakland [properties] are from the Bay Area."

Federal rules on real estate investing currently limit the crowdfunding site's participants to what are known as Accredited Investors: a person or couple with a net worth of over $1 million, excluding principal residence, or an individual with annual income of more than $200,000 or couple with income over $300,000. While this eliminates many Oakland residents, the $5,000 minimum and the ease of use of the platform open real estate investment to a much wider segment of the Bay Area. "Crowdfunding provides a much better access point for lawyers and doctors" and other professionals, Athwal says, noting that a typical minimum for this type of investment is usually $100,000.

RealtyShares aims to make it easier for smaller investors to participate in the real estate market.

"The original thought was this was a platform where anyone could access real estate," he says. He was forced to tweak the model to work solely with Accredited Investors and list properties behind a firewall. Although he is "trying to figure out ways to expedite the passage of the crowdfunding" rules due from the SEC, Athwal says, "I'm not holding my breath."

As on other crowdfunding sites, RealtyShares investors put money on a specific property, based on the description on the site. If the property meets its funding goal within the deadline, the borrower gets the capital. If not, all the money is returned to investors.

While Athwal says some amount of loan default is inevitable, the crowdfunding site has had no defaults so far in the 50 properties they have funded during the past 15 months in 12 states.

Athwal believes that real estate investors benefit communities by taking dilapidated houses and rehabilitating them, adding value to neighborhoods. RealtyShares has also been directly involved in building social equity: it funded an affordable housing project through the National Community Stabilization Trust, where local operators were given first access to bank-owned properties if they agreed to sell them to people with lower incomes. "We've had conversations with the Trust about how we could do that on a larger scale," he says.

"Real estate is part of everyone's life," Athwal notes. He wants to make real estate investment available to more Bay Area residents. "We're very bullish on crowdfunding real estate," he says, adding, "We definitely intend on continuing to be active in Oakland."

3 ETFs For Investing In International Real Estate | Benzinga

Posted: 04 Sep 2014 07:43 AM PDT

Expanding economies and historically low interest rates around the world have prompted investors to get a piece of the international real estate market. In June Citigroup Inc bought a Hong Kong office tower for a record HK $5.4 billion ($697 Million) which will house 5,000 employees.

Real estate became a very popular investment following the global financial crisis because of its relatively high yields and tangibility. More funds than ever are being invested in foreign real estate companies.

As demand for international real estate increases, so will the inflows into the top international real estate ETFs. Highlighted below are ETFs that have been affected by the increased interest in international real estate.

SPDR Dow Jones International Real Estate ETF (NYSE: RWX)

The RWX led all property ETFs in August and took in $304 million during the month. RWX is currently the largest non-U.S real estate ETF on the market with $5.26 billion in assets.

With 113 holdings spread throughout 19 different countries, RWX offers a great deal of diversification. The top three weighted countries in the fund are Japan at 21.2 percent, the United Kingdom at 14 percent, and Australia at 13.8 percent.

The fund has returned 10.3 percent year to date, slightly outperforming the S&P 500's 9.3 percent year to date. The ETF has an expense ratio of 0.59 percent and a dividend yield of 2.2 percent.

Vanguard Global ex-U.S Real Estate ETF (NASDAQ: VNQI)

VNQI is the second largest international real estate ETF on the market with $2.7 billion in assets. It consists of 556 stocks distributed among 39 different countries; a much more diversified option than its competitors. Its largest weighted countries are Japan at 24 percent, Hong Kong at 13.4 percent, and Australia at 10.5 percent. VNQI is up 9.8 percent year to date, narrowly outperforming the market.

With an expense ratio of 0.27 percent VNQI beats its competitors by over 50 percent. The ETF does not currently pay a dividend.

Guggenheim China Real Estate ETF (NYSE: TAO)

TAO measures the performance of publicly traded companies and real estate investment trusts (REITs) in China. TAO consists of 56 different securities weighted entirely between 2 Asian countries. Hong Kong has the largest weight at 82.9 percent followed by the rest of China at 15.5 percent, and Singapore at 1.2 percent. TAO is a favorable option to the investor looking to ride the real estate wave in China and are okay with taking above average risk.

Liquidity and diversification are just a couple reasons why foreign real estate ETFs have become so popular. They give the investor exposure to real estate markets around the world that weren't always available to the individual investor. By investing in a publicly traded REIT ETF investors also have the benefit of liquidity, a characteristic not usually associated with real estate.

Posted-In: China ETFs Hong Kong Specialty ETFs Emerging Market ETFs Top Stories Trading Ideas ETFs Best of Benzinga

Real Estate Investment Trust: A new kind of tax shelter | Hawaii ...

Posted: 03 Sep 2014 01:31 AM PDT

Photo: Emily Metcalf

By Tom Yamachika - This week we will talk about a special kind of corporation called a "real estate investment trust," or REIT. Some people have called it the modern-day tax shelter, as it provides significant benefits under the federal tax code.

REITs are investment vehicles that were established by Congress in 1960. To maintain its status, a REIT must meet certain requirements as to its ownership, organization, and the nature of its income and assets. A REIT's activities are generally limited to investing in real estate or loans secured by real estate and related activities. It must pay out substantially all of its ordinary income as dividends. The tax benefit for a REIT is that it is allowed a deduction for dividends paid out, which most corporations don't get. Because of that rule, for federal income tax purposes, a REIT is generally treated as a passthrough entity, which means that the REIT doesn't pay tax but its shareholders are supposed to pay tax on the dividends they receive from the REIT.

REITs own some major pieces of real estate in Hawaii. There are about 20 publicly held REITs that collectively own about $6 billion in Hawaii commercial real estate. They do pay taxes, including our General Excise Tax (GET), because rent income that the REITs receive is taxable for GET purposes. They also pay real property taxes to the counties in which they own property.

For corporate net income tax, however, it's another story. The REITs in Hawaii pay little or no tax under the net income tax system because of the deduction allowed for dividends paid, while the majority of the REITs' owners who receive the dividend income are outside of Hawaii and don't pay Hawaii tax either.

Why? States generally don't tax people if their only connection with a state is receiving a corporate dividend from a company headquartered within the state. The states would rather have the investment dollars flow into the state than try to tax them and scare off the investors. On the other hand, our state does try to get its tax share from out-of-state shareholders in S corporations; so it might not be illogical for our state to tax REIT shareholders the same way.

What qualifies as real estate for REIT purposes is an issue that recently has been in the news. Windstream Holdings, an Arkansas-based telecommunications company, in July received a private letter ruling from the IRS that allowed most of its copper and fiber-optic lines as qualifying real estate, which could enable it to cut more than $100 million a year off its federal tax bill. REITs have also been used by computer-data storage companies, billboard owners, and private prisons.

In one closely watched situation, the IRS in June cleared document-storage and shredding company Iron Mountain Inc. to restructure as a REIT. Of course, operating companies don't, by themselves, qualify as REITs. What they do is to put their real estate holdings into a REIT and have the operating company rent those assets from their REIT. The taxable operating company then gets a deduction for the rent; the REIT recognizes the rent as income but pays substantially less tax on that income.

Is all of this a good deal? Is it a tax dodge? Is this kind of tax structuring tolerable because other states are letting REITs do this? Or is it necessary for us to change the rules that apply to REITs, as one other state (New Hampshire) has? These, and other thorny questions, are going to be considered by our lawmakers in the coming months.

Short URL: http://www.hawaiireporter.com/?p=503032

Author: Tom Yamachika

Tom Yamachika is the Interim President of the Tax Foundation of Hawaii. Mr. Yamachika's commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

Tom Yamachika has written 2 articles for us.

Anti-Semitism Drives French Investors Into the Arms of NY Real ...

Posted: 05 Sep 2014 04:21 AM PDT

A French antisemitic propaganda poster from 1942 asks "Who steals our North Africa? Roosevelt."

A French propaganda poster from 1942 asks "Who steals our North Africa? Roosevelt." And blames the Jews.

Give me your tired, your poor, your huddled masses yearning to breathe free, reads Lady Liberty's welcome. Every year since New York City's founding, tens of thousands have crossed over the Atlantic to trade in their European chapeaux for American caps. This year, New York has increasingly become home to one particular population seeking American status: Jewish Frenchmen.

Marlen Kruzhkov, an attorney at New York's Gusrae Kaplan, specializes in helping Jews make the move from France to the States. Mr. Kruzhkov explained to the Observer in a phone interview that this migration has increased massively since the beginning of 2014, spurred by a spate of anti-semitic incidents, which only worsened with the war between Israel and Hamas. While last year he helped a handful of families with legal arrangements, today he is handling the arrangements of several dozen families—parents with children—looking to make the move. The families Mr. Kruzhkov works with are predominantly well-off investors, with an average net worth of $50 to $70 million. These dollars come along for the all-American ride.

As any good lawyer does, Mr. Kruzhkov begins his conversations with the families he represents by asking, "Why this, why now? Why do you want to be here and invest here?" Unanimously, the answer is French anti-Semitism.

"The truth is, there has always been a large [amount of] anti-Semitism in Europe, and particularly in France," explains Mr. Kruzhkov. "France is a weird country because it has a large Jewish and large Muslim population, so there is a real tension, a real undercurrent of hostility and a threat. Now, it has become a lot easier for people to become a lot more open about their anti-Semitism and hate. Even a year ago, they were shocked." Jewish people account for one percent of France's population, whereas Muslims make up five to ten percent. The vast majority of Frenchmen are Roman Catholics.

For this Jewish population, there are two main options when it comes to moving: the United States or Israel. While Israel feels more familiar to many of those seeking to migrate – it's nearby and many already have Israeli passports — Mr. Kruzhkov notes that their businesses are often the key to determining a location.

"Israel is a small place, business opportunities are less, there is much more red tape.

Marlen Kruzhkov

The US is easier; it's a great place to do business, less red tape." Nonetheless, it is anti-Semitism, not business opportunities, that is driving the Jewish population out of France. "It's no question, the driving force is the anti-Semitism, but the reason they are choosing the US is due to sound business reasons."

For some who are looking to move, their funds go first, and then the discussion of relocating the family begins. While their wealth often ends up in the United States, not all families choose to immigrate, at least not immediately. Almost all of Mr. Kruzhkov's clients aim to move their wealth from France; 75 percent of them consider immigration. Fifty percent end up going through with the move. In some cases, investments head to the States while the family moves to Israel. From the roughly two-dozen families he has represented thus far this year, an estimated $1.44 billion in wealth has moved from France to New York as a result of the rising anti-Semitism in France.

A client of Mr. Kruzhkov who spoke with the Observer on the condition of anonymity offered his explanation for the move. "It was not an easy decision to move to Israel but I felt that France was not a long-term option for me and my family. There was never any question that a significant portion of our wealth was going to be invested in the US. The economic environment in the EU in general, and France specifically, is weak and I just do not see it getting any better soon. As for Israel, while we plan to reside there, the economic opportunities are limited. The US is stable and transparent with an economy that is broad-based and only getting better. We particularly liked the safety of New York real estate."

For those seeking to secure their fortunes away from their homeland, real estate in Manhattan is often the most stable and reasonable investment. Mr. Kruzhkov's clients often look into real estate in London and Hong Kong, which are considerably more expensive than New York. By comparison, they view New York's diverse real estate scene as a reasonably priced. "What they are looking for is stability," explained Mr. Kruzhkov. "When you buy a thirty million dollar building in Manhattan, it won't be worth less than thirty in five years. It's a unique animal. It has been historically stable with a nice growth rate over time. And if you're buying something for cash, it's very easy to sit there, even if there is a momentary dip."

Reba Miller, owner and founder of RPMiller Realty Group, which has a number of French national clients, has also picked up on the buying trend within the French Jewish population. She told the Observer, "Political unrest in France has seen a spur of activity from French investors in the last few months. I would not be surprised to see many deals done in real estate over the next few months by French Jews who seek a safe haven for their money. While there's anti-Semitism, many Jews do not feel safe – and NYC real estate is seen as a safe investment as it always has been and shall continue to be."

As these families look to move their financial portfolios, they often diversify and reorganize them in the process. Many view real estate as a "hedge investment for diversification." With this in mind, most seek "pre-existing income-producing properties." However, Mr. Kruzhkov has found that some of his clients are willing to be "adventurous" in their move, and therefore are getting into development.

As part of his business, Mr. Kruzhkov works to connect his clients with realtors who can provide off-the-market deals. Before a major commercial listing or development site hits the market, his clients have been given the opportunity to make a bid. In many cases, this helps secure their privacy, as many are looking to move from France quietly. "They are looking for help, A to Z, they don't know who to trust, so they are looking to us for the entire buying process. We try to introduce them with whom we have a relationship, people we can trust. A lot of people go through third parties because they don't want it known that they are the ones investing. They want to make sure that it is private, even though it is, of course, legal. They just don't want it well known that they are buying."

For now, the families seem quite pleased with this decision. They look forward to visiting France as tourists. A client recently explained to Mr. Kruzhkov, "The reason to stay is family tradition? Okay, come back and visit then. If I feel nostalgic, I will come back and stay in a hotel."

Real Estate Investing

Friday, 5 September 2014