Frequently Asked Questions


youland.us is an online marketplace for real estate investing. We are connecting Chinese investors who want to invest in US real estate with as little as $10,000 and real estate companies that need real estate capital – either debt or equity.
YouLand is a team of professionals, with expertise in real estate, technology and finance. We are headquartered in San Francisco, CA, and have regional offices in Beijing, Columbus, OH, Denver, CO, Houston, TX, and New York, NY.
Through the youland.us platform, both individual and institutional investors have the opportunity to invest in real estate opportunities online through a private, secure website. Investors can browse investments, review due diligence materials and sign legal documents securely online. Once invested, investors have access to an investor dashboard, giving them 24/7 access to watch how their money is working for them.

Borrowers and sponsors looking for debt or equity capital can do so by filling out an online application, creating an account and going through our due diligence process.

We simplify real estate investing through cutting edge technology.
YouLand offers individual and institutional investors access to investment opportunities involving a variety of real estate property types, including multi-family residential, office, industrial, self-storage, retail, medical office and hospitality facilities. Single-family residences being used for investment purposes (not owner-occupied) are also the subject of many investment opportunities.

YouLand also offers different types of investment vehicles. Investors can purchase securities related to secured real estate loans (both first- or second-lien positions); equity investments in commercial properties, usually involving in-place cash flow that provide an income component to the investment; and "preferred equity" investments involving a preferential position in the equity capital structure but limited potential upside.
YouLand’s investors include high net worth individual investors and institutional investors including family offices, registered investment advisors, private equity firms, hedge funds, banks, asset managers, and non-accredited individual investors.
Both US based accredited and non-accredited investors are eligible to invest in the offering on youland.us.

The accredited Investors can invest in private placements on the YouLand platform. To qualify as an accredited investor, you must meet certain thresholds as defined by the Securities and Exchange Commission under rule 501 of Regulation D. Specifically, you must meet one of the following criteria:

  • Earn an annual income per individual of over $200,000 per year ($300,000 per couple) with the expectation of maintaining such level of      income in the future.
  • Have a net worth of more than $1 million (individually or jointly), excluding the value of a primary residence.
  • Be a bank, insurance company, registered investment advisor, business development company, or small business investment company
  • Be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.
  • Be a business in which all the equity owners are accredited investors.
  • Be an employee benefit plan, a trust, charitable organization, partnership, or company with total assets in excess of $5 million.

In addition, overseas foreign investors are eligible to invest in the offering.
Commercial real estate investing often involves large investment amounts and limited regional opportunities. YouLand, on the other hand, allows accredited and institutional investors to invest for as little as $10,000, all from the convenience of an investor's laptop or tablet computer. This means that investors have the ability to participate in opportunities that historically may have been available only to large institutions. You'll also be investing "passively" -- similar to stocks and bonds -- so that you don't need to directly be concerned with the management headaches associated with a property.

YouLand does some initial review of potential investment opportunities and then, with the ones it moves forward with, presents the relevant investment information in an easy-to-use format so that investors can make their own decisions about which opportunities they want to pursue. These opportunities involve a variety of property types, are across a number of regional geographies, and can relate to debt, equity, or "preferred equity" opportunities. Once an investment has been made, investors are able to monitor the progress of an investment via an investor dashboard that contains earnings history, management updates, and other follow-on information to be reviewed.
On youland.us, you can invest in two primary investment types: loans (debt) or equity:

Real Estate Loans (debt): In this investment type, investors purchase a specific loan or a pool of loans. The underlying loan is tied to a residential or commercial property and the loan is secured by the property until the borrower repays the loan in full. Investors earn monthly interest on their money typically with a balloon payment at the end. Hold periods for the loans could be as short as a few months and as long as a few years.

Equity Investments: In this investment type, we focus on equity investments with existing cash-flow, like apartment buildings, office buildings, retail shopping centers, and self-storage facilities. With this type of investment, investors pool their money to purchase a piece of a specific property or a pool of properties. The investment is acquired and managed by a professional real estate investment company, also known as a “sponsor”, with a track record of acquiring and managing real estate. Investors are typically entitled to a share of the cash-flow from rents as well as a share of the proceeds when the property is eventually sold. The hold period for an investment like this may range from 1-5 years.
YouLand allows you to choose and invest in a specific property or a group of pre-determined properties, whereas a REIT only allows investments into pools of capital that are often directed toward investments limited by asset class or geography.

REITs can sometimes charge relatively high fees, and there are some tax advantages to direct participation structures such as those utilized by YouLand. REITs are often so large that they have difficulty participating in opportunities involving "small balance" projects under $50 million, which projects represent many of the opportunities listed by YouLand. Finally, because most REITs are publicly traded, the shares in those REITs can be subject to the same volatility as may be experienced by the stock market generally. You should consult your tax or investment advisor for additional information.
Real estate companies or individuals list their investment opportunities in the youland.us marketplace only after joining youland.us, submitting an application, and going through an underwriting and due diligence process.

For equity investments, the youland.us underwriting team to review their materials and determines whether the company and the investment is a good fit for our members. We go to great lengths to fully understand the variables of each transaction including return structure, market statistics, quality of the property and the track record, reputation and quality of the real estate investment company we are working with. This process also includes background, criminal, and credit checks to mitigate the risk of fraud. Finally, we always tour the property as a final step before it is listed. We reject many equity transactions that are proposed to us, keeping in mind one of our core values - Investor Protection.

At youland.us, we look for transactions that provide cash flow to investors as quickly as possible. Some properties may have some level of vacancy or have the ability for our operating partner to add value and increase cash flow over the life of the investment. We do not currently fund ground-up development, as we believe one of the benefits of real estate investing is passive income and development projects typically take 18-36 months to generate income. We do fund apartment buildings, self-storage facilities, hotels, mobile home parks, office and multi-tenant industrial buildings and retail shopping centers.

For debt investments, youland.us provides loans for commercial properties including apartment buildings, self-storage facilities, mobile home parks, office and multi-tenant industrial buildings and retail shopping centers. We examine many variables when evaluating debt investment opportunities. For loans on commercial properties, we evaluate metrics including debt service coverage ratios, loan-to-value ratios, and debt yields. Regardless of loan type, we look for borrowers with a successful track record and make sure they undergo background and credit checks so we can ensure financial competence and responsibility.

The liens associated with our debt are frequently “senior” or in “first position,” so in the event of a borrower default, our investors have first claim to the proceeds in the event of a foreclosure. Most of these loans are short-term, ranging from 6-36 months before principal is repaid. We may from time to time offer debt in the second position (mezzanine debt), which is subordinate to our more frequent offering of senior debt. Investors are always made aware of the debt position prior to making an investment decision.
For equity investments, YouLand sets up a separate limited liability company (LLC) for each investment opportunity, and that LLC will in turn hold an interest (sometimes indirectly) in the entity that actually owns the subject real estate. When you invest in an equity opportunity through YouLand, you own shares in that LLC. Using this structure, you should have the benefit of limited liability while also enjoying the benefits of using a "pass-through" entity for tax purposes.

For debt and certain "preferred equity" investments, investors will invest in debt obligations of YouLand subsidiaries -- "payment dependent notes" -- that are tied to the performance of real estate loans or investments made by that subsidiary. The notes are issued in tranches, or “series,” and each series of notes will be tied to the performance of a corresponding borrower loan or project investment. In some cases, a relationship with a third-party trustee has been established so that the counterparty risk to investors in these situations is limited.
The frequency of any investor returns depends on the type of investment. Typically, equity investments have distributions on a quarterly basis, while debt and preferred equity investments involve payouts on a monthly schedule. An investor's share of any distributions is generally transferred directly into the same bank account that was initially used by the investor for the contribution of the original investment amount, and typically occurs within a few days of YouLand’s receipt of such distributions.

On debt investments, the monthly payments of interest are dependent on YouLand having received the correlating payments from the borrower on the corresponding borrower loan. Preferred equity investments are designed to have "current" payments made on a monthly basis and then an "accrued" payout that is payable at the expiration of the investment period. Normal equity investments are usually designed to have investors get quarterly distributions and also to participate in any net appreciation realized when the property is sold. An investor's share of any of these distributions will be deposited directly into the bank account designated by such investor.

Payout schedules cannot be guaranteed, of course, nor can there be any guarantee as to return rates or the return of investor capital generally, regardless of the structure of any investment opportunity.
Although no investment is guaranteed, one benefit of investing with youland.us is that you are investing in physical assets around the United States. Your investment is in an actual property as opposed to a stock or bond or other non-physical asset.
Yes. Similar to investing in the stock market, there is no guarantee when you are investing in real estate. The real estate market has economic cycles and it is difficult to know how and when the economy will change.
Yes. Our broker-dealer, North Capital, runs KYC (know your customer) and anti-money laundering on all who invest in deals on our site. Additionally, on some offerings where advertising may have been used, some additional verification of an investor’s status as an accredited investor may be required.
Yes. The minimum investment is different for each investment, but can be as low as $10,000.
Joining youland.us and browsing the marketplace requires no obligation. For those who choose to invest, there are fees associated with each investment. The fees depend on the type of investment (loan purchase or equity purchase) and the nature of the transaction. In addition to administrative and legal expenses, the fees will cover the ongoing reporting and communications for the investments. As we are big believers in transparency, you can find the specific fee structure for each deal when you browse through our investment opportunities.
An investment is not final until all legal documents are signed and funding has been contributed and cleared. When an investor makes their investment, the money is held securely at a US bank. Once the fundraising target is met and the real estate transaction is completed, the money is transferred for the sole purpose of the specific loan or specific property that is being invested in.
Standard ACH transfer can be made from an investor’s bank account for amounts up to $100,000. Amounts larger than $100,000 are made using a wire transfer. For each investment opportunity there will be specific account numbers that we will provide to the investor so that funds are properly received on our end.
All legal documents can be sent and signed electronically through our website. This allows for more efficient and seamless transfer of documents between you and youland.us, while maintaining the authenticity and security of your information. Investments are finalized once proper legal documentation is accepted, funds are confirmed received, and we provide you with completed counterpart signatures.
Investors will be able to view real time updates of their investments when they login to the site and view their investor dashboard. This is their hub of information, and will provide comprehensive metrics about their distributions to date, upcoming milestones, and overall return on investment. Additional emails are sent out when distributions are sent to your bank account.
youland.us will work with the real estate company to provide timely updates shared with all investors at least quarterly. Updates will be provided via email and via the investor dashboard. In addition, investors will receive tax documents every year that they have a distribution from a real estate investment on youland.us.
Investors who invest in debt typically receive interest payments on a monthly basis, while investors who invest in equity typically receive quarterly distributions.

Usually we will send the cash flow income to the same bank account that the investor provided for their original investment, though we can accommodate changing a distribution bank account by request. We ask for bank information that will allow for monthly or quarterly standard ACH transfers.

Distributions are never guaranteed in amount or timing and you should carefully read the offering documents on the specific deal you are interested in to fully understand how projected distributions look like and what risks are involved.
No. The real estate investments found on youland.us are private transactions in physical properties around the United States. The investments are not traded on public stock exchanges and cannot be easily sold or traded.

You may be able to resell your investment security in a private transaction subject to restrictions that are specific to each investment and under the Securities Act of 1933. Since the resale restrictions on youland.us can be very limiting, you should not invest with the expectation of reselling your investment.
Different properties have different expected hold periods. A hold period is the anticipated time investors will be involved with the investment until the underlying property is re-sold or the loan on it is paid off. It is important to read the offering documents for each investment opportunity for a deeper understanding of the hold period for each investment.
youland.us offers access to a variety of property types including, but not limited to, multi-family, office, industrial, self-storage, retail, medical office, and hospitality.
Investors are typically purchasing shares in a YouLand Limited Liability Company (“LLC”) that in turn invests into an LLC or Limited Partnership (“LP”) that holds title to the real property.
When you invest in an equity opportunity, you are typically purchasing shares of an LLC as a limited member. In turn, that LLC owns (directly or indirectly), along with the sponsor and other investors, a share of a joint venture entity that owns a specific investment property, like a specific apartment building. An LLC gives you liability protection, shielding your personal assets from the investment.
By investing into a YouLand LLC, it minimizes overhead for the sponsors who work with youland.us and allows us to access more investment opportunities for investors. It also allows for streamlined reporting, distributions, and tax documentation through the youland.us platform.
Decisions in an LLC are governed by a document called an “operating agreement”. While every operating agreement is slightly different, they usually include a manager (who may also be a member) and limited members. The manager typically makes all of the day-to-day decisions and the limited members act as passive investors on the transaction. The manager can determine how much cash to distribute to the limited members versus how much to hold in reserve and assess possible sales for the property. There are certain activities that might mandate a vote by the limited members and the limited members can typically take action if the managing member defaults on the terms of the agreement or is grossly negligent.
youland.us is typically the Managing Member of YouLand LLCs. YouLand Manager is an Exempt Reporting Advisor. YouLand Manager does not own a piece of the YouLand LLCs, but is responsible for certain limited decision making. However, you will need to review the specific offering materials for each investment to fully understand the structure and the duties of all entities involved.
Distributions depend on the specific investment, but are typically provided to equity investors each quarter. Please review the expected distribution schedule for each investment before making an investment. No distributions are guaranteed.
youland.us investments typically do not have capital calls. A capital call is where the investor is required to commit more money to the property, beyond the initial investment. Rather than requiring an additional investment, it is possible that investors will be diluted if more money needs to be raised. While this is typically the case with equity investments offered on youland.us, please check the offering materials for each investment to fully understand your liabilities as an investor.
One of the benefits of investing in real estate equity through limited liability companies (LLCs) is that LLCs can be treated as partnerships for tax purposes. Partnerships generally are not taxed at the entity level (other than annual franchise taxes and filing fees) and can “pass through” applicable items of income, loss and depreciation to their members.

Non-cash depreciation deductions can shelter or eliminate the amount taxable income that may be otherwise passed through to an investor from a real estate equity investment, particularly in the early stages of the investment. As a result, cash distributions received by an investor, in a year when there is no corresponding pass-through of taxable income (again, due to depreciation deductions), may result in lower or deferred taxes.

The special purpose entity (a YouLand LLC) you own when you invest in an equity transaction reports your annual share of income and loss and distributions on federal and state K-1s that you can then use to prepare your tax return. While the special purpose entities (the YouLand LLCs) that are formed for each equity transaction typically are Delaware entities, there may be filing requirements and tax liabilities in other states depending on the details of a particular transaction, your state of residence, and the location of the investment property.

YouLand and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. See offering documents for additional details, disclosures, and disclaimers.
When investing in loans, investors will either acquire a borrower payment dependent promissory note (a “Platform Note”) from YouLand, Co. or purchase a whole loan.
When you invest in a Platform Note, you are purchasing an unsecured note in YouLand, Co., the performance of which is tied to the underlying real estate loan. This Platform Note allows you to receive periodic payments on the loan if and when the borrower on the underlying real estate loan makes interest payments.
Institutional investors looking to invest >$25 million are eligible to buy whole loans from youland.us. These whole loans differ from the Platform Notes in that they are secured by real estate.
Yes, an investor will be responsible for the cost of any foreclosure in the event of a default when purchasing whole loans.
If a borrower stops paying, we will determine what loan modification or loss mitigation options to pursue before beginning foreclosure proceedings. youland.us will inform all investors if any significant actions are taken on their specific loan investments.
Distributions depend on the specific investment, but are typically provided to debt investors each month. Please review the expected distribution schedule for each investment before making an investment. No distributions are guaranteed.
Tax information regarding first lien debt investments is reported annually to investors on Form 1099. For other types of debt (like mezzanine debt), distributions may be characterized as interest, dividends, or other distributions, and investors may receive either a Form 1099 or a Federal and state Form K-1, depending on the structure of the transaction.

YouLand, Co. and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. See offering documents for additional details, disclosures, and disclaimers.
Sponsor: Raise Equity


The process is online and the application can be accessed through youland.us. You’ll be asked a series of questions about your firm, the specific transaction and other relevant details. From there, a youland.us representative will be in contact to initiate the process and work through due diligence with you.
youland.us focuses on balance equity raises, ranging from $0.5 million to $20 million.
Cash-flowing commercial real estate of most major property types across the United States, including but not limited to, multi-family, office, industrial, retail, mobile home parks, self-storage, and hospitality. We do not currently raise funds for any ground up development, residential real estate, or owner occupied real estate. We are currently looking for diversified, multi-tenant, well located, cash flow producing properties.
Real estate companies that have at least $25 million in acquisition experience as principal. However, sponsors are evaluated on a case-by-case basis.
Yes, youland.us requires background, criminal, and credit checks for sponsors as part of our due diligence process.
YouLand’s investors invest as a single limited member into the joint venture entity that owns the real property. All youland.us investors are pooled into a special purpose vehicle, typically an LLC, and then youland.us subscribes to the sponsor’s entity as a single investor. This means the sponsor is only responsible for one report, one distribution and one K-1. youland.us processes all of the underlying reports, distributions and K-1s for our investors.
youland.us requires quarterly, qualitative, and quantitative investor reporting.
Typically, the sponsor deals and interacts with youland.us only, but in certain instances youland.us will make direct introductions to the sponsor.
Depending on how much equity the YouLand LLC is investing, may require some control rights or consent rights. We do require manager removal for gross negligence, fraud, or other deceit.
Most transactions are funded within 30 days of submission.
youland.us has a two-stage approval process that involves a full underwriting of the investment and a tour of the asset.
youland.us is a value-added investment partner generally targeting individual projects with a levered IRR objective of 15% or greater, and cash-on-cash yields at stabilization of 8% or greater. However, each deal is evaluated on a case-by-case basis.
No. We only work with accredited investors.
Yes. We work with both Chinese individual and institutional investors.
youland.us will invest as either pari-passu common equity, or as preferred equity where the common equity is subordinated.
Yes. We typically require sponsors to co-invest 10% of the total equity requirement of a transaction.
youland.us is aligned with North Capital Private Securities Corp. (NCPS), a broker-dealer and member of FINRA/SIPC and many youland.us employees are also affiliated with North Capital. All equity raises are done through North Capital.
Borrower: Raise Debt


You’ll be asked a quick series of questions about the property and you. Our propriety technology then will screen your application and if found to be suited, one of our account executives will reach out to discuss further details and provide you with a quote.
youland.us offers loans for acquisition and refinance of commercial properties like apartments, office, retail, industrial, self-storage, mixed use, and more.

We offer three main loan products: Please note that rates and terms are subject to change

  • Private “Hard” money loans: 1-2 year term, $0.5-10 million, full recourse, interest only at 9%+.
  • Bridge loans: 2-5 year term, $3-50 million size, non-recourse, interest only at Libor +4-7%.
  • Permanent loans: 5-10 year term, $1-50 million size, non-recourse, interest only at market rate.
youland.us lends on single and multi-tenant office buildings, manufactured home communities, multifamily and student housing, anchored and unanchored retail buildings, industrial, warehouse and flex properties, self-storage facilities, and mixed use properties.
While we make loans similar to a traditional or private lender, our online systems and technology are designed to enhance the process and provide capital throughout the full capital stack.
Borrowers benefit from competitive interest rates, a quicker and more transparent underwriting process, flexibility in product offerings, and loan structures.
We offer competitive interest rates but they are subject to a variety of factors including property location, loan size, and experience of the borrower. For CMBS loans, we charge market rates. For bridge loans, we are typically priced between Libor + 4% to Libor + 7%. For private money loans, we typically charge 8-12%.
All except Arizona, Nevada, North Dakota, Minnesota, South Dakota, Tennessee, and Vermont.
Although this is determined on a case-by-case basis, we aspire to fund within 30 days from application submission. The process typically includes an in-house underwriting, third party reports review, site visit, documentation, and legal review.
Glossary


A


A reduction in amount or intensity.  Usually applies to decreases in taxes or rent.


Example:  Tenants may ask for an abatement in rate if their use of the property has been interrupted or inhibited by actions of the landlord (like renovation work).


Example:  Cities may offer a tax abatement to businesses contemplating moving to the city.




An estimate of the new occupancy, or amount of inventory that is being "absorbed," of a particular type of land use.


Example:  A total of 1,000 new homes are available for sale on the market.  During the year, 100 homes have been sold; an equal number may have come on to the market, but this serves only to keep the baseline constant.  The annual absorption rate is 10% (100 / 1,000).




A loan provision giving the lender the right to declare the entire principal amount immediately due and payable, usually upon the violation of a specific loan provision (such as failure to make payments on time).  In the absence of such a clause, then a default on one payment would be just that: only one payment in default.  Acceleration clauses make the full amount of principal due (immediately, or after a short grace period) upon the default as specified in the loan documents.


Example:  Charles sells his house to Bob, who would like to assume the existing mortgage.  Charles fails, however, to notify the lender of the sale -- and the mortgage states that the full principal balance amount accelerates unless the lender approves of the sale.  Charles must now pay the full balance of the principal amount of the loan.




An investor with a certain level of income or net worth who is thus able to participate in a private placement of securities (such as membership interests in a limited liability company) without being counted toward the maximum number of investors that are otherwise permitted in an offering exempted under Regulation D of the Securities Act of 1933.  Such an investor does not need to meet the "sophistication and experience" requirements that are applicable to other investors, and if the securities in an offering are sold only to accredited investors, then there are no special information requirements. The most common accreditation criteria for an individual includes (roughly): 


• an individual with income exceeding $200,000 in each of the two most recent years (or joint income with his/her spouse exceeding $300,000 in each of those years) and a reasonable expectation of reaching the same income level in the current year; OR


• an individual with a net worth (or joint net worth with his/her spouse) exceeding $1 million, excluding the person's primary residence. For additional information on who qualifies as an accredited investor, including how an LLC, Corporation, or Trust can qualify as “accredited investors,” see http://www.sec.gov/answers/rule506.htm.     




To accumulate or increase; generally refers to payments owed but which have not yet been paid.  For example: XYZ Corporation borrowed $1 million at 6% interest, payable annually at the end of the year (i.e., $60,000 per year).  Each month $5,000 of interest on the loan (1/12th of the annual total) accrues.




A mortgage (or deed of trust) loan whose interest rate fluctuates along with another rate.  The mortgage rate is usually tied (indexed) to a commonly followed rate such as the prime rate or LIBOR, plus a certain spread, or margin, such as 1 or 2%.


Example:  A person obtains an adjustable-rate mortgage to finance the purchase of a home.  At one-year intervals, the lender may adjust the rate of interest on the loan in accordance with an established index.




In real estate, this is generally the original cost of property (the original tax basis) less any depreciation deductions plus any capital expenditures.  The adjusted tax basis is important when determining final taxes (and tax rates) upon the sale of a property.


Example:  Charles buys a lot for $100,000.  He erects a retail facility for $600,000, then depreciates (for tax purposes) the improvements at the rate of $15,000 per year.  After 3 years his adjusted tax basis is $655,000 ($100,000 + $600,000 - (3 x $15,000)).




The gradual paying off of a debt by periodic installments.  Example: a $100,000 loan is arranged at an 8% interest rate.  The borrower pays $10,000 in the first year.  Of that payment, $8,000 is for the interest owed, and the remaining $2,000 serves to amortize the loan balance.  After that payment, the loan balance will have been amortized to $98,000.




The main tenant, usually in a shopping center.


Example:  Big Buy Foods is the anchor tenant in a retail center.  The anchor tenant, because it has drawing power to bring customers to the center, normally pays less rent per square foot than an ancillary tenant.




A shopping center tenant that occupies less space and is of lesser importance in generating shopping center traffic than an anchor tenant.  Ancillary tenants typically pay higher rents relative to anchor tenants.


Example:  The tailor shop, hairstylist, and pet store are often ancillary tenants in a neighborhood shopping center; the supermarket, on the other hand, would often be the anchor tenant.




An estimate of value, generally made by a professional appraiser (certified to meet certain education, experience, and knowledge requirements) who uses a systematic approach or process (including the analysis of market data) in order to reach a conclusion.  An appraisal of a property might be made not only to determine a reasonable offering price in a sale, but also to determine an appropriate loan size of a loan, to allocate a purchase price between land and building (improvements), to determine an appropriate amount of hazard insurance, or for estate tax purposes at the owner's death.




Without Guarantees as to condition, as in a sale.  May signal a problem in condition, or may merely indicate that the seller is not in a position to attest as to the property's condition (s in a sheriff's sale following a foreclosure).  Premises must be accepted by a buyer or tenant as they are, including physical defects (other than hidden -- or latent -- defects).


Example:  Henry purchases a building from Michael with the understanding that the building is to be conveyed as is.  When Henry discovers that the roof leaks, Michael is not legally responsible for repairs.




A mortgage loan that allows a new purchaser to undertake the obligation of the loan with no change in loan terms.  This is generally true of loans without due-on-sale clauses.  Most FHA and VA mortgages are assumable.


Example: Dan sells a home with an assumable loan to Walter.  Walter takes over the payments of the loan and accepts liability under the mortgage promissory note.



B


The amount left over after subtracting the amount owed (on a loan) or the amount remaining already paid (in an account).


Example: A current loan balance of $95,000 means that loan payments have reduced the outstanding debt to that amount.


Example: A balance of $25,000 in a depositor savings account represents the amount deposited, plus interest earned, less any amount withdrawn.




The final payment on a loan, when that payment is greater than the preceding installment payments and repays the loan in full.


Example: A debt requires interest-only payments annually for five (5) years, at the end of which time the principal balance (a balloon payment) becomes due.




The point from which gains, losses, and depreciation deductions are computed. Generally the cost, or purchase price, of an asset.


Example: Claire purchases land for $100,000 and erects a store for $800,000. Her tax basis is $900,000. If she then sells the property for $950,000, she has a $50,000 gain. If she had earlier claimed depreciation for a total of $50,000, however, then her tax basis would have been adjusted -- reduced -- by that $50,000, so that now she would have a total gain of $100,000. Claire thus would have gained tax benefits in early years, but will be subject to some degree of depreciation recapture at the time of sale, depending on how the depreciation was calculated.




One 100th of 1%.


Example: Mortgage loan interest rates are 6.25% this week. They were 6.75% last week. The decrease was 50 basis points (675 minus 625 equals 50).




An investment program in which funds are invested into an entity without investors knowing which properties will be purchased.


Example: Each of 100 investors contributes $5,000 into a project. The sponsor has not yet located the properties to be purchased, so the investment money is said to be placed in a blind pool.




Financing between the termination of one loan and the beginning of another loan, also sometimes referred to as a "gap" or "swing" loan.


Example: A developer with an outstanding construction loan is in the process of negotiating better terms for permanent financing. She has arranged for a bridge loan to pay off the construction loan when it is due, and to tide her over until the permanent financing is arranged, at which time the bridge loan will be repaid.




A state-licensed agent who, for a fee, acts for property owners in real estate transactions, within the scope of that state's law.


Example: A person wanting to sell or lease property often engages a broker to arrange the sale or to locate tenants. A broker may also be engaged by a prospective buyer or tenant to locate acceptable property.




A BPO, sometimes referred to as a broker's opinion of value, is an analysis provided by a real estate broker to assist a buyer or seller in making decisions about the listing price of real estate or a suitable bid for purchase; it's similar, though less comprehensive, to a comparative market analysis. A fee may be charged for this service, but it may not be represented as an appraisal. While some lenders require an appraisal for mortgage lending purposes, others (particularly in the asset-based lending sector) may be content with a broker's price opinion.


Example: Because the Waltons had recently had their house appraised to secure a home equity loan, they were content with a broker's price opinion when they decided to list it for sale.




Refers to longer-term equity investing, meaning that investors will take an ownership stake in a property (as opposed to being a lender or other lienholder) and hold that position for some period of years while the property is managed toward improved performance and returns. "Buy and hold" investments can be contrasted to "fix and flip" purchases, where investors seek only to make some basic repairs or improvements and then to sell the property as quickly as possible.




An agreement among partners, LLC members, or stockholders pursuant to which some partners / members / stockholders agree to buy the interests of others, upon some event.


Example: Jones & Smith are partners. In the event that Jones dies, Smith has agreed to buy Jones' interest for $100,000. If Smith dies first, Jones will buy his interest for $25,000.



C


The capitalization rate, or “cap rate,” refers to a ratio used to convert an income stream into an estimate of value. The income stream utilized is the property's net operating income, which takes into account expenses such as utilities, insurance, management, and repairs, but which does not include financing expenses (like debt service). At the time of acquisition, the cap rate can be figured by dividing a property's net operating income by the property's purchase price (its then current value).


Example: A property that has a gross income of $300,000 and operating expenses of $100,000 (for a net operating income of $200,000), and a purchase price of $2,000,000 would be calculated as:


Net Operating Income ÷​ Purchase Price = $200,000 ÷​ $2,000,000 = 10.0% cap rate.


Since cap rates convert an income stream to value, the above calculation can be re-figured so that a given income stream and an assumed cap rate can be used to estimate the value of a comparable property, or even to estimate the future value of a property. Investors often use cap rates to convert future projected income streams into that property's future value (and thus its anticipated sales price at that time).




A request made to existing equity owners for additional money in order to fund deficits due to construction or operating costs.


Example: Investors in Money Pit, LLC were asked, in a capital call, for an additional $1 million to cover company deficits brought about by poor budgeting, lack of cost controls, and project "bleeding."




Gain on the sale of a capital asset like real property. Capital gains enjoyed on assets held for a long term (generally at least one year) often enjoy lower tax rates than ordinary income.


Example: Karen buys an investment property for $100,000 from which she earns ordinary income of $8,000 annually. After three years, she sells the property for $140,000. The $40,000 gain on sale is reported as a long-term capital gain on her tax return and is taxed at a rate that is less than the tax rate on the rental income she had earned earlier.




Periodic payments available to an equity investor, after deducting all other expenses applicable to rental income, including operating and financing expenses. Can be contrasted with net operating income, which deducts from gross rental income the various operating expenses, but which does not also factor in the effect of financing expenses.




The "cash on cash return," also sometimes called the "equity dividend rate", is a simple ratio measurement of an investor's return in relation to the cash actually invested. The cash on cash ratio is determined by dividing the before-tax cash flow (net operating income less debt payments) and dividing it by the initial equity investment. For example if the net operating income is $150,000, the debt service is $50,000, and the amount initially invested is $1 million, then:


(Net operating income less debt service) / initial equity investment = ($150,000 - 50,000) / $1,000,000 = 10% cash on cash return




Property designed for uses other than personal residential purposes, often times related to business activity. Commercial property includes (among other things) retail shopping centers, multi-family apartment buildings, office buildings, hotels and motels, and self-storage facilities.




Sometimes called a competitive market analysis, this is an estimate of the value of a property using some indicators taken from sales of comparable properties (such as price per square foot). These value estimates, similar to a broker's price opinion, are not appraisals and do not meet the stndards of appraisal as defined by regulatory bodies.


Example: Although real estate brokers and agents may not perform appraisals in most states because they are not appropriately certified or licensed), often estimate the value of a subject property using a comparative (or competitive) market analysis in order to help their clients set listing prices and agree on selling prices.




Interest paid on the original principal and also on any accumulated (accrued) and unpaid interest.


Example: $100 deposited in a 5% savings account earns $5 interest the first year. Its second-year earnings are 5% of $105,or 5.25%. Each year, interest is received on previously earned but undistributed interest, so interest compounds.




In real estate, this refers to a property categorization and investment "style," more specifically to stable income-producing properties with already high occupancy rates, market rate rents, high quality, credit tenants, and very limited deferred maintenance. Investing in "core" properties is considered a conservative investment strategy, the returns for which will generally consist of current income .




A property categorization and investment style in real estate referring to relatively stable income-producing properties that could also use some moderate improvements, such as some limited deferred maintenance, in order to improve leasing rates or increase below-market rents. Investing in "core plus" properties is considered a moderately conservative investment strategy, more risky than "core" but less so than "value-add." The returns on these properties are still driven primarily by current income but also include some expected capital appreciation relating to the moderate improvements to be made.




An evaluation of a person's capacity (or history) of debt repayment. Generally available for individuals from credit repayment histories and similar institutionally reported data. Some people argue that conventional credit reports are too limited in their focus because they do not include payment histories with respect to rents, utilities, and other basic household services.


Example: A credit report showing no late mortgage payments within the last 12 months may well mean that a person will be assigned a good credit score (perhaps a FICO score of 660 or above). This would be a good credit rating to have when applying for a new loan.




A number that purports to predict the probability that a person will repay a loan. Generally, the higher the number, the better risk the individual is considered to be/ The score may determine whether the person gets the loan and how favorable the terms will be. The score is estimated from information contained in the individual's credit report. See also FICO.


Example: With a credit score above 720, Ms. Phillips was able to arrange a loan at a prime (favorable) mortgage rate.



D


The periodic payments required to cover the interest payments -- and usually also including a portion of the principal amount -- of a loan.


Example: A loan of $100,000 calls for 300 equal monthly payments to fully amortize the principal. Interest is 8% annually. The monthly payments are $771.82. The annual debt service is the sum of the 12 monthly payments, or $9,261.84.




A written document that, when properly signed and delivered, convey title to real property. There are different types of deeds that provide different levels of assurance about the extent of the title being conveyed; some forms of deed guarantee that all aspects of ownership are being conveyed, while others make only limited promises about the ownership rights.


Example: In exchange for the agreed-upon terms of a purchase contract (which might include the payoff of an older loan on the property), at the closing of escrow the seller delivers a deed to the buyer.




A legal instrument used in many states in lieu of a mortgage, where legal title to a property is vested in one or more trustees to secure the repayment of a loan.


Example: Bob borrows $50,000 on his property from lender Larry. Bob provides a deed of trust that is held in the name of Honest Abe, a trustee. If Bob defaults, lender Larry will foreclose on borrower Bob to gain possession of the property.




Failure to fulfill an obligation or promise, or to perform specific acts.


Example: After the borrower defaulted on payments for three months, the lender posted the property for foreclosure.




In mortgage finance, a shortfall of funds recovered through the sale of property securing a foreclosed loan compared to the amount of debt, accrued interest, foreclosure expenses, and damages incurred by the lender.


Example: A lender foreclosed on a mortgage loan with an outstanding principal balance of $100,000 and accrued but unpaid interest of $2,000. At the foreclosure sale, the property brought $80,000. The lender claims a deficiency of $22,000 plus expenses in filing for a judgment for this remaining amount in the courts.




Past due; having an unpaid amount after the due date and any grace period has passed. Normally delinquency occurs before a default is declared.


Example: A mortgage with payments past due for more than 10 days is considered delinquent.




Pertaining to the characteristics of the population, such as race, sex, age, household size, population growth, and density.


Example: As a first step in estimating the demand for new or existing housing units, a real estate company may would likely undertake a demographic study, which would review the current population density and rate of growth, the age distribution of the population, and average household size in that local market area.




A charge against the value of an asset relating to its estimated wear and obsolescence. The term is most often used to refer to tax code provisions that exclude from taxable income a portion (the depreciable amount) that can be attributed to “wasting assets.” In real estate, buildings and improvements constitute such assets; these things have a finite life, and thus can take a depreciation "deduction" not always available in other investment classes. The value of a property must therefore be allocated between the amount attributable to the building or other "improvements," and that of the land. Land is deemed to have an infinite life (because it never goes away) and so is not depreciable. A tax depreciation deduction may even be claimed when the property's value has increased.


Depreciation allows an investor to gain a tax deduction without having to make any cash payment. It thus provides an important benefit to real estate investors. It results in an adjusted tax basis for the property; this adjusted basis will result in some additional tax at the time of sale, but the tax will have been deferred and may well be at a lesser rate than would have earlier applied.




To the extent that an investor's tax basis in an asset has been adjusted (often because of depreciation), the investor may be required to pay additional tax – depreciation recapture – on the amount of the adjustment. For real estate assets, the rate of tax will depend on whether or not an accelerated depreciation method had been used or whether offsetting capital expenditures have been made.




A method of investment analysis in which anticipated future cash income from an investment is estimated and converted into a rate of return (generally the internal rate of return, or IRR) based on the time value of money. Alternatively, when a rate of return is specified, a net present value of an investment can be estimated.


Example: An asset purchased for $1,0000 is expected to generate annual income of $100 for the next 10 years, after which time it is expected to sell for $1,200. Discounted cash flow analysis indicates that the internal rate of return on the investment would be 11.2% annually.




A reasonable effort to obtain accurate and complete information in advance of a major decision; in real estate, this usually refers to the inquiries made in advance of a purchase or investment in a property. Due diligence considers the physical, financial, legal, and social characteristics of a property and its expected investment performance. The underwriting of a loan or investment is a form of due diligence, in the sense that it constitutes a relatively detailed risk assessment of that loan or investment.


Example: A potential purchaser of a property sent some experts to perform a due diligence review of the property, including a review of the mechanical and electrical systems of a building, local market conditions and competition, and environmental hazards.


Example: An investor is considering making an investment through a real estate crowdfunding company. As part of his due diligence, he carefully reads the offering materials, listens to a pre-recorded webinar in which the sponsoring company presents the opportunity, and contacts the crowdfunding company with any additional questions he may have.



E | F | G


Any right to, or interest in, land that affects its value. Includes outstanding mortgage loans, unpaid taxes, easements, and deed restrictions.


Example: Encumbrances on Bob's land include 3 mortgages, 4 leases, a mechanic's lien, and a deed restriction preventing the sale of alcoholic beverages on the land.




The legal form under which property is owned


Example: The benefits and risks of owning real property may vary depending on the type of entity that is formed. Among the options are:


coproation


individual ownership (see Tenancy entries)


joint venture


limited liability company (LLC)


limited partnership


partnership


real estate investment trust




The interest or value that an owner has in a property that is over and above the mortgage or other liens against it. The equity interest is the true ownership interest in the property; that interest generally holds the right to control the various aspects of property ownership, although the mortgage or other lien interests may place limits on that control. Equity holders have a chance to earn relatively larger returns on investment than do debt holders; while the debt must be repaid first (and thus the equity holders bear more risk), any price appreciation of the property upon sale (after the debt is paid) goes to the equity holder.




An agreement between two or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.


Example: The deed to the property and the purchase amount were both placed in escrow pending fulfillment of other conditions to the contract.




The most probable price that a property should bring in a competitive and open market under all conditions needed for a fair sale, assuming that the price is not affected by undue stimulus and that the buyer and seller are each acting prudently and knowledgeably. The fair market value is the theoretical highest price that a buyer would pay, and the lowest price a seller would accept, assuming that both parties were willing -- but not compelled -- to act.


Example: An appraisal of a home indicates that its fair market value is $150,000. In a normally active market, the home should sell for this amount if allowed to stay on the market for a reasonable period of time. The owner might, however, give the property to a relative. He might also grow impatient and sell the house for $140,000 -- less than the price he could likely obtain if he kept the house on the market for a longer period. Conversely, an over-eager buyer might be found who would be willing to pay $160,000. If the owner were to provide unusually favorable financing, he might even be able to sell the property for $170,000.




A measure of borrower credit risk, compiled under a system originated by Fair, Isaac & Co. (i.e. FICO), that is commonly used by mortgage underwriters when originating loans on real estate. The score is based on (among other things) the applicant's credit history and the frequency with which they use credit. Expressed as a number between 300 and 850, the score determines not only whether a loan may be approved but also what type of terms a lender might offer. See credit report.




A lien (often a deed of trust or a mortgage) that has priority over all other liens. In cases of foreclosure, the first mortgage will be satisfied before other mortgages.


Example: A property costing $100,000 is financed with a first mortgage of $75,000, a second mortgage of $15,000, and $10,000 in cash. If the borrower defaults and the property is sold upon foreclosure for $80,000, the holder of the first mortgage will receive the full amount of the unpaid principal plus legal expenses. The second mortgage will only receive any amounts remaining after the first mortgage has been satisfied, and in this example would not be paid back all of its principal.




A type of business / investment strategy involving the purchase of properties requiring some immediate repairs, which when made will hopefully translate into a more valuable property that can quickly be re-sold at a profit. This strategy can be contrasted to a "buy and hold" approach where the property is held for a longer period.




The process by which a lender gains possession of mortgaged land after the borrower has defaulted on a loan. Most states require that some notice be given to a borrower after his missing a required payment before the foreclosure process can begin; during this initial period the owner still has a right to redeem the property, but failing any such redemption, the foreclosure process begins. Statutory foreclosure (such as where deeds of trust are used) can be effected without recourse to courts, although laws still regulate the process. Judicial foreclosure submits the process to court supervision.




In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners, while in a limited partnership most members enjoy limited liability (although one partner must still be a general partner).




A building that is built or developed specifically to minimize utility costs or to maximize positive environmental considerations (i.e. to reduce damage to the environment).


Example: Many environmentally conscious people seek to buy or rent space in green buildings to feel that they are part of the solution to the world's energy and environmental problems.




Total before subtractions. When subtractions are taken, the amount is net.


Example: Gross sales price (before broker fees); gross income (before vacancy rates are factored in); gross leasable area (before subtracting common areas).




A rental of only the land. When the ground lease predates the mortgage, the ground lease generally has priority (unless it is specifically subordinated).


Example: The landowner, the Shawmoca Indian tribe, gives a 75-year ground lease to Josephine. Josephine pays rent of $5,000 per year and builds a store on the property. At the end of the 50-year period, however, the entire property (including the store that Josephine built) reverts (goes back to) to the Shawmoca Indian tribe.




An assurance provided by one party that another party will perform under a contract.


Example: George forms a limited liability company to hold the property he expects to purchase. The lender demands that he also execute a personal guaranty for the loan that he needs to acquire the property.



H | I | J | K


Any of a broad variety of environmental contaminants that are regulated under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA).


Example: Hazardous substances include solid wastes that can pose a significant threat to human health and chemical contaminants. A petroleum exclusion exempts petroleum products from CERCLA.




An investment that tends to maintain its value over time, even when adjusted for inflation.


Example: Because real estate tends to increase in value during periods of inflation, it is considered a good inflation hedge. The reason has much to do with replacement costs and the ability to pass along increased expenses in the form of rent increases.




The time span of ownership, usually for investment real estate.


Example: Some real estate investors prefer short hold periods (under 5 years) in an attempt to retain a high level of financial flexibility. Others hold property for longer periods, to reduce frequent transactions costs and to forestall depreciation recapture.




Money not paid until certain events have occurred, such as a retained amount on a loan involving construction work.


Example: The lender retained 20% of the amount of the rehab loan as a holdback, or reserve, until the borrower could show that the agreed renovation work had actually been completed.




An asset that is not readily convertible to cash. Real estate is generally considered an illiquid asset because it may take an extended period of time to accomplish a sale, depending on market circumstances.




Additions to raw land that tend to increase the property's value; similar to developments. Improvements include not only buildings but also public enhancements such as streets and sewers.




Improvements on land adjacent to and between existing development. A way to accommodate increased population in an area without spreading the outer boundaries of development.




Real estate that generates rental income. Multi-family apartment buildings, retail shopping centers, office buildings, industrial properties, resort and recreational properties, self-storage facilities, and hotels are all considered income properties. By comparison, personal residences, schools, churches, parks, and undeveloped land not earning significant agricultural sales or extraction royalties are all not considered income properties.




Industrial properties include manufacturing facilities, warehouses, distribution centers, and research & development space. Manufacturing and R&D properties tend to be build-to-suit buildings that can be difficult to “re-tenant” without extensive modifications, while warehouses and distribution centers can be more generic buildings. As with office buildings and retail centers, industrial property leases tend to have long terms.




A loss in the purchasing power of money; an increase in the general price level. Generally measured by the Consumer Price Index (CPI), a statistic published by the U.S. Bureau of Labor Statistics.




Financial intermediaries that invest in loans and other securities on behalf of their depositors or customers.


Example: Institutional lenders are a prime source of real estate loans for owner-occupied properties. Some institutions, such as savings and loan associations and commercial banks, originate loans directly; others, such as insurance companies, lend through mortgage brokers.




1. Cost of the use of money.


Example: Lenders require payment of interest at a specified rate, to compensate them for risk, deferment of benefits, inflation, and administrative burden.


2. The type and extent of ownership.


Example: An investor may hold a membership interest in a limited liability company (LLC).




A loan in which the interest is payable at regular intervals until the loans maturity, when the full loan balance becomes due. Does not require amortization.


Example: A property was purchased with a 5-year interest-only loan of $100,000 at an 8% interest rate. The interest of $8,000 must be paid annually for four (4) years. The $100,000 principal amount, together with the last $8,000 interest payment, will be due at the end of the fifth year.




Abbreviated as "IRR," the internal rate of return is the true annual rate of earnings on an investment, taking into account the time value of money using discounted cash flow analysis (similar to the application of compound interest). The forumla requires a trial-and-error method for solution. In real estate, the IRR figure is used in buy and hold equity investments to include any profit expected to be gained upon the property's sale from the price appreciation of the property (as opposed to "cash-on-cash" returns, which reflect only regular cash distributions).


Example: John sells for $200,000 land that he bought 4 years earlier for $100,000. The internal rate of return was about 19%; that is the annual rate at which compound interest must be paid for $100,000 to become $200,000 in 4 years.


Example: Mary received $3,000 per year for 5 years on a $10,000 investment. The internal rate of return was about 15%.




An agreement between 2 or more parties that invest in a single business or property. See also limited liability company or limited partnership.


Example: Jones Real Estate, Inc. forms a new legal entity that will hold title to property he wants to acquire. Investor Smith is interest in helping to finance that purchase. The new legal entity, into which Smith provides financing and that Jones uses to purchase the property, is sometimes called a joint venture.




A type of foreclosure where the claim is processed by the state court system; the lender sues on the debt, obtains judgment, and executes the judgment against the property of the mortgagor (borrower). This process is to be contrasted with statutory foreclosure, used in states that allow deeds of trust and where the foreclosure process is handled outside of the court system.



L | M


The expression of a desire to enter into a contract without actually doing so.


Example: A lender issues a letter of intent to a potential borrower that states, "We would be interested in extending a mortgage loan to you to you for $100,000 at a 12% interest rate and will pursue this matter with you in the coming days. This letter of intent does not commit either party to borrow or lend."




The use of borrowed money -- debt -- to complete an investment. Leverage can increase the size of the property a purchaser is able to afford, or reduce the investment required for a similar sized property. The lender will, however, typically require a lien on the property to assure that the borrowed funds are repaid, so a purchaser has increased his risk in this respect (the lender must be repaid before the purchaser can fully realize his profits). Moderately leveraged properties (where the debt service is not too high) can provide greater returns to equity investors, thus maximizing investment profits.


Example: Susan is contemplating buying a rental property for $100,000, which property produces net operating income of $10,000 per year. If she purchase it with all cash, her annual rate of return is 10% ($10,000 / $100,000). If she leverages the investment by investing only $25,000 and borrowing $75,000 at 8% ($6,000 annually), her return on equity will increase to 16% ($10,000 income less $6,000 interest = $4,000; $4,000 / $25,000 = 16%)




A charge against property making it security for the payment of a debt, judgment, mortgage or taxes; it is a type of encumbrance.


Example: David wants to buy a home, but needs a loan to complete the purchase. David offers a lender a mortgage, which would create a lien on the property as security (collateral) for the payment of the debt.




The restriction of one's potential losses to the amount invested; the absence of personal liability.


Example: Steven buys a membership interest in a limited liability company (LLC) for $10,000. If the property owned by the LLC drops in value to less than the mortgaged loan amount, Steven can still not lose more than his initial $10,000 investment amount unless he separately agreed to provide a personal guarantee on the loan.




A legal organizational form offering limited liability protection for the owners and which may be treated as a partnership for federal income tax purposes. An LLC is often used as a way to own real estate because it provides many of the legal advantages of a corporation along with the tax advantages of a partnership.




A partnership structure where some partners are passive investors whose liability is limited to the amounts invested, but where at least one partner is a general partner whose liability is not so limited.


Example: If a property purchased through a limited partnership drops in value to less than the mortgaged loan amount, limited partners will lose only their initial investment, while a general partner will remain responsible for the balance of the loan and any other additional losses.




The ease with which assets may be converted into cash.


Example: Common stocks and U.S. savings bonds generally have good liquidity, since there is a ready public market for those securities and they are easily and quickly traded. Real estate and many types of collectibles, on the other hand, generally have poor liquidity, because the markets for those assets are less streamlined and because the sales process is typically a slower one.




The amount borrowed compared to the cost or value of the property purchased. Lenders often require that a loan-to-value ratio not exceed a specified amount, unless a borrower also purchases mortage insurance.


Example: Susan borrows $75,000 of the total $100,000 purchase price of her home. The loan-to-value ratio is 75%.




A geographic region from which one can expect the primary demand to come for a property (or any product or service provided at a fixed location). Real estate companies often refer to a submarket area, meaning a very focused region, perhaps a specific suburban area, within a larger metropolitan area.


Example: A multi-family apartment complex can expect to draw its tenants from a certain market area -- perhaps from persons working on that side of town, as opposed to persons working on the other side of town.


Example: A large super-mall has a larger market area than a smaller neighborhood shopping center. Shoppers can be expected to come from a larger regional area for the super-mall (which may contain a movie theater and large national clothing chains) than they would for a smaller neighborhood shopping center, which likely has restaurants, gyms and smaller service providers but which lacks appeal as a "destination" shopping center.




The due date of a loan.


Example: A mortgage loan may have a maturity of 30 years. Periodic payments are established so that the loan principal will amortize by the maturity date.




A geographical region with a relatively high population density at its core and close economic ties throughout the area. MSAs are defined by the Office of Management and Budget (OMB) and used by the Census Bureau and other federal government agencies for statistical purposes.




A loan that is of lesser priority than a first mortgage or deed of trust. It may also have loans subordinate to it (hence "mezzanine"). Generally has the same priority as if it were called a second mortgage.


Example: Williams Real Estate Co. plans to build an office tower for $11 million. It arranged an $8 million first mortgage and $1.5 million in mezzanine financing. A subordinated loan of $0.5 million and the company's equity investment of $1 million completed the capital structure.




A subdivision of plots designed for the siting of mobile homes (manufactured dwellings designed to be transported to a site and semi-permanently attached). Plots in a mobile home park are generally leased to mobile home owners and include utilities, parking space, and access to utility roads.




A written legal instrument that creates a lien upon real estate as security for the payment of a specified debt. The mortgage is usually a separate document from the promissory note -- the note evidences the debt obligation, while the mortgage pledges the designated property as security for the debt. Mortgage law in the U.S. has traditionally been within the jurisdiction of of the various states; thus, they are primarily governed by state laws, which can vary.


Example: Tom wants to buy a home, but needs a loan to complete the purchase. As collateral, Tom offers a mortgage on the property to a lender; if Tom later defaults on the loan, the lender has a lien on the property from the mortgage, and can take possession of the property.




Multi-family buildings include any building that includes more than a single family residence, but in common usage the term generally refers to apartment buildings of more than four units. Multi-family residential buildings vary by location (urban or suburban) and size of structure (high-rise or garden apartments). Economic drivers of apartment buildings include demographic trends, home ownership and household formation rates, and local employment growth. Leases are typically short-term (one to two years), and adjust quickly to market conditions. Larger apartment buildings are only minimally affected by any single vacancy. Multi-family properties are generally considered to be one of the more defensive investment types within commercial real estate, though they are still subject to competitive pressures from newer construction.



N | O



The income from a property or business remaining after operating expenses (maintenance, insurance, utilities, etc.) are deducted, but without considering any financing expenses (debt service) or income taxes. Can be compared to gross income, on the one hand, which does not yet deduct for expenses, or net cash flow, on the other hand, which adjusts not only for operating expenses but also for debt service.


Example: A property produces rental income of $100,000. The various operating expenses for maintenance, insurance, property taxes, management, and utilities come to $60,000. The net operating income is $40,000.




The sum of an individual's assets less the sum of all obligations; a measure of personal wealth.


Example: The Securities and Exchange Commission uses an individual's net worth (excluding the value of his primary residence) as one criteria of determining whether that person is an accredited investor.




No personal liability. Lenders may take the property pledged as collateral to satisfy a debt, but have no recourse to other assets of the borrower.


Example: David purchases a property with a nonrecourse loan. If David defaults, then the lender may foreclose and acquire the property, but will not be able to seek a judgment against any other properties or assets held by David.




Sometimes referred to as a promissory note​, a note is a written document that evidences a debt and a promise to pay. Unless the note contains a nonrecourse clause, it generally makes the borrower (or "mortgagor") personally liable for the obligation. The note is usually a separate document from the mortgage (or deed of trust), which pledges the designated property as security for the debt.


Example: Ellen borrows money from James so she can fix and flip a single-family residence. Ellen signs a note in order to acknowledge the debt, to promise to pay under specified terms, and to prescribe a procedure for curing any default. A mortgage will also be signed that pledges the residence to James as security for the note.




The percentage of total units that are currently rented. Contrast with vacancy rate.


Example: Today, the Beach Hotel has 90 of its 100 rooms occupied; its occupancy rate is 90%. Conversely, its vacancy rate is 10%.




Office buildings range from large multi-tenant structures in city business districts to single-tenant buildings (like a hospital’s medical office building). Rents and valuations are influenced by employment growth, a region’s economic focus (finance and high-tech centers need more office space), and productivity rates. Individualized tenant improvements are usually not very involved, but credit quality of tenants is key; re-leases of office space typically require some lead time to consummate. Office properties often have longer-term leases that can lag current market lease rates, so that “step-ups” (or step-downs) of rental rates are not infrequent when leases expire. Because these buildings are often leased to businesses (not just individuals), the tenants often demand special features in the leases, including rights of first refusal to rent contiguous space, signage rights, or even building purchase options.




Amounts paid to maintain a property. Excludes financing expenses, income taxes and depreciation.


Example: Operating expenses can include:


maintenance costs


management fees


real estate (property) taxes


hazard and liability insurance


utilities


supplies




An aggressive (or more risky) investment strategy that in real estate generally signifies investing in properties that require a high degree of rehabilitation in order to eventually earn "market" rental rates. Properties requiring a greater amount of repairs, or rehabilitation, are generally considered "high risk," because the property has not yet proven whether it can indeed earn the rents that are forecast for it when it will be improved to the desired state.




Ordinary income is income that is taxed at ordinary income tax rates and does not qualify for capital gains tax treatment. It's important to understand the difference between ordinary income and capital gain income because, generally, ordinary income tax rates are higher than capital gains tax rates.


Income such as salaries, interest payments, dividends, and many other items are considered ordinary income.




Charges to a borrower to cover the lender's costs of issuing the loan. These costs can typically include the cost of obtaining a credit report, an appraisal or broker price opinion on the property, and expenses associated with obtaining title insurance.


Example: The lender issued a $50,000 mortgage loan and charged a 3% origination fee ($1,500).



P | Q


The division of real property between those who earlier owned it together with an undivided interest.


Example: Ernest and Ivan own land by tenancy in common until they partition the land. Thereafter, each owns a particular tract of land, according to how the original was was divided.




An agreement between persons or entities to invest or do business together. Unless otherwise agreed, either partner may bind the other (within the scope of the partnership), and each partner is liable for all of the partnership's debts. A partnership itself normally pays no taxes, but merely files an information return; the individual partners pay personal income tax on their share of the partnership's income. This is contrasted with a corporation, which must pay taxes on its income, and whose shareholders must also pay taxes on any dividends or other distributions they receive from the corporation.


Example: Adam and Bill form a partnership to buy land. The partnership owns the property, rather than Adam or Bill, but it files only information returns for tax purposes, while Adam and Bill pay personal income taxes on their share of the partnership's profits.




One who invests money but does not actively manage the business or property.


Example: Jones has neither time nor skills to manage the property that he wants to invest in. He forms a partnership with Smith, who is an experienced real estate syndicator and who will devote time and expertise to manage the property for profit. Jones contributes money, but not effort, so he is a passive investor.




A form of marketplace utilizing a technological infrastructure that enables distributed access to capital or, conversely, transactions. Peer-to-peer (or "P2P") markets offer are emerging alternative to many types of more established marketplace models. There can be many variations, but a peer-to-peer marketplace typically utilizes the wide-reaching power of the internet to offer access to certain products or services to persons who might normally have had such access. They also offer providers of such products or services with a much broader "reach" to potential users or customers of such products or services.




An individual's responsibility for a debt. Most mortgage loans on real estate are recourse, meaning that the lender can look to the property and to the borrower for repayment. This can be contrasted to nonrecourse loans, where a lender can only look to the security (the pledged property) for repayment.


Example: Paul borrowed $100,000 against land, thereby incurring a personal liability for the debt. Paul fails to make payments, so the lender foreclosed and sold the property for $70,000; Paul still owes 430,000, plus the lender's legal expenses, as a personal liability. The lender can seek a deficiency judgment against Paul for that remaining loan balance.




A group of investment assets.


Example: Dan's real estate portfolio consisted of equity shares of three retail shopping centers, two multi-family buildings, and one self-storage facility, and also included shares of loans on a hotel and two single-family residences.




A rate of return (often in the 5-10% range) that is paid to investors before the sponsor gets paid any promote share of distributable cash flow. The preferred return is not a guaranteed dividend; sometimes the preferred return is not paid out because the property cash flow doesn’t allow it (for example, where the property is still under development). In such cases, the preferred return typically continues to accrue, and any unpaid amounts are ultimately recouped by the investor when the property is sold. It remains, however, a preferred (higher priority) payout as compared to other potential distributions.




A report issued by a title company before a transaction, stating a willingness to insure title upon closing.


Example: The buyer's attorney arranged for a preliminary title report when the property was put under contract, to discover whether there were any legal or title impediments to be cleared before closing.




To retire all or a portion of a loan's principal balance before it is due under the note or related mortgage. Some mortgages or notes include a penalty for repayment, since the lender is unable to receive interest on principal that has already been repaid.


Example: Aaron borrowed $100,000 last year at 6% interest on a 30-yr mortgage. If he pays the remaining principal now, in one lump sum, he will be subject to a pre-agreed 2% prepayment penalty that amounts to $2,000.




Fees paid by borrowers for the privilege of paying off the loan in advance of its maturity date, i.e. before it becomes due. Lenders plan on loans earning interest for a set period of time; if a borrower repays a loan early, the lender must scramble to find another use for the funds.


Example: Tom borrowed $200,000 under a 5-year loan agreement. The loan agreement had a prepayment penalty clause stating that Tom would have to pay 1% of the loan's principal balance if he paid it off before the end of the 5-year term. If he prepays early, he will have to pay a $2,000 prepayment penalty.




The amount of money raised by a mortgage or other loan that still remains after some of that amount may have been amortized by earlier payments. Principal can be contrasted to the interest paid on the loan.


Example: Harry arranged a amortizing loan of $100,000 principal amount at a 6% interest rate. The first monthly payment is $1,200 and includes $500 interest and $700 of principal amortization; following the payment, the principal balance be $99,300.




Legal precedence; having preferred status. Generally, upon foreclosure, lenders are repaid according to priority.


Example: George's home was foreclosed and sold for $25,000. Unpaid taxes and attorney's fees of $5,000 were accorded priority, and were paid in full. The rest of the sales proceeds were applied against the $20,000 first mortgage on the property. There was nothing left for the second mortgage, because it was lower in priority.




Also referred to as a private offering, a private placement is an investment offered for sale to a group of investors, generally under exemptions to the registration requirements by the U.S. Securities and Exchange Commission and state securities registration laws.


Example: The sponsor of a real estate syndication prepared a private placement to raise equity for the commercial real property being acquired. Only persons who are accredited investors are allowed into the offering, otherwise the sponsor may be required to register a public offering of the securities with the SEC.




Financial statements showing what is expected to occur (as opposed to actual results). From the Latin pro forma ("according to form").


Example: The broker prepared a pro forma statement for the prospective purchaser that showed all the expected cash flows for the property.




Another term for note. A legal document that evidences a debt, specifying how much money is being borrowed and the terms and conditions under which it is to be repaid.




Under an investment structure commonly used in private real estate investments, the "promote" is the share of a property's excess distributable cash flow (the amount of income that exceeds any "preferred" payments required to be made to outside investors) to which the sponsor is entitled. The apportionment of this remaining distributable cash varies among deals, although the investors will nearly always be entitled to the lion’s share of the deal profits. The sponsor’s promote, or share of such profits, will depend on a number of factors, including the degree of difficulty of arranging the opportunity, how intensive the management of the property is expected to be, and whether the sponsor already brings a successful track record to investors. The promote can be analogized to the "carry" structure used in venture capital and hedge fund profit-sharing arrangements.




A solicitation of the general public for the sale of investment units, or securities. Generally requires approval by the U.S. Securities and Exchange Commission and/or state securities agencies. A public offering is to be contrasted to a private placement.


Example: A sponsor of a real estate syndication who wants to sell investment securities to persons who are not accredited investors or who are otherwise not sophisticated investors will likely be deemed to be making a public offering, which will be required to be registered with the Securities and Exchange Commission and state securities agencies.



R


The public official (usually of the local county) who keeps records of documents concerning real property that are used to show evidence of title. Sometimes known as the registrar or county clerk.


Example: After closing, the title company sent the deed to the recorder to provide public record of ownership.




The act of entering in a book of public records the legal documents that affect the title to a piece of real property. Recording in this manner gives notice to the world of the facts recorded.


Example: By recording the deed from a sale of real property, the buyer is assured that all subsequent interested parties are given notice of the buyer's ownership interest in the property. Liens (such as deeds of trust or mortgages) may also be recorded.




The ability of a lender to claim money from a borrower in default in addition to the property pledged as collateral. Contrast nonrecourse.


Example: Roger obtains a mortgage loan from Hometown Savings. If Roger defaults on the loan, Hometown Savings may not only foreclose and force a sale of the mortgaged property, it may also have recourse to Roger's other assets if the sale fails to fully satisfy the amount due under the loan.




To replace an existing loan(s) with a new loan(s).


Example: Michelle has a $50,000 loan against her house, which is worth $200,000. She wants to get some cash to pay for her daughter's college education. She refinances the house with a new $150,000 loan, so that after paying $5,000 in transaction costs she will realize $95,000.




A regulation made by the Securities and Exchange Commission, under the Securities Act of 1933, that sets forth conditions to be satisfied in order to qualify for a private offering exemption from registration.


Example: Syndicator Nancy wants to sell membership interests in a limited liability company (LLC) that will own a portion of an office building. She uses Rule 506 of Regulation D to sell such interests only to accredited investors, to avoid the need of registering a public offering, thereby saving money and several months of delay.




A Real Estate Investment Trust, or REIT, is a real estate mutual fund, allowed by income tax laws to avoid the corporate income tax if it limits its investments to real estate or mortgages and meets certain other requirements such as annually distributing 90% or more of its income to shareholders. Some of these restrictions can limit the maneuverability of REITs, which also tend to focus only on "core" properties with limited capital appreciation potential.




The retail sector includes everything from smaller neighborhood shopping centers (encompassing, for example, a small grocery, pharmacy and a few restaurants or clothing stores) to large “super-regional” malls that have entertainment activities and can draw shoppers from a great distance. Retail properties are most broadly influenced by the state of the national economy generally, especially such indicators as employment growth and consumer confidence levels. More local factors include the property location and its traffic flow; population demographics; and local household incomes and buying patterns. Retail store leases frequently contain a base rent plus a “percentage rent” based on the tenant’s gross sales figures. Leases also often have long terms; as with office buildings, this means that after a while lease rates may lag current market rates, and step-ups may need to wait until lease expirations.




Uncertainty or variability; the possibility that returns from an investment will be less than forecast, or that invested principal might be lost. Diversification of investments provides some protection against risk.


Example: Types of risk in real estate include (1) business risk, involving the project type, its management, and its market area, and how each of these factors might affect rents, vacancies and operating expenses; (2) financial risk, meaning both the uncertainty of the equity return when debt financing is used and the variability of interest rates that might affect a property's debt service or its ultimate sale price; (3) inflation and other universal "systemic" risks like war or significant political changes, (4) liquidity risk, meaning whether (and when) the investment can be "cashed out," and (5) variance or sensitivity risk, referring to the degree of variability of any of the foregoing risks.




A financial concept that attempts to compare the potential fluctuations of an investment with the projected return associated with it. Increased risks require that an investor demand increased returns in compensation; people don’t normally accept the same rate of return on a very risky investment that they can already get on a low-risk investment.


Example: An expected return of two (2) percentage points above the rates paid by U.S. Treasury bonds may be considered sufficient reward for investing in mortgage securities if the historical default rate of such securities has been at 1%.


Example: An expected return of ten (10) percentage points above the U.S. Treasury rates may be needed to invest in unsecured credit card debt, if the historical default rate on such debt has been at 5%.



S



A lien created by a mortgage (or deed of trust) that is subordinate to the amount of the first-lien mortgage (or deed of trust). Second mortgages, which on residences are sometimes referred to as a home equity line of credit (HELOC), can reduce the amount of cash down payment due at the time of purchase, or in a refinancing can raise cash for other purposes. See also subordination.




The federal agency created in the 1930s to carry out the provisions of the Securities Act of 1933, the Securities Exchange act of 1934, the Investment Company act of 1940, and many other laws related to the selling of investment securities. Generally, the agency seeks to protect the investing public by preventing misrepresentation, fraud, market manipulation, and other abuses in the securities markets.


Example: The Securities and Exchange Commission must review the disclosure materials prepared in conjunction with a public offering of securities, the registration of those securities if they are to be publicly traded, and other matters. The agency does not, however, guarantee an investor against loss.




1. Property that serves as collateral for a debt.


Example: Real estate serves as security for a mortgage loan; in the event of a borrower's default on the loan, the lender may sell the property to satisfy the debt.


2. An investment contract or other legal instrument (such as a stock, bond, option, future, or interest in mineral rights), whereby a person invests money in a common enterprise and is led to expect profits from the efforts of the promoter or some other third party.


Example: A membership interest in a limited liability company (LLC) is a security.




A technique of investment analysis whereby different values of key variables are tested to see how sensitive the projected investment returns (results) are to changes in assumptions. It is a method of evaluating the riskiness of an investment.


Example: Sensitivity analysis was applied to a certain income property investment. It was found that forecasting a 15% vacancy rate produced an expected internal rate of return (IRR) of 16%, vs. an 18% IRR for a 5% vacancy factor. On the other hand, varying the property's appreciation rate from 10% per year to 5% reduced the expected IRR from 20% to 4%.




In real estate, generally refers to a stand-alone property intended to house one family. Individual apartment or condominium units are usually thought of as being part of a multi-family building, even though individual units are usually occupied by a single family.




Also referred to as an "operator" or "syndicator," a sponsor is the managing leader of a real estate project who researches the market, identifies a property to be acquired, organizes the investors and bank financing in order to make the purchase, oversees the subsequent management of the property, and determines when it is to be sold. Sponsors are generally professional real estate companies that are accustomed to these varied tasks. Sponsors will usually themselves make some investment in the property (in addition to the other investors that make up the investing syndicate), but will also make some money from a "promote" interest in a portion of any improved cash flow enjoyed by the property under their oversight.




A foreclosure proceeding not conducted under court supervision; contrast with judicial foreclosure.


Example: In many states, deeds of trust are used as mortgage-type legal documents. In these cases, foreclosure sales are handled through a trustee acting according to the law and the provisions of the deed of trust. This process is a type of statutory foreclosure.




Similar to market area, but generally refers to a very focused region -- perhaps a specific suburban area -- within a larger metropolitan area. Like market area, it refers to a geographic region from which one can expect the primary demand to come for a property.




Moving to a lower priority, as a lien would if it changes from a first mortgage to a second mortgage.


Example: John provided the financing when he sold his land to Kathy, so that John held a first mortgage on the property. Kathy, though needed to obtain a loan to build a structure on the land (a "development loan"), and no lender would provide a development loan unless that loan had the first mortgage. Kathy approached John and offered to repay his loan within two years if, in exchange, he would allow subordination of his loan so that Kathy could obtain a development loan.




The formation of a group of investors, organized by a sponsor, that pools the investors' capital together in order to make an investment. In real estate, such pools (or syndicates) are often formed because even a single property can require substantial capital, usually beyond the means of a single investor. An investor in a syndicate's securities can buy one or more shares (or membership or partnership interests) of a syndication entity (usually a limited liability company (LLC) or a limited partnership), and the entity -- with its aggregate of investments -- can then be in a position to make a meaningful investment in a property.



T


An ownership of real estate by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the decedent is inherited by those designated in the decedent's will, not the other persons who own other shares of the property.


Example: A syndicate is formed using a tenancy in common. All of the investors have to the deed for the entire property to be conveyed. Each tenant may convey his or her share independently. Their contract states that none of the investors will seek to partition the property.




Evidence that the owner of real property is in lawful possession thereof; it is evidence of ownership. Usually a property owner transfers his title by means of a legal document called a “deed,” which must be in writing and meet other local requirements. A deed should convey good and marketable title; “good” means that the title is valid, and “marketable” means that it is reasonably free from doubt or litigation, so that it can be readily sold.


Example: Title to land does not mean merely that a person has the right of possession, because one may have the right of possession but not have title. Title is evidence of true ownership of the land, with all the rights that signifies.


Example: Karen sold land to Susan. Title to the property was transferred at closing by the deed that Susan received.




An insurance policy that assures good title is transferred in the course of a sales or financing transaction. This insurance covers the legal fees and expenses that may be necessary if a claim is made against one's ownership of the property. Different title policies offer different extents of coverage; for example, one can purchase "standard" coverage or "extended" coverage.


There are two common types of policies: a lender's policy that protects a lender (or the "mortgagee") on the property, and a buyer's policy that protects the buyer (or the "mortgagor").




The costs associated with buying and selling real estate.


Examples: At the closing of a property's purchase or refinancing, a party (typically the buyer or borrower) must pay for appraisal fees, broker commissions, legal fees, mortgage origination fees, recording fees, and title search fees.




In finance, a manner of doing business such that activities are fully disclosed and reported to investors. Such policies make it possible for potential investors to adequately estimate the risk, and to forecast the income, from investing.




A lease in which the tenant is to pay all the operating expenses of the property, such as taxes, utilities, insurance, and repairs; the landlord receives a "net" rent. The debt service on the property and the landlord's own income taxes are not considered operating expenses and remain payable by the landlord.




A legal arrangement whereby property is transferred to a trusted third party, or trustee, by a grantor (or "trustor"). The trustee holds the property for the benefit of another (the "beneficiary").


Example: A living trust was established by a person who wanted to give her warehouse to a trustee for the benefit of her children.




One who holds property in trust for another, to secure the performance of an obligation. In a deed of trust transaction, the trustee is the neutral party.


Example: Smith purchases property and finances it with a deed of trust from a lender. The title company is the trustee, holding legal title to the property pending Smith's satisfaction of the debt. Should Smith default on the loan, the trustee may sell the property to satisfy the debt.



U | V | W | X | Y | Z


In real estate, generally refers to making an assessment of the risks and potential returns of a potential investment or loan. See also due diligence.


Example: The lender's loan underwriter analyzed the loan submission package carefully, because she didn't want her firm to take excessive risk.




An ownership right to use and possession of a property that may be shared among co-owners, with no single co-owner having exlcusive rights to any one portion ot the property.


Example: Ten investors form a tenancy in common and purchase a 100-acre tract of land. Each cotenant obtains an undivided interest in the property. All decisions as to the use and disposition of the land are made collectively by all cotenants. No single cotenant may unilaterally mortgage, develop, or sell a portion of the property.




The percentage of all units or space that is unoccupied or not rented. On a pro forma income statement,, a projected vacancy rate is used to estimate the vacancy allowance. This allowance is then deducted from the potential gross income in order to calculate the "effective" gross income.


Example: In a college town, the apartment vacancy rate varied from 5% during the 9-month college term and 25% during the summer session. Overall, the average vacancy rate was 10%.




A real estate property categorization, or investment "style," referring to properties requiring some degree of improvements in order to gain increased returns. "Value-add" generally refers to a property that is currently in less than stellar condition and in need of improvements that are of somewhat higher risk, such as performing more-than-usual renovations like upgrading exteriors and interiors and curing deferred maintenance. The "value-add" categorization implies higher risk than the category of "core plus," but less than "opportunistic." Returns on the properties will be driven both by current income and by expected capital appreciation.




Another term for the internal rate of return (IRR), a measure of an investment's return rate that takes account of the time value of money.




A legal mechanism for local governments to regulate the use of privately owned real property by applying their power to prevent conflicting land uses and promote orderly development. Designated zones limit the type and intensity of permitted development.


Example: Before a tract of land may be developed, the intended use must be permitted under the existing zoning classification. If the proposed use is not permitted, the developer must apply for a variance, or re-zoning, generally following a public hearing and a recommendation from the local planning commission.


Tax


When you invest in membership shares of an LLC you are generally taxed as a partner in a partnership. Although the partnership generally is not subject to income tax, you may be liable for tax on your share of the partnership income, whether or not distributed.

Form K-1 is used by a partnership to report your share of the partnership's income, deductions, credits, etc. Include your share(s) on your tax return if a return is required. The partnership files a copy of Form K-1 with the IRS.
Form 1099-INT is used to report interest income that is paid or credited to a taxpayer.  Interest income generally includes interest on bank deposits and other indebtedness (including bonds, debentures, notes, and certificates other than those of the U.S. Treasury).

Depending on the structure of your investment, you may receive a 1099-INT from us that will reflect interest income that has been credited to your account on certain debt investments.
We anticipate that your K-1 package will be available in your dashboard on our site on or around March 15th.  Once your K-1 package is available you will receive an email alerting you.

Please realize that because of the structure of our investments, we often are waiting for tax information from other parties.  This may result in unanticipated delays and, accordingly, we cannot guarantee that you will receive your K-1 package before April 15th. Please be assured that every effort on our part will be made to ensure that we generate K-1s as timely as possible.

Form 1099-INTs will be issued by the end of February.

Your Form K-1 may show income that relates to (among other things): (1) interest income; (2) net rental real estate; or (3) gains from the sale of real estate.

Interest income is considered portfolio income and will typically be taxed at your marginal tax rate.  Net income from rental real estate is also taxed at your marginal tax rate, but is subject typically to passive activity rules.  Capital gains will be taxed at rates of 15% to 20% depending on your tax situation.

The taxation of different categories of income is an important issue to taxpayers.  Make sure that you discuss these classifications with your tax advisor.
The amount of loss and deduction you may claim on your tax return may be less than the amount reported on Schedule K-1. It is the partner's responsibility to consider and apply any applicable limitations.  Please discuss this issue with your tax advisor.
Your Form K-1 was prepared based upon information you have provided to us along with specific financial information relating to your investment.  Please communicate any changes as soon as possible so that timely updates to your tax documents can be made.
If you file your tax return prior to including your Form K-1, you should file an amendment to your return to include your K-1.  Should there be any additional tax due you may be faced with interest and penalties.  Any filing requirements and amendments should be discussed with a qualified tax professional.
Information relating to cash distributions can be found in the “Earnings” section of your YouLands investor dashboard.  These cash payments typically represent partnership distributions under U.S. tax law and most state and local jurisdictions.  They sometimes are incorrectly referred to as "dividends".

As a general rule, these partnership distributions are not taxable to you because you are taxed on your allocated share of partnership income.  However, they may be taxable should you have distributions in excess of your basis in the partnership.  You should discuss this issue with your tax advisor.
While distributions from U.S. partnerships are typically not subject to U.S. withholding, certain types of U.S. source income which are allocable to non-residents are subject to U.S. withholding.  Please consult your tax advisor.
As a general rule, if an entity has an equitable interest in real property in a specific state that state will subject the partners to taxation (assuming that state imposes income tax).  Accordingly, when you invest in a YouLand equity investment opportunity that state will typically tax you and it does not matter what state you reside in.

If a state imposes a state income tax, withholding and filing requirements are typically done under the following scenarios:

 1. No state withholdings are made by the partnership and the individual partners are required to file state tax returns and to pay income tax on their respective share of the partnership income.
 2. The partnership withholds state income tax on behalf of the partner and remits it to the state.  This withholding is then reflected on Form K-1 and the partner is responsible for filing the required tax forms.
 3. The partnership withholds, remits and files all information with the state and the individual partner is not required to file or pay anything.  This is called a composite or group filing.

State filing requirements are complex.  We strongly recommend that you discuss your state filing requirements with your tax professional.
Federal tax law does require that a Form K-1 be sent to every partner (or investor) who held a partnership interest during the applicable tax year.  If an investor has a partnership interest that is held in a retirement account (E.g. Traditional IRA, Roth, 401(k), etc.), the amounts reported on the Form K-1 are not reported on the investor’s personal tax return.

However, investments within a retirement account do require additional considerations and may have tax consequences.  Current tax law requires IRAs and certain other tax-exempt entities with more than $1,000 of gross qualified Unrelated Business Taxable Income (“UBTI”) to file a tax return using Form 990-T.  The account will typically only owe taxes if its UBTI is greater than $1,000. You should discuss this issue with your tax advisor to ensure that all required tax filings and tax payments are complete and accurate.
A YouLand debt investment may generate either a 1099 or a K-1 depending on how the specific deal is structured.  However, in both situations the income that is received is classified as interest income for tax purposes.
When you participate in a YouLand deal, you become a member of a limited liability company (“LLC”) that is taxed as a partnership.  Partnerships are not subject to taxation as the income, deductions and/or credits merely flow through to the individual partners.  However, each partnership is required to file a tax return and list all partner information such as name, address and social security number.  So even if you do not expect immediate taxable income to flow through to you, you are required to furnish the information for IRS compliance. 
Determining your basis in an investment can be complex and should be done with the help of a tax professional. The basis of an interest in a partnership is increased or decreased by certain items.

Increases.   A partner's basis is increased by the following items.

· The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities.
· The partner's distributive share of taxable and nontaxable partnership income.
· The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners.

Decreases.   The partner's basis is decreased (but never below zero) by the following items.

· The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership.
· The partner's distributive share of the partnership losses (including capital losses).
· The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return.
· The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner.
A flip project will generally be taxed as ordinary income that is subject to the investor’s marginal tax rate.  This is because a flip is classified as a “dealer” and is deemed to be in an active trade or business. 

A long-term rental is defined as passive income and is subject to the passive activity rules.  These rules allow you to offset passive income against passive losses.  Any resulting net passive income will be taxed at ordinary income tax rates.  In addition, upon the sale or disposition of a rental property, capital gains (or losses) will be generated that will be classified at a preferable long term capital gains rates.
Depreciation is recorded on real estate that is held for rental purposes.  This depreciation is recorded on the LLC that holds title to the real estate.  Accordingly, this will result in lower net income that is passed through to YouLand investors.
It depends.  Some states require a withholding on distributions or income that is passed through to investors.  Any state withholding will be reflected on your K1 at the end of the year.
Compliance


Yes. YouLand is currently affiliated with North Capital Private Securities Corporation ("North Capital"), a registered broker-dealer with FINRA and member of SIPC. North Capital provides compliance and regulatory oversight to YouLand .
All offerings listed on YouLand s are private placements exempt from registration under the Securities Act of 1933 pursuant to Section (4)(a)(2) and Rule 506(b) of Regulation D.  In keeping with Federal Securities laws, all offerings conducted through YouLand are currently limited to Accredited Investors.
Yes.  There is no requirement that our Real Estate Companies or their principals be Accredited Investors.
No.  In order to remain compliant with Reg D Rule 506(b), YouLand and real estate companies using YouLand to raise capital cannot publicly advertise active offerings being conducted through the YouLand website.   Although the SEC, on September 23, 2013, implemented new Rule 506(c) pursuant to Title II of the JOBS Act to allow real estate companies to advertise their fundraising to the general public, we are not yet utilizing this new exemption.  However, please check back soon as we plan to support advertisement of investments in the near future!
YouLand is not currently operating under either Title II or Title III of the JOBS Act.  Rather, all investment offerings made available through YouLand are conducted under existing Regulation D, Rule 506(b) and accordingly available only to Accredited Investors behind a secure firewall.
No. YouLand pools all individual investors into a single LLC, which we refer to as a YouLand Fund, and stays on as the Manager of this Fund LLC. This allows you to focus your time on managing and operating the investment property while leaving investor communications and management to us.  This also means that you only have to prepare a single K-1 each year for the YouLand Fund and YouLand handles preparation of separate K-1's for all investors in the Fund.  
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