INVESTMENT STRUCTURES
Here we go over the various ways that Yorkshire Realty tailors investments to suit each client's needs. There are three key decision-points that determine the structure of a particular investment: (1) whether to use financing or buy all-cash; (2) whether to own the property directly versus through an LLC or other business entity; and (3) whether to have one or multiple owners. We discuss each of these points in turn:
Financing or all-cash?
Most investors opt for the far greater returns that can be achieved with financing. But going all-cash has benefits too, including more favorable acquisition terms and not having to deal with a loan. The following table summarizes the pros and cons of each approach.
Direct or corporate ownership?
Direct ownership is simpler for most purposes, and is often preferred by individuals and related investors, such as married couples. However, there are distinct advantages to using an LLC or other business entity. Doing so allows multiple unrelated investors to pool their resources and increase their buying power; it can also provide an additional layer of liability protection and distance from daily operations. The following table summarizes the pros and cons of each approach.
One or multiple owners?
Having multiple owners does not fundamentally alter the process, though having a single owner tends to simplify things. We frequently see multiple owners, where related individuals wish to share the investment, or multiple individuals seek to combine their resources toward a larger investment.
These choices come down to each investor’s individual circumstances and preferences, and we are available to help guide clients through the process. We illustrate a couple of combinations that may be particularly attractive to many investors:
Financed purchase made directly by one person or related persons
We often use this approach for investors who can make the entire down payment themselves. The purchase and financing process is similar to that for a primary residence, and the investors receive full direct ownership, including total control of when to sell the property. Daily operations are handled by a professional property manager. In this scenario, Yorkshire Realty handles the property acquisition phase and provides continuing over-arching support. The following graphic shows how this scenario works.
Financed acquisition made by an entity with multiple owners
This method allows clients to make a smaller initial investment as part of a group led by Yorkshire Realty. We gather a few like-minded investors, form the LLC, acquire the property, and operate it in conjunction with professional management. Investors receive regular distributions and status updates, but are generally unbothered by daily operations. Yorkshire Realty decides when to sell or refinance the property, and there are procedures in place for investors who wish to exit early. The following graphic shows how this scenario works.
