Any investment vehicle worth its salt is a great way to achieve financial freedom and your investment goals as a property owner. In a quickly growing market like Fort Worth or Dallas, Texas, there’s no reason why you shouldn’t be able to meet or exceed the expectations you have for your investments. One way that many successful investors are finding an edge for their portfolio is by working with an Umbrella Partnership REIT, or UPREIT.

However, success in any investment venture hinges on understanding. At The Peak Group, we firmly believe that investing knowledge is financial power, so we seek to educate investors on how UPREITs are formed—as well as why anyone would consider joining an Umbrella Partnership REIT when it comes to the health of their portfolio.

First, it is vital to understand the components that make up this powerful investing option. Let’s break down just what makes an Umbrella Partnership REIT so unique compared to other forms of REIT you could choose as a partner!

What Is a Real Estate Investment Trust?

• A Real Estate Investment Trust, otherwise known as a REIT, holds quite a few similarities to a mutual fund.
• A REIT focuses solely on real estate, whereas a mutual fund may hold assets or shares in many different kinds of businesses or industries.
• The assets of a REIT can be diversified both geographically or across commercial and residential real estate, or they can be concentrated on one category.

There are similarities in benefits when comparing a mutual fund with a Real Estate Investment Trust. For example, depending on the type of REIT structure you choose, it offers the benefits of a diversified, professionally managed portfolio. Additionally, Umbrella Partnership REITs distribute almost all net income to the investors who have pooled their properties—much like a mutual fund.

How Is an Umbrella Partnership REIT Formed?

• In an Umbrella Partnership REIT investment format, the REIT does not own property directly.
• Instead, all of the REIT’s assets are indirectly owned (and managed independently) through an umbrella partnership, otherwise known as the “operating partnership” of the Real Estate Investment Trust.
• The REIT, by contrast, directly owns interests in the operating partnership.
• The interests owned by the REIT are known as “units”.
• Property owners contribute properties to the operating partnership in exchange for these units.
• Units can then be converted into REIT shares, generally at a rate of one unit per one REIT share.

This independent form of management is often ideal for investors looking to distance themselves from a property that no longer benefits their portfolio—without the penalizing tax repercussions inherent in a direct sale.

Why Choose an Umbrella Partnership REIT?

• Participating in an UPREIT provides a viable exit strategy to property owners looking to unload properties that no longer benefit their portfolio.
• Many property owners may have an appreciated property that they’d like to sell, but selling means facing significant and penalizing capital gains taxation.
• Partnering with a Real Estate Investment Trust is a way to gain a better financial position without selling your asset for cash—thus deferring costly tax implications.

An Umbrella Partnership REIT also allows for further development and diversification of real estate holdings. This diversification comes from trading one property for an interest in many different kinds of properties. This allows the investor to move away from the reliance on the profitability of their portfolio or a single property traded to the REIT for income.

 

Instead, the business owner is reducing their investment risk by diversifying their investment interests across a vast—and often highly varied—pool of offerings. Another advantage of an Umbrella Partnership REIT is that there no property management responsibilities on the investor’s end after a conversion: in an UPREIT structure, the collection of properties is managed independently.

This option is excellent for busy professionals who still want to gain financial freedom from their hard-earned real estate investments, but don’t necessarily want to handle the day-to-day management side of owning real estate holdings.

Last—but certainly not least—an Umbrella Partnership REIT provides the opportunity for regular dividend distributions. This means that a property owner can “sell” their appreciated property without totally losing the income provided by it. The income is also tied to the performance of the REIT as a whole—not a single property or set of properties.

Is an Umbrella Partnership REIT for You?

If you have a property you’d like to unload—or even an appreciating property in a booming area like the Fort Worth or Dallas market—turn to The Peak Group! We can offer expert advice on real estate investment and partnership opportunities—including even more UPREIT benefits than we could list in one blog. We’re on a mission to help investors like you get the most yield from your portfolio!

Take advantage of our combined decades of experience in property investing strategy! When it comes to your financial freedom, we know that an educated approach yields the best results.