Real Estate: an Important Asset 
                              Class
      • Until recent stock market boom, single family 
         homes value in US approximated value of entire 
         stock market.
      • Home mortgages 1999: $4.62 trillion Consumer 
         credit is only 1.46 trillion. US National debt held 
         by public is only $3 trillion
         (Source: FRB, Balance Sheets for US Economy)
                                    
              Real Estate Partnerships as the 
                   Major Example of a DPP
        •  Real estate limited partnerships represent the most 
           important example of a Direct Participation Program 
           (DPP), a class of investments that also includes oil and gas 
           exploration programs and equipment leasing programs
        •  “Direct participation:” DPPs are “flow-throw vehicles” 
           and investors can deduct program losses on personal taxes
        •  “Tax shelters” until the Tax Reform Act of 1986: losses 
           used to offset “passive income.” Now, genuine businesses.
        •  DPPs escape the corporate profits tax
        •  IRS requirements, notably limitation of life
                                            
         Limited Partnership Structure
      • General partner runs the business, does not have 
         limited liability
      • General partner must own at least 1%
      • Limited Partners are passive investors, with 
         limited liability, rights to vote, can replace general 
         partner
      • General partner or associate usually runs the 
         offering to sell units to investors
      • Give additional performance-oriented 
         compensation to the general partner
                                  
               Accredited Investors
      • Regulation D: Accredited investors include 
        individuals with net worth in excess of $1 
        million or with income in excess of 
        $200,000 ($300,000 joint income) in each 
        of the last two years
      • National Association of Securities Dealers 
        (NASD) requires suitability files and 
        suitability tests for DPPs
                               
                             REITs
      • Real Estate Investment Trusts (REITs) were 
         created by US Congress in 1960 to allow small 
         investors access to real estate investments.
      • Before 1960, public companies that owned real 
         estate would be considered businesses, for which 
         their earnings would be subject to corporate profits 
         tax. So, until 1960, real estate was typically owned 
         by partnerships, not suitable for small investors.
      • Today, institutions invest in REITs too.