John Shramko is a Chattanooga, Tennessee businessman who has developed a robust and thriving career over the past two decades. His experience has been in the real estate field, and he has developed a thriving amount of success throughout his time working in the industry. His work includes two major endeavors, both of which have provided him different forms of fulfillment and joy.
John’s first major business venture is the RC Investment Group, LLC. This real estate investment group has been the foundation of his success, providing him with a large portfolio of clients and properties which is in constant development and growth. John Shramko has been the owner of the company since 2009, and he has been instrumental in the growth and development of the group’s properties. The group’s managed portfolio involves buying a property with high growth potential, selling when the property reaches peak opportunity, rehabilitating properties that have potential just underneath, and renting out stable and consistent properties. RC Investment Group, LLC
Chattanooga Real Estate Academy, LLC is another of John Shramko’s major ventures, this one supporting the real estate community by providing a foundation of knowledge to those who seek it. This group trains and coaches aspiring investors on the best methods for success. Topics covered include finding, funding, and fixing properties, each one a step in the process of building a portfolio that can provide success and growth. John is a firm believer that financial literacy brings financial freedom, and by providing these professionals with that literacy, they can move on in their life with confidence. He is proud to have already provided 3 years’ worth of professionals with a foundation of knowledge in the field.
John Shramko is a married man, and he has raised 4 children alongside his wife. It has been his goal to instill the right values and virtues in his children – values of knowledge and education, hard work and dedication, gratitude, and humility. He has worked hard to live out these values in all things, including his work and personal life. He attributes his success to his family, who have provided him motivation and support throughout his career.
John Shramko on Tips on Starting a REIT
A Real Estate Investment Trust is a major organizational structure in investment management. A REIT owns or finances investment properties, gaining income, and distributing earnings to its investors via dividends. REITs can earn major income but are required to distribute 90% of its taxable income to investors. There are two slightly different types of REIT
- Equity REITs
- Mortgage REITs
The first is the most common format and produces dividends by investing in income-producing real estate – apartments and the like. The alternative – Mortgage REITs – provide financing for real estate and buy existing mortgages.
Why Start a REIT
A REIT is an immensely flexible method of investment – far more so than equity crowdfunding or real estate syndication. REITs don’t require you to raise capital for each deal itself, which can be slow and cause you to miss out on deals.
Investors essentially agree to trust you and your asset management abilities. This trust means you have more flexibility on how to allocate your investments. In syndication, you would have to confirm with investors whenever an investment is made.
Another major benefit of REITs is tax benefits, as there is no trust-level tax. Instead, the dividends are taxed. A major legal requirement of REITs is that at least 90% of taxable income is paid out to investors as dividends. The key term is ‘taxable.’ depreciation is a non-cash expense that can be used as a deduction for taxes. With that in mind, there is always money that goes untaxed and usable for other investments.
Starting a REIT
Smaller portfolios will likely start as a private REIT. The process is a little more complicated than presented below, but this is a good place to start. It’s probably a good idea to get set up with an attorney who can guide you through the process.
- Form a Taxable Entity – Forming an entity isn’t the easiest thing to do, but it’s not particularly difficult. Create a corporation which will form the REIT when finished – it will most often begin as a management company.
- Draft a Private Placement Memorandum – This will provide a sort of ‘constitution’ for the REIT, and should include specifics on the company’s: Objective, financial information, profit distribution plan, rules for when investors sell their shares, and more. This is where an attorney will be most helpful.
- Find Investors – The number is somewhat arbitrary, but a company needs at least 100 investors by its second tax year to be classified as a REIT. It won’t end your venture to miss the deadline, but it certainly doesn’t look good to the investors you do have.
- Convert to a REIT – Once you’ve confirmed your investors, you’re ready to move forward by amending the certificate of incorporation you will have filed.
- Keep Up Compliance – the ongoing requirements for REITs are not difficult, but must be maintained to continue legally. The requirements are: 90% of taxable income is paid to investors as dividends, 75% of its assets must be in real estate/mortgages, 75% of gross income must come from rentals or mortgage interest, and no more than 5% of income can come from service fees or other business costs.
