Cumulative refers to the combination or interaction of funds that may come from different sources or may be earmarked for different purposes. As a real estate investor, blending can help diversify your portfolio and expand your potential. As a property owner, you must clearly understand where your funds are coming from and what they are for so that you can use them properly.
In this post, we’ll explain what blending is, when it’s beneficial, and when it may be illegal.
What is cumming?
In real estate, leads mean different things to different people.
real estate investors and everyday people
In real estate investing, a fiduciary has the authority to collect funds for the benefit of a client. Blended real estate funds involve pooling and combining investor’s assets into a single investment unit. A fund manager can buy and manage assets directly from this accumulated capital.
Be aware that when you invest in real estate with others, your investment may be classified as a security and you are required to meet specific requirements outlined by the Securities and Exchange Commission (SEC).
To reduce the risk of matching, some real estate investors park their cash in mutual funds in trust accounts or dedicated escrow accounts, which are then managed by a third party. Others open separate bank accounts for each investment asset. Either way, you should avoid mixing personal and investment funds at any cost, no matter how insignificant.
rental property owner
Blending occurs when a landlord mixes personal income or business funds with a tenant’s security deposit check. When a tenant provides a security deposit to their landlord, the landlord becomes their fiduciary. In other words, the landlord is legally bound to protect these funds and avoid using them for personal expenses.
These funds must be placed in a designated fiduciary account and only touched when the tenant moves out and receives their security deposit back, minus the cost of cleaning and repairs.
agents and brokers
Blending is when they mix personal funds with client funds. Although it is legal under certain circumstances, many real estate professionals believe that you should avoid compounding at all costs. If an agent or broker is making money illegally, they risk having their license revoked or suspended.
mixed investment
If you’re investing in real estate, you’re probably already getting it without even knowing it! Here are some common blended investments:
- real estate investment trusts (REITS)REITs: REITs own, own or operate income-generating real estate properties. They are often physical assets, such as office buildings, apartment complexes, storage facilities and warehouses, but they may also offer financing to help others acquire income-generating real estate.
- mutual fundsMutual funds are stocks, bonds, and other investments that are purchased “mutually.” In real estate, mutual funds often invest in REITs and real estate operating organizations.
- crowdfundingReal estate crowdfunding allows you to invest money online with others to buy a real estate property (or a portion of it) as a group. Crowdfunded investments can give you access to otherwise exclusive, private investments that are not offered to the general public but may provide higher returns (eg, higher growth).
advantages of blending
Legal amalgamation brings great benefits to fund investors and everyday people alike. Blended investments let you:
- Increase your passive income stream
- Diversify Your Portfolio
- Get high return assets that you can’t buy alone
- Partner with others to gain access to exclusive, private investment opportunities
When is cumming illegal?
Most illegal amalgamations occur when you fix your personal assets with the business assets of a client or tenant. If you are working with an investment manager, they have a fiduciary responsibility to adhere to certain standards and specifications when managing your assets. Failure to do so violates the contract they have with you.
Rental property owners also have to beware of illegal insertions. For example, it is illegal to deposit a tenant’s security deposit into your personal account. The security deposit should be kept in a designated trust account and should only be touched if you are returning that deposit.
If you’re ever concerned about matchmaking, check out the BigPockets forums. BiggerPockets exists to help ordinary people build wealth through real estate, including any questions you may have on your journey.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
