Real estate acquisitions: not a spectator sport.

Deciding to invest in real estate is not the same as opting to put your money in the stock market. On Wall Street, you put money into shares of a stock or fund. You cannot directly affect its value, but you can sit back and monitor the stock ticker.

Real estate investing falls at the other end of the spectrum. Your role, active or not, can impact the investment's value. You also don't have the advantage of a definitive value report each day. If you decide to jump into the real estate game, evaluate all the steps before taking the plunge and purchasing a property.

First consider what structure will best serve your investment entity--an S corporation, a general partnership, a limited partnership or a limited liability partnership or corporation (LLP/LLC). The limited liability partnership offers the greatest flexibility, which is a good option for most investors. You can structure the partnership any way you want--slice and dice it so it best suits all the partners' desires and roles.

Maybe one partner does not have a lot of cash to invest but has the expertise to manage the properties well. Perhaps another partner has the cash but not the experience. The two could agree to create a 50/50 partnership because each brings a specified value to the deal. The one without the full cash contribution can have a carried interest and any money distributed can go first to the money partner.

Don't be caught off guard by the fact that ongoing fees are necessary in real estate investments. In the stock market, fees are assessed on a transactional basis. In real estate, fees are based on management and related matters. Properties need to be managed--whether an office building, residential complex or retail center--repairs need to be made, services need to be rendered, etc.

Determine whether you or your partners want to oversee the day-to-day management or whether a management team/service needs to be hired. If you of another partner assumes management responsibilities, what fee, if any, will you of that person receive separate from your investment?

Perhaps an asset management company helped put together the deal and you now want that company overseeing the property, including the hiring of an operating management team. You pay a fee to the asset management company to which the operating team reports. Or you could opt to hire the operations company directly and have it report to the partnership. Whatever management structure is selected by you and your partners, factor the fees into your investment calculations.

You invest in real estate because you expect a payoff--an ongoing profit share, a return on your initial investment when the property is sold, etc. It is essential to determine from the get go a return schedule for you and your partners. There are many options. Preferred returns involve cash investors who receive a set percentage based on the money they put into the deal or a specific percentage of the investment is allocated then the excess returns are distributed. A return of capital is a return of your monetary investment. Profit distributions involve how to distribute the money after all other financial requirements have been met. Remember, though, profits, increased value, etc. are never guaranteed.

What is certain in real estate investments is that you and your partners will have ongoing tax obligations. Set up the investor return plan to consider those tax distribution necessities. Will the partners pay for their taxes with their own money of will the partnership distribute the tax payments?

While taxes are a nonnegotiable part of the deal, there are tax incentives and advantages available to the well-researched real estate investor. Be aware of how to maximize those tax benefits to reap the biggest rewards. Here are some areas to consider:

Conduct a cost segregation study. The IRS now allows commercial and residential property owners to allocate the assets into more detailed groups as opposed to the simple building and land classifications, including assets such as paving, fixtures, alarm systems, etc. With the professional reclassification, property owners can speed up depreciation and realize their tax savings up front. It puts more money in your pocket earlier.

Look for tax incentive programs. Many cities, for example, have specific areas where property redevelopment is urged. They may offer tax abatements for development of those properties--saving you money.

Take advantage of bonus depreciation. If a new asset's depreciable life is less than 20 years, you can take an additional 50% depreciation in the first year (as well as the year's depreciation). There are certain rules that are connected to bonus depreciation, such as you must own the property for three years. Be sure to consult with your tax adviser for counsel on how to take advantage of these tax opportunities.

Real estate investment offers great potential. Understanding the structure, details, and framework, along with active participation in one form or another, will only help your investment reach its full potential.