What is a Real Estate Investment Group?
Real estate investment group - sounds pretty exclusive, doesn’t it? In a sense, it is exclusive and presents a unique investment opportunity for those wanting to get into real estate. Why would you want to join a group rather than take on real estate projects by yourself? Let’s explore this alternate approach to real estate investing and what it has to offer.
What is a real estate investment group?
Essentially, a real estate investment group offers investors the opportunity to invest in rental properties through a hands-off approach. This means that investors do not have to worry about any of the effort required to maintain and rent out these units. Of course, this comes at a cost as the group takes a certain percentage from the monthly rental income as compensation for their services. Notice how they are paid after investors? These differ from Real Estate Investment Trusts (REITs) since they aren’t required to pay 90% of income as dividends. Rather, real estate investment groups typically work on a fee basis determined by the monthly rental income.
The real estate investment group will take care of tasks such as:
Buying or building the properties to be rented out. Often these are dealt with in bulk, whether it be a residential complex or large commercial plazas with many units.
Finding tenants to rent the units. This a huge responsibility as it determines the level of monthly income for investors. Since the group’s compensation is often tied to the level of monthly income, they will have an incentive to keep occupancy rates as high as possible.
Any maintenance or repairs required in the upkeep of the property. This is probably one of the biggest reasons people choose this method of real estate investment, since they can rely on the group to take care of day-to-day needs.
How do you make money from this investment option?
As a member of a real estate investment group, you can expect to earn money in two forms:
Monthly Rental Income: This cash flow is generated from the tenants who occupy the properties owned by the real estate investment group’s investors. Of course, any vacancies will lower this number so you will want to make sure the group keeps the units occupied.
Property Value Appreciation. Since you as the investors own the properties being managed by the real estate investment group, you can experience the benefits from any rise in property values. Unlike the recurring monthly income, this form of profit is realized when the properties are sold.
What are the benefits of joining a real estate investment group?
A Hands-off Approach to Real Estate Investing. As we’ve mentioned, investors do not have to worry about the day-to-day tasks typically associated with real estate investments. Rather, you can just buy-in and sit back while others do the work for you. Sounds nice, doesn’t it?
Similar Diversification Benefits as Mutual Funds. Investors are able to reap the benefits of investing across multiple properties, rather than just one. This would be much more difficult as an individual investor since it requires large pools of capital.
Are there any disadvantages of joining a real estate investment group?
Vacancies Require Cash to Cover Mortgage Payments. Investors will be on the hook for any vacancies if the level of rental income falls below what is required by mortgage payments. Of course, real estate investment groups will ultimately do everything they can to avoid this since it means less income for them too.
How to join a real estate investment group?
These types of investments are considered private investments since you will be dealing directly with the company. This is different from buying shares on the stock market as you would for REITs. Search for local groups in your community or where you are interested in investing. Set up a meeting to learn about their specific investment requirements and how they can help you unlock your income potential.
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