What is a Real Estate Investment Group?
12 09 2016
You may have seen real estate investment groups (REIG) pop up on your social media feed, or flash across the screen during the latest episode of Squawk Box. The experts are talking about them, but how do you know if they're right for you? Before we dive in and find out, let's break down the mechanics of REIGs.
The Definition of a Real Estate Investment GroupA Real Estate Investment Group is a business or organization that purchases a collection of properties and then sells them to investors as rentals. The group manages tenants, processes rent, and supervises security, maintenance, and financial transactions. In exchange for these services, the organization receives a portion of the rent. The REIG works to swiftly generate their share of monthly rental income, and also, over time, benefit from the advantage of price appreciation.
For the investor, REIGs provide a service that is similar to mutual funds. Participants are able to have a financial stake in multiple rental investments, without the hassle of day to day operations, and the responsibility of judgment calls. So, why do investors elect to join a group instead of going it alone?
We've identified five key features of real estate financing through REIGs to consider.
1. Diversity. Unless you're a mogul, real estate investment groups are as close to diversification as many of us will get. They empower and enable investors to achieve equity in multiple properties through a single transaction. After all, it would require tremendous capital and skill to purchase several apartment buildings and a thriving hotel on your own.
2. Accessibility. REIGS have options for rising investors and wealthy financiers. In fact, you can join a group for as little as $5,000-$10,000. And of course, there are real estate opportunities for those of you with significant capital, who are able and looking to invest $100,000 or more.
3. The Team Advantage: As part of a group, investors have access to networking partnerships, where they can benefit from the experience of their team members. Think of it as the building block to your next opportunity. With every transaction, you learn more, and will therefore hopefully earn more in future investments.
4. Communication. There are many cooks in the kitchen. Between the REIG, investors, and the property managers, there is a capacity for conflict and poor communication.
5. Cost. You've invested your hard earned money, and your hoping for a meaningful and measurable return. But the costs go beyond the participation fee. It's important to note that most groups prevent vacancy financial fall-out by requiring investors to earmark a percentage of their earnings to cover the mortgage in the event of low or no occupancy. If the REIG doesn't fill the building with tenants, it's on the investors to make up the difference.
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