Real Estate Investment Groups Explained– (Part 3)

Real Estate Investment Groups Explained

Real estate offers diverse opportunities for its investors. There is a different type of real estate investing in every corner and it is up to you to decide which one to go for.
If you are looking to invest in real estate but don’t want to go through the hassle of managing and dealing with different sorts of tenants, then you can look into the many passive ways of participating as a real estate investor.
One such hands-off way of investing in real estate is through Real Estate Investment Groups (REIGs). This method of real estate investing has been sticking around for quite some time now and investors from different backgrounds who want to add rental real estate to their portfolio go with it.

Are Real Estate Investment Groups for You?

The REIGs are best suited to people who want to own rental real estate but don’t want the headaches that come with it.
Being a landlord is not everyone’s cup of tea and investors often hire the services of a property management company to deal with the day-to-day matters on their behalf.
If you have access to financing and want to invest in rental real estate, then this investment type is for you!
One major advantage of these groups is that you don’t have to work and worry about anything. You can enjoy a steady positive cash-flow each month and benefit from the appreciation in the long-term.

How do These Groups Operate

The formation of these groups starts with a company making an investment in commercial real estate. They often buy or build apartments, blocks or condominiums. Since this is a huge investment, the factors such as locality, possible ROI and appreciation are kept in mind.
Once the investment is made, investors are asked to invest in the property according to their capacity. Some buy single while others buy multiple units. The investment is made through the company and management of the buildings is taken up by the company.
The management provided by the company covers everything from maintenance to advertising vacant units. For their services, they charge a fixed fee from the rent generated by each property. This percentage is often fixed but is subjected to change after a pre-defined period of time.
These investment groups operate in different ways. The most common practice is the use of investor’s name for the lease. Moreover, every unit is obligated to provide a small portion of their rent to help other investors fight with occasional vacancies. Which means that even if your unit is vacant, you will still some income from the company.
This rule is applicable if only the vacancy rate is moderate or low. But if it spikes too high, the investor is asked to pay back in.

The Drawbacks of Real Estate Investment Groups                                                                   

All that glitters is not gold! This maxim also fits with the REIGs. Although, becoming part of these groups have its benefits but one can’t simply ignore the disadvantages of investing your money in them.
The quality of the investment group is of critical importance.  If your group is full of bullies, you might end up leaving your units to them. On top of that, the REIGs face the same government fee that is applicable to the mutual fund industry.
Another risk associated with real estate investment groups is of unit vacancy. If for any reason your unit(s) remain vacant, you might end up losing money.
It has also been observed that private group managers take investors for a ride and leave them with legal actions to follow for eternity. Therefore, if you are ever looking to park your money in one of these groups, make sure you check the company’s legitimacy from a credible source.