Sunday, February 23, 2020
Are Investor Groups or REITs the Answer?
Have you been looking at real estate and you like the potential for making some money, but you aren't sure you want to go it by yourself? Well that is a very real concern. Along with big profits there some comes the possiblity of suffering some losses if you aren't careful. Starting out you don't know what you don't know.
Even experienced real estate wizards aren't one man bands. Some may seem to be that way, but everyone needs connections to a title company that understand investors, possibly an attorney, real estate agents – even though most rarely buy through the MLS, contractors, a source of financing (unless you are independently wealthy) and, often, a good property manager along with other supporting characters you will meet along the way. Where do you round up a team that will help you build your business? This is a subject for another day but a good place to start is the local REIA group. Many people there can help you make the contacts you need. Just keep your eyes open as there are occasionally some sharks who will be only too happy to help you shed your invesment capital.
One answer for those who aren't quite ready to jump in with both feet there are several alternatives to consider. You can look at investor groups and REITs. Each one appeals to different investors depending on their financial capability, time availability, and risk aversion – to name a few factors.
With investor groups, members pool their capital and, as a group, buy, rehab and manage investment properties. There are various structures and goals. Some buy and hold properties. Some rehab and flip them. Some concentrate on commerical deals. In any case, the newcomer can get an idea of how things are done. The down side is it would take a chunk of money to join the group and memberships are not particularly liquid – but then neither is actual real estate ownership. However you may get a taste of what is involved and make contacts useful in the future.
REITs or Real Estate Investment Trusts are corporate entities that allow you to participate in major projects like shopping centers, large appartment complexes and other developments. These are exchange traded securities like stocks. This means that, while investment capital is needed, it's not necessarily as much as actually purchasing rental property but you don't have the leverage usually associated with real estate. It also means the investment is fairly liquid. The down side is that you watch it from a distance and don't have any educational participation.
Before you decide on either of these it is important to do your due diligence. For investor groups ask around the investor community. You may get a variety of answers – some people don't like competing against groups. However you may still get some valuable information to guide your choice. Check public records for lawsuits and that sort of thing. Ask a lot of questions and don't just go by their answers, but pay close attention to the way they answer the questions. For REITs – they are pulicly traided and there is plenty of information available there as well... it's required by law.
Of course neither of these is that helpful without some funds to invest. If you have little or none, try looking into some of the “buy real estate with no money down” gurus as a possible place to start. Be forewarned that it's not quite as easy as it is explained, but it can be done – you just have to look a little harder for the deals.
We will look at some of these concepts some time in the future. For the time being. if either of the two opportunities there is plenty of information available. Be sure you look into them thoroughly before you write the check.