written by Justin Traenkle | LinkedIn
Whether you’re looking to diversify your financial portfolio or you’re completely new to investing, Real Estate Investment Groups (REIGs) are a strategic tool for investors at any level of experience or capital looking to get into real estate investment.
However, not all REIGs are the same and their success depends on the group asset manager’s experience and property location.
In the years since the 2008 housing crash, individuals have been cautious of investing in real estate. Most people believe that real estate investment is only for experts with market knowledge and plenty of capital. It’s typically true that those with the most expertise and capital are best positioned to make significant gains through real estate investment. However, REIGs allow inexperienced investors with small amounts of capital to gain the same kind of leverage in the real estate market that large investment firms experience.
REIGs allow any individual to invest in rental condos, office buildings, or entire housing developments without having the experience, knowledge, or capital. It’s very unlikely that a single individual could purchase any of these properties on their own, but through a real estate investment group, multiple individuals can pool their money together towards a larger property purchase. The REIG method gives individuals access to more sectors of the real estate market and the ability to invest in more profitable properties.
The simple way to think of REIGs is like mutual funds. Various groups pool their resources towards an investment portfolio and share returns amongst the group, while being managed by a third party with relevant expertise. By pooling resources and sharing returns, the group limits personal risk and liability. Meanwhile, the third-party asset manager is incentivized to perform well for the group because the better the investment performs, the more money they make in management and/or service fees.
Increased capital from REIGs can provide more market access, but returns on real estate also depend on how that asset is managed. Since the average individual has no knowledge about asset, financial, and construction management, asset managers are essential. REIG asset managers are often real estate brokers or firms that have the necessary experience to purchase and manage property. In return for their services, managers typically receive a portion of each investor’s returns.
When investing into any REIG, look for a manager with proven experience. Look for managers with at least 10 or more years of experience, since managers with at least 10 years of experience survived the 2008 housing crash. Market conditions differ dramatically from county to county and town to town, so finding a manager that is specialized in your target local market is important. You also want a manager with “skin in the game”. By this I mean, the manager should have something to both gain and lose in the investment, such as their own capital resources. The best managers will work with you to grow the investment while protecting the interest of all parties involved.
So, before you disregard real estate investing because you don’t have the capital resources or experience, consider joining a REIG with the right asset manager.
— edited by Kellie Cisler