Commercial real estate investing has the potential to be an incredibly high-stakes but lucrative endeavor. On top of that, you also have the opportunity to reap competitive returns without the hassles of many traditional investment options. This is why choosing the right commercial real estate investment group (REIG) will be one of the most important decisions you will ever make. This one decision alone is crucial to the success of your investment, so why not take the time to examine all of your options?
There are a few key factors to consider when choosing the right real estate investment group. The right choice will determine the success of your investment portfolio. The right choice will ensure optimization of your investment returns.
What is a Real Estate Investment Group?
The term Real Estate Investment Group (REIG) refers to a group of private investors. These groups would pool together their money, knowledge, and time to acquire properties and generate profitable income. The diverse pool of capital to draw from, allows the group to make a wider range of investments with greater ease.
Real Estate Investment Group Structures
In terms of structure, REIGs differ from one another. Some REIGs require very little input from the members, while there is more participation in a partnership. Some REIGs have a board or leader to oversee ongoing operations (i.e. a corporation), as well as making all pertinent decisions. Other groups may function more like partnerships. In this option, all the members have some say in how the properties are managed.
By forming a corporation, a company can sell equity shares in the business. The value of the equity shares is dependent on whether the business is a private or public entity. Corporations are managed by an executive team. Hence, those who wish to have a more “hands-off” approach would have the freedom to do so.
A partnership is when the owners of a business (two or more people) share in the profits, losses, and debts. The size of their investments would also determine their stake in the business.
Partners can have more say concerning their personal level of involvement within the group. On the other hand, they may choose to have no involvement at all. They can choose to leave the major decision-making to the chosen leader or leaders. This would then be detailed in the partnership agreement.
Consider Your Potential Involvement
Found a commercial real estate investment group that aligns with your needs and goals? You may want to then consider the degree and amount of involvement you would like or can commit to. This will help towards your decision on investing in a partnership or corporate structure.
Returns Not Guaranteed
While it is not a guarantee, a real estate investment group’s performance history may be indicative of your future investment success. All investments carry some risks. Risks can vary in relation to the investment option, tenure, capital, but are not limited to that. It is hard to ensure a “sure win” in every venture. But a great REIG will help you understand your risks, mitigate risks, and minimize your potential loss.
REIGs can be a safe and secure option for commercial real estate investments. This option allows you to take a step back and enjoy some peace of mind while other group members manage the property with their expertise. However, there are inherent risks associated with REIGs especially within such a high-stakes environment. It will be something you need to be taking into consideration. A REIG is a private organization. Thus, it is not regulated by any government entities, which always raises the possibility of improper management due to irregularity.
What to Do
Because there are risks involved, it is extremely important that anyone considering commercial real estate investing should conduct thorough and extensive research. Research should include the group, its investments, the REIG’s structure, and the legal contract, as well as the person (or team) overseeing and managing the REIG’s activities.
You can conduct your due diligence by running a background check on public records for assets held by the group. Speak to current and past members of the group on their personal experience with the group.
Through this, you will be in a better position to decide if the group’s investment goals and the team are a good fit for your investment plan. The overall success of any REIGs depends heavily on the ones who are making the decisions. If those decision-makers are unqualified and inexperienced, there may be more risk present than you initially bargained for. The overall success of any REIGs depends heavily on the ones who are making the decisions.
It is incredibly helpful to have professionals on your side who have the experience and skills to study the various trends and help you choose the portfolio with your best interests in mind. A professional and experienced REIG team will have expertise in forecasting and mitigating potential risks and opportunities.
It is also important to have some assurance that these investments are managed properly to achieve their full optimized potentials. Well-established REIGs that are in good standing are able to fulfill these tasks for you. Additionally, they can also take advantage of opportunities that most individual investors won’t have access to, by pooling their clients’ assets together.
Real Estate Investment Group vs Real Estate Investment Trust
When a corporation (or trust) is formed to make investments in income-producing properties, it is referred to as a real estate investment trust (REIT). Similar to stocks and exchange-traded funds (ETFs), REITs can be bought and sold on major exchanges.
REITs have to distribute 90% of taxable profits to shareholders in the form of dividends in order to maintain their tax-exempt status (as a result, REITs do not pay corporate income tax). However, a regular company would be taxed on its profits, reducing its ability to distribute profits to its shareholders. Additionally, the fact that REITs are exchange-traded makes them highly liquid. This means that there are fewer hoops to jump through in order to cash out on your investment. Compared to REIGs, REITs are more formalized, as they undergo much greater regulation, as well as adhere to a more specific business structure.
Where To Find REIG
While it may seem like a quick online search would be the easiest way to connect to REIGs, you may soon realize that the search results are filled with predatory companies looking to rope you in with their membership fees. These are not the REIG you would likely want to invest in.
Using a nationally backed resource, like the National Real Estate Investors Association (REIA), is a great way to begin your search. REIAs are a not-for-profit organization with local groups across the country. You can attend monthly meetings, get educational resources, and participate in networking events based on your area. It may not be the case that every REIA has an REIG, but you can use this as a starting point to find existing groups seeking new members.
Questions To Ask Yourself
When evaluating all of your options, ideally you would want to look for an REIG that aligns with your personal goals, as well as have members whose personalities complement yours. These are a few questions you may want to consider:
- Are your investment goals in alignment with the group?
- Is the group looking for short-term capital gains or do they intend to hold real estate for the long term?
- Do their projections predict realistic outcomes? What has the past performance been in comparison to original expectations?
- Does their risk tolerance align with yours?
You will most likely find that if your overall mindset and goals do not align with that of the group, that may predict future difficulties, as well as a potential source of unnecessary stress and headache.
Commercial real estate investing can be incredibly profitable, but it can also be difficult when done all alone. You may not know where to start, or some of the factors you should be considering before even embarking on your search. A real estate investment group allows novice investors to participate in real estate without bearing all of the commitment and being the sole source of funding. Ultimately, the right REIG will facilitate an environment that closely resembles your personal goals and where you would like to be headed.
Commercial real estate investing can be a great addition to your portfolio, as it holds such large potential. However, this is not the kind of space you would want to go in blindly. Similar to how you would trust the advice and expertise of an accountant or tax professional when going to do your taxes, you would want to apply the same logic when thinking about commercial real estate investing.
You want to trust your investment to the professionals who:
- Study the real estate market including socioeconomic and demographic trends
- Look for promising opportunities in diverse asset classes
- Keep a hand in the operation and management of the properties in which they invest to help ensure their success and growth
For more information about how the investment professionals at Realty Capital Partners (RCP) can help you get the most from your commercial real estate investment dollars, call us at (469) 529-6024 or email us at email@example.com and schedule your consultation today!