Many real estate entrepreneurs — also known as developers — usually don’t have the capital to realize their real estate investing dream. That is where real estate investment groups can play an important role. Creating a developer and real estate investment group partnership can give you access to the resources you need for your venture. Your investment could result in a share of the monthly recurring revenue and the profits of the property when it is eventually sold.
Typically a successful investment partnership would consist of a developer and one or more real estate investors. Each partner brings something to the table, such as industry experience, local knowledge, and essential capital. Very few property investors have the finances necessary to start a real estate investing business. Therefore, many form an alliance with a real estate investment group (REIG). Professional REIG will then gather the collective resources and or networks to ensure successful investment and partnership.
After reading this post, you will have a clearer understanding of what to look for in a developer and real estate investment group partnership, the pros and cons of REIG, and most importantly the due diligence to bear in mind.
Definition of Real Estate Investment Group (REIG)
The term Real Estate Investment Group (REIG) refers to a group of private investors. These groups pool together their money, knowledge, and time to acquire properties and generate profitable income. REIG may comprise multiple partners or private shareholders. Having many sources for capital investments provides you with a larger pool of capital and the ability to invest more broadly.
Members of an REIG might engage in other business activities such as property financing, flipping properties, leasing properties to clients or property management companies for a share of the rent, or selling units of a property while maintaining overarching control. These will be varied and may range differently from one REIG to another. But a professional and experienced REIG will have the competencies and resources to effectively problem-solve and maximize your investment. Giving more bucks for your monies so to speak.
The overall goal of an REIG is to provide monthly cash flows from the investments made in real estate holdings.
Developers and Real Estate Investment Group Structures
REIG can be structured in many ways. The majority are organized as partnerships, as indicated on K-1 tax forms. REIG can choose to take on any entity structure. The two most common are partnerships and corporations.
A partnership refers to when the owners of a business (two or more people) share the profits, losses, and debts. The size of their investments would also determine their stake in the business. The investors 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 delegate major decision-making to developers or delegated leaders. Each member’s involvement is mutually agreed to and outlined in the partnership agreement.
The partnership agreement tends to detail the full provisions of the business. This can include the minimum investments, fees, distributions, and partner voting. Generally, the investment partners will identify the deal before investing capital based on the partnership agreement.
Some real estate investment partnerships accept investments from $5,000 to $50,000. This may not sound like enough to be able to purchase a unit. Nevertheless, in order to obtain sufficient funding, a partnership may pool money from several other investors to finance a property that they would jointly own. An REIG is a perfect solution to this problem.
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. Private companies are usually owned by their founders, management, or a group of private investors. A public company puts all or part of its shares on sales to the public via an initial public offering.
An executive team would normally manage the corporations. Shares are structured with different voting rights, which allows equity investors to have a more hands-off approach if they desire. Alternatively, developers and other investors can elect to be involved in key decisions in real estate investment and take on more managerial responsibilities.
The priority of real estate due diligence is to thoroughly inspect the fundamentals of the property, seller, financing partners, and compliance obligations to reduce and mitigate financial uncertainties.
The initial focus of a real estate developer is on the intended use of a building and whether or not the property can ultimately achieve this intent. When seeking a real estate investment group, the developer must carry out meticulous due diligence and have complete trust in the partnership. This can include: legal and financial; reputation; and real estate property due diligence.
Overall, you need to be able to completely trust your real estate investment partner. This is one of the most important outcomes of your vetting process. You need to ensure that they will be able to fulfill their roles and responsibilities competently and be someone with whom you will be able to work closely. Just remember that you and your partner will be co-signing obligations and liabilities.
Advantages of an REIG
REIGs diversify their investments to maximize profits. By pooling capital, they can invest in multiple ventures, which in turn generate larger returns. When you partner with an experienced REIG, you can combine experience and expertise to mitigate risks and run a successful venture together.
A major benefit of REIG is that they have very few limits on what activities they can engage in and how they operate.
Disadvantages of an REIG
Many real estate investment groups have formal agreements which tend to stipulate when and how members can access their money. This means that if someone wants to withdraw from the partnership, it might not be possible to recoup their share immediately. REIGs can also incur costly fees, which can be annual or more frequent, especially when profits are slim or when there are losses.
An REIG‘s success depends largely on its decision-maker, so if it is led by inexperienced or unskilled individuals, the risk will outweigh the reward.
Learn More About Partnering with a Professional Real Estate Investment Group Today
Would you like additional information on reaching your long-term financial goals through private placement real estate investing? Make sure to do your research and speak with real estate investment groups before you choose one that has the expertise, experience, resources, and network system to ensure your investment will be optimized. An REIG who is ever ready to answer your queries and deliver the deep market insight and expertise you deserve.
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