Buying an investment property grants a real estate investor the full ownership of the property. In fact, buying a rental property makes for one of the best real estate investments out there. Not only will you be earning a monthly income, but your property will appreciate and be worth more in years’ time.
What if you do not have the money to buy your own real estate investment property but are keen on investing in real estate? Then consider property investment companies. Property investment companies allow you to invest in real estate by purchasing stocks or shares in properties without having to pay for the entire property.
Moreover, as a real estate investor, you won’t have to manage your rental property because the property investment companies will take care of it. Investing in property investment companies, furthermore, allows you to save plenty of time while investing your money and earning monthly returns. What sounds more viable, buying an investment property or investing with property investment companies? Read to get your answers.
Today, we will explain what property investment companies are and what they do and pose key factors to consider when investing in them. We will then explore key differences between buying an investment property and investing in property investment companies.
What Do Property Investment Companies Do?
Property investment companies are companies that buy investment properties and allow different investors to invest in them. When investing in property investment companies, you opt out of doing the assiduous work that accompanies buying an investment property. Property investment companies take care of the selection process of the properties. They also handle all the paperwork related, while managing the actual properties.
When you invest in property investment companies, you get to diversify your investment portfolio as you invest in different types of properties, while getting access to superior quality properties. Lastly, as you invest in property investment companies, you get to enjoy investment property analysis and earning predictability that the company will offer.
There are plenty of property investment companies out there, but they can vary depending on their focus. Of the most common property investment companies are Real Estate Investment Trusts (REITs). REITs allow anyone to invest in real estate through the purchase of stock. There are two types of REITs: equity REITs and mortgage REITs. There are also the Distressed Property Investment Companies where distressed properties are bought and, upon renovating, are sold for higher prices.
What Should You Look for While Searching for Property Investment Companies?
- Performance: What experience does the property investment company have to guide you through an investment? Maybe consider asking for examples of solutions the company has found for clients.
- Local Experience: Look for a company that has experience working in your target market and with the type of asset you wish to invest in.
- References: Call previous clients and inquire about their experience working with the potential investment property company.
- In-House Management Services: How are in-house management services done? Are there separate departments dealing with property maintenance, finding tenants, and collecting rent?
- Communication: Communication between property investment companies and investors is very crucial. You want to invest with companies that have a well-established communication scheme with their clients.
- Honesty and Competency: Last and foremost, look for honesty and competency. Don’t select a property investment company that refuses to share their numbers with you or disclose details pertaining to investment properties.
Property Investment Companies vs. Buying Your Own Investment Property
What is the best way to invest money? Should you buy your own investment property or invest with property investment companies? In this section, we will cover it all. Learn of key factors to drive your decision.
- Leverage: Buying your own investment property enables you to use a higher level of debt financing to finance your investment. A real estate investor wishing to purchase a property can borrow up to 80% of the property value. So instead of buying a share in property investment companies for, let’s say, $20,000, you could use the same money to pay for a down payment for a property that costs $100,000 and obtain $80,000 in financing. As you do so, you also reap the gains of the entire asset as it appreciates in value.
- Equity Building: Certainly buying shares and investing in property investment companies enables you to generate capital gains as the share price increases over time. Buying an investment property, however, enables you to continuously build equity in a tangible asset. Not to neglect that tenants will be paying your mortgage for you. Your equity stake, moreover, increases as the value of the property appreciates over the long term. Why is building equity more favorable? Because when you have more equity, you have the ability to refinance, buy additional assets, and expand your investment portfolio.
- Tax Advantages: Whether investing with property investment companies or buying your own property, you will still get to enjoy abundant tax benefits. Real Estate Investment Trusts (REITs), one type of property investment vehicle, are, in fact, exempt from income tax. Note that although REITs are exempt from income tax, a good portion of dividends distributed is taxed as ordinary income. However, buying your own rental property makes a better decision as far as taxes. When buying an investment property, you can deduct operating expenses and depreciate the asset, thus, significantly reducing your taxable income.
- Control: Many real estate investors prefer to enjoy the full ownership of an investment property. When you consider directly buying an investment property, you decide what markets and assets to invest in, how much debt to employ, and how to manage your property. If you are scared of managing your investment property, resort to rental property management companies. While on the other hand, when you invest with property management companies, you forgo having full control of your property and give up managing your money to these companies. If you have a full-time job and find it difficult to manage your investment property, investing with property investment companies makes a great choice then.
- Freedom to Expand and Grow Your Portfolio: When you are investing with property investment companies, you get to save plenty of time that can be otherwise used to grow your real estate investing business. Even the most successful real estate investors think that way. This is because when investing with property investment companies, you opt out of managing and handling all the tedious work. Therefore, you have more room to divert your energy to investing and expanding your investment portfolio.
What is your say now? It looks like if you have the time on your hand, buying your own investment property makes more of a viable option. This is because you will have total control over your property and enjoy more tax benefits while building equity. You can use Mashvisor’s rental property finder to help you find a suitable rental property to match your needs. To start out your 14-day free trial with Mashvisor, click here. You can also use Mashvisor’s investment property calculator to help you assess the profitability of an investment property.
However, if you do not have plenty of time on your hands, then we recommend property investment companies. Visit Mashvisor to learn more about real estate investing.