Invest with Real Estate Investment Companies or Go Solo?

Making money in real estate has become easier with the spread of real estate investment companies. As a new real estate investor, real estate syndication companies can save you time and lower the risks when it comes to achieving a high return on investment. These companies could range from Real Estate Investment Trusts (REITs) to investment property companies of limited liability that buy and trade properties. But how do you know such investment is the right investment for you?

With this article, you will learn:

What real estate investment companies are
Two examples of the common real estate investment companies
The advantages and disadvantages of investing in real estate investment companies

This information will help you decide once and for all if you should invest with a company or go solo.

Real Estate Investment Companies

What are real estate investment companies? A real estate investment company is one that buys properties and allows investors to take part in their ownership for a cash investment. Real estate investment companies, moreover, tend to be a go-to choice for many real estate investors who do not have the time to search for and manage rental properties. These companies lift the burden of investing in rental income properties. They will buy the properties, prepare them, find tenants to rent them and manage them. In exchange, they will earn a percentage of the rental income.

In particular, their duties include:

Finding and selecting investment properties
Preparing and rehabilitating properties if necessary
Matching renters
Dealing with all the paperwork
Managing the actual rental properties

For beginner real estate investors, investing in real estate companies could reduce some of the risks associated with buying income properties. For those who cannot afford to buy an investment property, investing in real estate investment companies makes for a viable option as you can invest with a lot less money than the actual purchase price. Before considering such companies, however, you should know if they are a suitable option for your investment goal. And that’s what we are trying to answer in this article.

Two Common Types of Real Estate Investment Companies

With cutting-edge technologies, various real estate investment companies have emerged to cater to various types of real estate investors. Below are two common types of companies in the US housing market:

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) were introduced by Congress in the 1960s to revitalize the real estate investing sector in the United States. These Trusts allow real estate investors to buy shares in real estate portfolios and receive income from investment properties. These properties include apartment complexes, hotels, retail centers and warehouses, and even infrastructure. What distinguishes REITs from other real estate investment companies is the diversification of their portfolios making real estate investing less risky. In the case of equity REITs, their business model tends to be more straightforward where the REIT leases space and collects rent and distributes the income in the form of dividends to shareholders.

There are three common types of REITs:

Equity REITs: Equity REITs are the most common of the three. They buy, own, and manage income-generating properties. Revenue from these REITs come in the form of rent or from reselling them.
Mortgage REITs: Mortgage REITs are those that lend money to real estate investors through mortgages or the acquisition of mortgage-backed securities. Shareholders receive revenues as a net interest margin.
Hybrid REITs: Lastly, hybrid REITs are just a mixture of both types of REITs- equity and mortgage REITs. They both own properties and provide mortgages.

Distressed Property Investment Companies

Another common type of real estate investment company is distressed property investment companies. These companies have flourished after the subprime mortgage meltdown and the financial crisis of 2008. Between 2007 and 2010, a housing bubble boomed and burst, forcing investors to give up their property after being unable to make repayments. An abundance of foreclosed homes was then introduced into the market and listed at below market value prices. Companies, later on, formed specifically to buy and trade these homes. These companies buy foreclosed properties and rehabilitate them in order to turn them into profit-generating properties. The revenues either come from renting these properties out or the capital gain resulting from selling them after rehabbing them.

Real Estate Investment Companies: Advantages and Disadvantages

Advantages and disadvantages of real estate investment companies

Investing in real estate can hold significant benefits, but it is accompanied by pitfalls and some risks. However, many property investors believe that the benefits of real estate investment companies outweigh the risks. Other real estate investors choose to invest with these companies because they do not have the financial capability to break into the industry otherwise. Still, while investors pay less in shares, the costs of investing in real estate investment companies could be turbulent. Here are the advantages and disadvantages of this property investment strategy.

Advantages

Property Selection and Identification: Real estate investment companies tend to have a large database of properties. Therefore, they have a competitive edge in finding properties that would generate a high rental income.
Paperwork: For many beginner investors, the paperwork involved in a transaction can be a big pitfall. For this reason, they resort to real estate investment companies. These companies will deal with all the paperwork associated with buying and renting out rental properties.
Property Management: Many real estate investors are not full-time investors, and for this reason, engage with real estate investment companies so as to have the companies do all the work for them.

The Disadvantages

Costs: Unfortunately, while investing in real estate investment companies might be a viable option for many, the costs associated with these companies tend to be high. Generally, these companies will charge you a monthly fee ranging from 15% to 20% of your profit. For this reason, we recommend that you use traditional financing to leverage your investment and be the sole owner of an investment property. If investing in real estate is not your full-time job and you do not have the time to manage the properties, professional management companies can help you with that for much less than if you were to invest with REITs.

Search for My Investment Property

Trust: Trust is another pitfall of investing in real estate investment companies. Make sure that you conduct thorough research on a desired property investment company before getting involved. This is particularly important since you will have transferred all of your cash investments under their control.

Bottom Line

Surely, investing in real estate companies can save time for many while allowing those who are not financially capable to invest in properties. However, the cost of investing with these real estate companies shouldn’t be overlooked. In a similar scenario, you can use these expenses for other developmental aspects of an investment property. Investing in real estate is not complex. What you really need to acquire is a thorough understanding of how real estate investing works. If you are uncertain about a property’s profitability and thus have shunned the idea of directly investing in properties, we recommend that you utilize the tools that Mashvisor provides. With our services, real estate investors can accurately assess the returns and profitability of an investment opportunity.

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