Joseph Armato | Real Estate Investment Groups

Real Estate Investment Groups

REIGs, or real estate investment groups, resemble mini-mutual funds for rental properties. A real estate investment group can be the answer for you if you want to own a rental property but don’t want the headache of being a landlord.

According to Joseph Armato A business will acquire or construct a collection of structures, frequently apartments, and then permit investors to acquire those structures directly from the business. Self-contained dwelling units may be owned by a single investor in one or more buildings. However, the organization that runs the investment group administers every property and handles maintenance, advertising, and tenant placement. The business retains a portion of the monthly rent in return for this management.

Investment groups come in several forms. The investor is named on the lease in the regular version, and all of the units share a percentage of the rent to protect against sporadic vacancies. This implies that even if your unit is vacant, you will still get enough to cover the mortgage.

Real Estate Limited Partnerships

A real estate investment group and a real estate limited partnership (RELP) are comparable. It is a company established to acquire and hold a variety of properties, or perhaps only one. However, the lifespan of RELPs is limited.

The general partner is a seasoned property manager or real estate development company. The real estate project is then looking for outside investors to offer money in return for a portion of ownership as limited partners. The true reward comes when the properties are sold — hopefully at a significant profit — and the RELP dissolves later on. The partners may receive periodic distributions from the income generated by the RELP’s properties.

Real Estate Mutual Funds

REITs and real estate operating firms are the main targets of real estate mutual funds. With comparatively little capital, they enable the ability to get diverse exposure to real estate. They offer investors a far wider selection of assets than is possible by purchasing individual REITs, depending on their strategy and diversification goals.

The analytical and research data that the fund offers to retail investors is another important benefit. This may include information on newly acquired assets as well as management’s assessment of the performance and feasibility of particular real estate investments and as an asset class. In order to increase return, more speculative investors can invest in a family of real estate mutual funds by strategically overweighting particular property types or geographic areas.

Why Invest in Real Estate?

As per Joseph Armato, the Real estate offers competitive risk-adjusted returns, which can improve the risk-and-return profile of an investor’s portfolio. Particularly when contrasted to the markets for equities and bonds, the real estate sector often exhibits moderate volatility.

Comparing real estate to more conventional forms of income return, it becomes even more appealing. When Treasury rates are low, this asset class is particularly appealing because it often trades at a yield premium to U.S. Treasuries.

Diversification and Protection

The opportunity for diversity in real estate investing is another advantage. Real estate and other main asset classes have minimal or even negative correlations, so when equities decline, real estate frequently rises. This implies that adding real estate to a portfolio can reduce volatility and increase return for a given level of risk. The better the hedging, the more directly you invest in real estate: The performance of the stock market as a whole will be reflected in less direct publicly traded entities, including REITs.

The Power of Leverage

Leverage is a tool that real estate investors have access to that stock market investors do not, with the exception of REITs. Leverage is the term for borrowing money to fund a larger purchase than you have the cash to make. Unless you are purchasing on margin, you must pay the entire price of the stock at the time the buy order is placed. And even then, owing to that wonderful financing tool, the mortgage, the percentage you can borrow is still considerably lower than with real estate.

The Bottom Line

Joseph Armato said Real estate can be a wise investment with the ability to generate consistent income and increase wealth. Illiquidity, or the relative difficulty in changing an asset into cash and cash into an asset, is still a disadvantage of investing in real estate.

A real estate deal may take months to finalize, as opposed to a stock or bond transaction, which can be finished in a matter of seconds. Finding the ideal counterparty can take weeks of effort, even with a broker’s assistance. Of course, higher liquidity and market pricing are offered by REITs and real estate mutual funds. But because they have a far stronger correlation to the general stock market than, say, bonds, they come at the cost of more volatility and less diversification advantages.