2017 Guide on How to Find the Best Real Estate Investment Companies
Many investors seeking to diversify their portfolios are starting to look at real estate investment companies to help them find properties.
While many people know exactly what they are looking for as they become private real estate investors, others need the expertise of reputable real estate investment firms.
Real estate investing is serious business, and we will take a look at real estate investing for beginners as well as how to spot quality real estate investment companies.
Real Estate Investing for Beginners
Before anyone dips their toes into real estate investing, it would be a good idea to learn some of the basics, such as:
- Real estate terminology
- How real estate purchases work
- Different ways to invest in real estate
- How real estate investors make money
According to The Balance, there are four ways people interested in real estate make money: real estate appreciation, cash flow income, real estate-related income, and ancillary real estate investment income.
However, real estate-related income has more to do with the people who work in the industry, such as brokers. The other three forms of making money in real estate are related to investors.
Image source: Pixabay
Real estate appreciation is when there is an increase in property values. Investors who buy and sell buildings or land and make a profit fall into this category. Of course, there are times when real estate does not go up in value, such as during the subprime mortgage crisis of 2008.
In its simplest form, cash flow income from real estate is when an owner or landlord makes money from collecting rent. This can be on houses, apartments, and commercial buildings.
For smaller investors, this type of real estate investing may also carry the burden of being a landlord and dealing with day-to-day property issues.
Ancillary real estate investment income is probably the least recognized of the three. This is where an owner makes money from business operations that happen inside the business in addition to the rent. An example is the owner of an office building making money from fees charged in the parking garage.
Real estate investing of any type has both benefits and drawbacks. Investors must educate themselves before committing a portion of their portfolios to real estate.
There are several good real estate investors’ websites where people can learn the basics before getting into more complex topics about real estate investment companies. Real estate investors ‘websites for beginners include:
Having a real estate investors’ websites handy can help as you try to decide which type of real estate investing is right for you.
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Real Estate Investment Association
If you want to take your real estate knowledge to the next level, you might consider joining a real estate investment association.
A real estate investment association provides a place for investors to network and learn how to put together profitable deals. A good real estate investment association will know how to find real estate investors who can add their specialized knowledge to the group.
Pros and Cons of Real Estate Investing
For people who are beginning to diversify their portfolios by investing in real estate, there are a number of pros and cons to consider. The type of real estate investing — commercial, residential, land — will determine the exact benefits and risks, but there are some fairly common factors in each.
Pros:
- Monthly income from rentals/tenants
- Tax benefits
- Hedge against inflation
- An asset that generally appreciates in value over time
- Diversification of investments
Owning real estate can be a boon to any portfolio, if the right property and situation are found. Real estate has long been a great way to build wealth over a long period of time for those who have the means to get started. However, there are several drawbacks to owning property, regardless of whether it’s commercial or residential.
Cons:
- Not a liquid asset
- Cash flow reduction with loss of tenants
- Maintenance and care of property
- Decrease in property values outside of investor’s control
Due to the fact that real estate can’t be bought or sold at will, as other types of investments can, those who choose to invest in real estate must have a clear picture of their overall wealth-building strategy.
Maintenance and care of real estate holdings is another concern for private real estate investors. Many who want the benefits of rental income don’t necessarily want the responsibilities of being a landlord.
That’s where real estate investment companies come in to fill a need.
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What Are Real Estate Investment Companies?
There are a few different types of real estate investment firms. The most common type is a company with specialized market knowledge, which they use to help small investors find investment properties. They know how to find real estate for investors who want to turn a profit.
Larger real estate investment firms acquire, finance, develop, and manage properties. They often do not deal directly with small, private real estate investors.
There are other types of real estate investment firms. Also called real estate investment companies (REIC) and real estate investment groups, these companies provide a way for investors to pool their money to buy properties. These real estate investment companies buy properties on behalf of their investors.
The types of properties purchased by real estate investment firms varies from company to company, but they generally invest in homes and apartment buildings on the residential side, and properties such as hotels, office buildings, and retail spaces on the commercial side.
Real estate investment companies are not to be confused with real estate investment trusts (REITs). Real estate investment trusts are securities, and most of them can be traded on major stock exhanges, according to REIT.com. In most cases, REITs pay their shareholders in the form of dividends, whereas investors who use real estate investment firms to help them buy properties make money from rent.
Services Provided by Real Estate Investment Companies
Depending on the individual firm, you will see different services offered. If you are new to real estate investing, you might benefit from working with full service real estate investment companies.
Full service real estate investment companies may provide:
- Assistance in locating the right properties for investment
- Property management services
- Help locating service providers to perform regular maintenance on the property
While real estate agents have knowledge when it comes to finding property for private ownership and residences, real estate investment companies have specialized knowledge in the types of properties that will help you turn a profit.
What to Look for in Real Estate Investment Companies
When you decide to take the plunge into real estate investing through real estate investment firms, you need to work with people you trust. According to JWB Real Estate Capital, there are some key factors you should consider when looking for real estate investment companies:
Trustworthy references
- Claimed successes
- Market knowledge
- After-sale support
Real estate investment companies should provide you with a portfolio of their current holdings. From their portfolio, you can see if there is any legal action against any of the properties, what the tax status is on different properties, their costs and expenses, and whether or not the properties are well maintained.
Image source: Pixabay
Look at the portfolios of real estate investment firms to see how the investments have done over the years. If possible, talk to someone in-person and ask what services they provide after the sale and what kind of fees they charge.
For example, if you would rather not have the day-to-day responsibilities of being a landlord, such as collecting rent, handling complaints, and performing maintenance, then you are better off working with real estate investment companies that have a property management division.
You can find out the reputation of real estate investment firms online or with a few phone calls. Usually, if the firm has been in business for several years, you can tell what their performance and customer service standards have been over time.
Remember, selecting a real estate investment company is crucial to the success of your investment. It’s important to do your due diligence before choosing who to work with.
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Questions to Ask Yourself Before Choosing Real Estate Investment Companies
As with any investment, it’s important to figure out how real estate investing will fit into your overall portfolio.
- How will real estate add to my portfolio?
- How much of my portfolio will be dedicated to real estate investing?
- What kind of return am I seeking?
- Do I need help with the property after the purchase?
- Can my portfolio handle a non-liquid asset?
- Will I be happier with a hands-on or hands-off approach to real estate investing?
It’s important to know why you’re choosing a real estate investment over another type, especially when it comes to the question of liquidity. Liquidity is important if you are buying a rental property through a real estate investment company, as opposed to equity investments such as stocks and mutual funds.
Before joining the ranks of private real estate investors who utilize real estate investment firms, you must be comfortable with entrusting someone else to help you select and possibly manage a large asset. Choosing the wrong real estate investment company can be a costly mistake.
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Who Should Use Real Estate Investment Companies?
Real estate investing for beginners can be difficult, especially without proper guidance. If you’ve decided to get into real estate investing, there are several reasons to choose real estate investment companies over a traditional real estate agent who sells you a property and disappears.
Real estate investment companies are best for people who:
- Need specialized knowledge on properties that will turn a profit
- May want more than one property
- Are new to real estate investing
- Need property management services after the purchase
- Desire real estate investing to be a large portion of their overall portfolio
The casual real estate investor may not need the specialty services offered by real estate investment firms if they only want a single house to rent out and are comfortable with regular maintenance and collecting rent.
Real estate investment companies know how to find real estate for investors who are looking for long-term investments that will build wealth over time.
Real estate investing should not be started on a whim, but only after careful consideration of your overall investment objectives. It’s important to see the totality of your situation and portfolio and find investments that will enhance your long-term strategy.
If you’re unsure whether real estate investing or working with real estate investment companies is a good idea for you, talk to a professional who can look at your entire holdings.
Take your time with a property purchase. With real estate — as with every other investment — trying to time the market could lead to disaster. Instead, do your research and due diligence; with careful planning, you can build your wealth strategically.
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