Investment Real Estate Groups or Clubs: The Death of the Individual Investor?
Real estate investment is evolving; what was once an individual venture is now becoming a communal project to better serve the good of the group as a whole. With power in numbers, real estate investment groups and quickly growing in popularity as their advantages are touted all over the media. This leaves much speculation on whether the lone investor is an antiquated notion of simpler days when real estate investment was a straight-forward deal with very few people involved. In today’s rapidly growing real estate industry, is the relevancy of the individual investor waning?
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Recently real estate media has been bombarded with reasons why the communal investment system is superior to that of the individual (with its magnitude coercing developers to offer special terms that include lower buying costs and quicker reselling windows), but investing as an individual entity offers a unique advantage: freedom. When locked into any group that values the common good over the individual, you may find yourself forced to make certain consolations in order to satisfy the group’s agenda. Quite often, you will have to compromise on what cities you look at for investment, which developments to invest in, and when you sell your investment property. When joining a group, you relinquish the complete control of these factors—that you had as an individual investor—to the will of the group as a whole.
But, with all the advantages supplied by joining an investment group, is this ability to choose specifics really that essential? Individual investors may be able to decide every aspect of their investment transactions, but their options are not infinite. Individual buyers are limited in their investment possibilities by monetary constraints that they face without the cost cuts available to bulk investments.
Group investors also receive discounts on deposits and guarantees that their down payments are secure, refundable if the project fails or takes too long, and will not be allocated for construction costs. Without a previously existing relationship with the developer, these lone wolf investors are not eligible to receive special benefits and the developers may not trust them to pay all the costs of the investment enough to do business with them at all. Investing on your own theoretically expands your choices on where to invest, but your individual situation can put you in constraints just as tight as the investment club.
Once you are approved as an individual investor to purchase a unit, you have an array of financing options. Your economic situation may differ greatly from other members of an investment club, so a different financing plan could suit you better than those pursued by the group as a whole. When investing with a group, financing is uniform and sometimes does not benefit all its members.
Decisions about what to do with the property after it is finished are also predetermined by the investment group: get the developer to resell the unit for you for profit. The individual investor has the option of occupying the property, acting as a landlord and renting it out for profit, or reselling the unit. You make the terms, decide when to sell, market the property yourself, and screen potential buyers to choose whom to sell to. In group investments, these practices are all uniform and the developer handles the entire reselling process.
Although you are not in charge of all aspects of turning the property for profit, ceding control to the developer can be advantageous by saving you the time and money that would be used for advertising the property. Also, investment groups benefit from receiving special permission to sell their property before construction is completed, expediting the entire investment process so they can move onto other opportunities
Special advantages do not stop there for group investors. Through the club’s healthy relationship with the developer forged by mass purchases that help the developer gain financing, there is an element of trust that does not exist in transactions involving individual investors. Investment groups receive notice of new developments before the formal announcement, allowing them to jump on all the advantages of early investment. Investment groups negotiate purchase prices that the developer cannot raise in order to compensate for a declining market, while getting the developer agree to setting farhigher prices for the remaining units. Yaerd’s investment group sees profits of up to 41%, even in a depreciating market.
So, the choice is up to you. Are you willing to sacrifice a bit of investment freedom for security and the potential for great profit?