When it comes to real estate investing, there are a number of different strategies that can be employed in order to generate a return on investment.
Two such strategies are fractional real estate investing and real estate investment groups (REIGs). But what exactly is the difference between the two? And which one should you choose for your next investment? Let’s break it down.
Related Read: What is an Investment Group? Top 5 Investing Group Structures
Fractional Real Estate Investing
Fractional real estate investing is the process of purchasing shares in an individual property or real estate fund. Essentially, this means that instead of owning an entire property outright, you’ll be investing in a small slice of it.
There are a number of benefits to fractional ownership.
- It allows investors to diversify their portfolio without having to commit large amounts of money to a single property.
- Gives investors access to high-end properties that they might not otherwise be able to afford - think luxury vacation homes and prime commercial real estate.
- Fractional ownership provides investors with built-in professional management, which can take the hassle out of being a landlord.
On the downside, fractional ownership can be more expensive than traditional ownership due to upfront costs and ongoing fees. You’ll also have less to no control over what happens with the property, since you’re not the sole owner. Finally, you’ll have to be comfortable with a longer commitment with timelines being 5-10 years.
Real Estate Investment Groups (REIGs)
A real estate investment group is a group of investors who are pooling money together to invest in real estate deals. The goal could be anything from buying, selling, and renovating properties to providing financing for real estate projects.
REIGs offer investors a number of advantages.
- They provide much-needed liquidity for real estate investments, which can be difficult to come by if you’re going it alone.
- REIGs offer greater negotiating power when striking deals with sellers and lenders.
- Gives investors access to a larger pool of resources, including people, capital, and deals.
The main downside of investing as an REIG is that it may be difficult to formalize. You’ll want to make sure you protect your investor group as a business entity with an LLC, business bank account, and a way to communicate and track all documents associated with your investments. Luckily, it’s easier than ever to create an investment club with the help of Tribevest. Another con is getting a group of people together that want to invest in the same things, you’ll want your group to have common goals.
So which strategy is right for you? The answer depends on your goals as an investor and the amount of risk you’re willing to take on.
If you’re looking for a hands-off approach with a lower barrier of entry, fractional ownership might be the way to go. However, if you’re more interested in owning real estate with a group of people and want access to institutional-grade investments, then an REIG might be a better fit.
Whatever path you choose, always remember to do your homework before making any decisions - knowledge is power when it comes to investing!
