"Real Estate Investment" is a pretty broad
and vague term. There are different types of real estate investment, from a single-family
home, multifamily investing, mixed-use,
office, retail industrial, and land. Each of them offers distinct advantages
and disadvantages. In this article, we will guide you about the things
surrounding multifamily investment using Private Real Estate Investment Firms.
Pros and Cons of Using Private Real Estate
Investment Firms in Multifamily
Investing
Pros
·
Better Investment
Philosophy Matching-In every Multifamily
Investing that you make, it is important to match the philosophy of the
business. Are they adopting a conservative philosophy and practicing transactions
with low risk while providing a handsome return on investment? Private Real
Estate investing is all about that principles.
·
Personalized
Service- They are solely focused on finding the right investment matched with
different investors.
·
Investment choice-
Investors can choose which investments they want to participate in. With this
type of alternative investment,
investors are free to determine what type of private real estate property they
want to invest in.
·
The firm doesn't
hold investment dollars in between investments. Most private equity investment
firms will contribute a massive investment share in every Multifamily Investing project that creates a financial pool,
together with the investment funding.
·
Third-party
verification/ control of investment- with this type of alternative investment, the party is required to employ the service
of a third party who doesn't have an interest in the transactions. They are
entities involved with the business transaction, but they are not the principal
parties.
Cons
·
Higher minimum
investment versus REITS or Crowdfunding- compared to Crowdfunding and REITS
(real estate investment trusts), investing in private real estate investment
firms requires a significant initial investment. This is because the cost
behind the acquisition and maintenance is a little higher. Aside from that, the
cost appreciation is slower, and there is a limited demand for it.
·
Illiquid for the
most part- Illiquid resources cannot be immediately sold because there are
limited investors interested in them. Illiquid assets can be cash transferrable,
but investors will lose a portion of their alternative
investments.
·
Must have trust in the asset management team- in case you choose this
type of alternative investment, you
have to trust the asset management team blindly. This means that they are in
full control of monitoring and maintaining your investment.
·
Limited generally to accredited investors- based on the rudimentary
definition of the US Securities and Exchange Commission (exempting some
instances), they require that private placement should only be offered and made
available for the accredited investors.
Minimum Dollar Investment
Private Equity firms require every investor to invest
a minimum of $100,000. However, most managers are searching for institutions
and individuals who are willing to invest more money than Multifamily Investing.
Liquidity to the Investors
Private real estate investment firms provide high risk
and lesser liquidity, making it ideal for investors expecting around 20% of
annual passive income. All in all, the nature of private equity is never liquid;
fortunately, those who don't like this type of alternative investment can always sell their portfolio to other
investors.
Commercial Multifamily Versus Cash
Investment
With the
instability in the value of properties, particularly where the price is
volatile, more and more investors are noticing the value of commercial
multifamily investing instead of diverting your cash into a fund managed by
someone you do not know. It is not that rare that someone asks me if they
should invest in multifamily real estate properties; my common answer would be
definitely, but it still depends on your identity as an investor. Investing in
a multifamily property is the smartest thing to do if you want to have a steady
flow of cash every month. Here are some reasons you should invest your money in
Commercial Multifamily and not in
Cash Investment.
Easier to Manage
What do you think
is easier to manage, a cash investment made to different people in different
places with different terms of payment or multifamily investing located
in a single location? When dealing with people who live in different areas,
there is a tendency that you will employ other people to manage the cash
investment. Still, with a multifamily investment property, you will only
require the help of one property manager.
The Appreciation Rate
The amount of interest
rate in cash investment is constant. If
you went over the average interest, you would never find a prospected client.
With Multifamily investing, it is
easier to force the appreciation of the value of your property. You can offer
certain amenities to the tenants or improvement of the property. Adding a
simple laundry area or any establishment around the property can massively
appreciate the value of your real estate property.
Higher Cash Flow
With commercial multifamily investing, there is a higher
chance of generating cash flow beyond the rents. Any available space that you
have at the moment can be converted into a facility that can create an income.
You have the option to invite transient renters, start a business
establishment, and use it as a laundry room or others. With Cash Investment,
you have a pretty limited way of generating a passive income and higher cash flow.
Retains their Values
When the time
comes that you want to sell your multifamily
investing property, you will end up generating a significant amount of
assets than you spent. However, you still need to ensure that the property is
well–maintained to appeal to the prospected buyers. Cash investment opens you
to many risks and lower returns on investment.
Finally, by
devoting yourself to multifamily
investing properties, you will have the opportunity to convert this
property into something that can affect the lives of others. Apartment
buildings are normally covered with graffiti and filthy areas. By renovating
the place; you will drive the appreciation of its value and affect your
tenants' lives.
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