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Real Estate Investing: Pros and Cons of Solo vs Group Investing
Investing in real estate can be a lucrative and profitable venture as properties and physical assets tend to appreciate over time.
There are different ways in which investors can invest in real estate such as through property ownership, management, rental or sale of real estate for profit.
Real estate investing not only enables investors to generate passive income and build wealth, but it also helps them to diversify their investment portfolio which may eventually lead to them having a higher net worth.
On the flip side, real estate investing has its fair share of risks and investors can lose money as a result of factors such as market fluctuations, property damage or loss, tenant issues and legal liabilities.
To get started in real estate investing, it is important to research and understand the local market, financing options and legal requirements in your state or country. It may also be beneficial to consult with an experienced real estate professional so that you're able to stay compliant and on track with your investment goals.
Key Points
- Real estate investing can be a profitable and lucrative venture
- Solo real estate investing involves and investor purchasing a property using their own personal funds and managing it by themselves
- Group real estate investing involves multiple investors putting their resources together and collectively investing in a real estate opportunity
- Some common real estate investment strategies include buy and hold and fix and flip
- Depending on your investment goals, you can choose to either invest solo or as a group
Disclaimer
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
Solo vs Group Real Estate Investing
When getting into real estate investing, you can choose to either do it solo or as a group. With solo real estate investing, an investor will typically purchase property using their own personal funds, are solely in charge of property maintenance and make all the investment decisions by themselves.
On the other hand, group real estate investing involves multiple investors pooling their resources together to collectively invest in a real estate opportunity. In such a case, each investor typically contributes a portion of the investment capital and shares in the risks and rewards of the investment.
In the past, group investing in real estate was typically limited to accredited investors until the JOBS Act was passed in 2012. The SEC created new exemptions that allowed real estate investment opportunities to be offered to non-accredited investors.
Real Estate Investment Strategies
As a real estate investor, you can adopt different strategies for maximum financial gain. Some common ones include:
Buy and Hold
Buy and hold is a strategy in which you buy a property with the intention of holding on to it for an extended period of time, typically several years or more. The goal is to generate rental income and long-term appreciation in the property's value.
BRRRR
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investment strategy that involves purchasing a distressed property, renovating it, renting it out, refinancing the property to extract the equity and repeating the process with the proceeds.
Fix and Flip
This strategy is high-risk and it involves purchasing a property that needs repairs or renovations, making the necessary improvements, and then selling it for a profit. The goal is to buy low, add value and sell high in a relatively short period of time.
Real Estate Investment Trusts (REITs)
A REIT is a company that owns or operates income-producing real estate properties. Investors can buy shares in the REIT, which allows them to own a diversified portfolio of real estate assets without having to manage the properties themselves.
Wholesaling
Wholesaling involves finding distressed or underpriced properties, getting them under contract and then assigning the contract to another investor for a fee. The goal is to make a profit without having to take ownership or make any repairs to the property.
Short-term Rentals
This strategy involves purchasing a property and renting it out on a short-term basis, typically through platforms like Airbnb or VRBO. The goal is to generate income from this rental property that exceeds the costs of the property and any associated expenses.
Solo vs Group Investing: Which Option is Best for You?
You want to dive into real estate investing but you're not sure if you should go solo or invest with a group of potential partners. Before you make any conclusive decisions, here are some pros and cons of each to help you make a better and informed decision.
If you would like to speak to a licensed real estate agent so that they can advice and guide you through the process, schedule a session with Ila here.
Pros of Solo Real Estate Investing
Solo real estate investors have **complete control **over their investments, including property selection, financing options and management decisions. This allows them to tailor their investment strategy to their unique goals and risk tolerance.
Solo real estate investors have the flexibility to make quick decisions and adjust their strategies as market conditions change. This can be especially advantageous in rapidly changing real estate markets.
Solo real estate investors may be able to generate higher returns than those investing through real estate partnerships or funds. This is because they are not sharing profits with other investors or paying fees to a fund manager.
Real estate investments offer a variety of tax benefits, including deductions for mortgage interest, property taxes and depreciation. Solo real estate investors may also be eligible for additional tax benefits if they operate their investments as a business.
For some investors, the process of researching, purchasing and managing real estate investments can be personally satisfying. Solo real estate investing allows investors to take full ownership and have more control of their investments.
Cons of Solo Real Estate Investing
Solo real estate investors may have limited financial resources, which can make it difficult to compete with larger real estate investors or take advantage of certain investment opportunities.
Real estate investing requires a variety of skills, including property analysis, negotiation and management. Solo real estate investors may lack the expertise to effectively navigate these challenges on their own.
Solo real estate investors are solely responsible for managing and maintaining their properties, which can be time-consuming and expensive. They are also more vulnerable to economic and market fluctuations, as they do not have the diversification of a real estate fund or partnership.
Solo real estate investors may have limited access to networking opportunities and industry contacts, which can limit their ability to find investment opportunities, access financing or receive professional advice.
Real estate investing requires a significant time commitment, especially for those managing their properties independently. Solo real estate investors must balance their investment activities with their other personal and professional obligations.
Pros of Group Real Estate Investing
Group real estate investors can pool their financial resources and invest in larger properties or portfolios that may not be available to solo investors. This can provide access to more diverse investment opportunities and potentially higher returns.
Investing as a group allows investors to share their skills, experience and knowledge. This can help mitigate risk and increase the likelihood of success by leveraging the collective expertise of the group.
Group real estate investing can reduce risk by diversifying investments across multiple properties or asset classes. This can help to minimize the impact of market fluctuations or other unforeseen events.
As part of a group of real estate investors, the different shareholders can enjoy great networking opportunities and access to a broader network of contacts, including real estate professionals, lenders and other investors. This can help to identify investment opportunities, secure financing and receive professional advice.
Group real estate investing allows investors to share the workload associated with property management and other investment activities. This can help to reduce the time commitment required for individual investors and allow them to focus on other personal or professional obligations.
Cons of Group Real Estate Investing
Group real estate investing requires collaboration and decision-making among multiple investors, which can lead to disagreements or conflicts. This can create delays or disruptions in the investment process and potentially harm the group's investment outcomes.
Group real estate investors may have limited control over investment decisions, including property selection, financing options, and management decisions. This can be frustrating for investors who prefer more autonomy in their investment strategy.
Group real estate investing may involve fees and costs associated with forming and managing the investment entity, as well as paying for professional services such as legal or accounting support. These costs can reduce the returns on the investment.
Group real estate investing requires investors to share profits with other members of the group. This can reduce the overall returns on the investment and limit individual investors' ability to earn higher returns.
Group real estate investing may limit investors' ability to make quick decisions or adjust their investment strategy as market conditions change. This is because the decision-making process must involve all members of the group, which can create delays or restrictions on individual investors' actions.
The Ultimate Decision is Yours
Both solo and group real estate investing can be successful strategies depending on your personal preferences, resources and investment goals.
Solo investing allows for greater control and decision-making power, but also comes with increased risks and responsibilities. Group investing, on the other hand, allows for shared resources and risks, but conflicts may arise as all decisions have to be made collaboratively.
Ultimately, the best approach will depend on your individual circumstances, investment experience and risk tolerance. It's important to carefully consider your options and do your due diligence before making any investment decisions.
Bay Street Capital Holdings
Bay Street Capital Holdings is a Black-owned, independent financial planning, wealth management, and investment advisory firm located in Palo Alto, CA. The firm's primary focus is on managing total risk and volatility, with the aim of preserving and increasing total assets and income, rather than solely maximizing returns like many other advisors.
Founder William Huston has over 13 years of experience in supporting the largest retirement plan in the United States, the Thrift Savings Plan with assets worth $650B, and has been recognized by Investopedia as one of the Top 100 Financial Advisors for 2022. Bay Street is the only Black-owned firm among the twenty recognized firms in California.
Bay Street was established to support diverse and emerging fund managers and entrepreneurs, with a goal of advocating for their needs. Ekenna Anya-Gafu CFP, AAMS, based in Scottsdale, Arizona, is a recognized member of Bay Street for his excellent communication, helpfulness, attention to detail, and responsiveness.
Bay Street Capital Holdings was also a finalist in the Asset Manager for Corporate Social Responsibility category among more than 900 firms throughout the United States in 2021. As of now, Bay Street manages $480 million in assets.
Sources
https://highreturnrealestate.com/starting-out-in-turnkey-real-estate-investing/
https://timonscabansi.com/real-estate-investing-going-solo-vs-group/
https://hudsonpoint.com/learning-center/blog/real-estate-syndications-vs-investing-solo-an-analysis/
https://www.mashvisor.com/blog/real-estate-investment-companies-solo-2019/
https://www.investopedia.com/mortgage/real-estate-investing-guide/
