Should I Invest in a Real Estate Fund | South Bend 7 Private Real Estate Equity Fund
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Should I Invest in a Real Estate Fund

Should I Invest in a Real Estate Fund

Should I Invest in a Real Estate Fund?

 

There are many reasons why people want to invest in a real estate fund. When you weigh the pro’s and con’s, it is usually more beneficial to invest in a real estate fund. Here are some examples of why you should invest in a real estate fund.

If we calculate the median price of homes from 2008 to 2017, there’s a substantial 11.4% increase as the price went up from $180,100to $200,700 within 9 years. This makes real estate a very lucrative field for investors.

The prices are expected to continue to increase with an increase in demanding. The housing index value, which had dropped to 83.1 in 2014, has now increased to 127, according to the latest figures.

If this is not a reason enough to consider investing in real estate, then have a look at associated tax benefits. The tax you will pay on a property worth $50,000 is lower than the tax you’d pay on profit earned through other means, such as stocks, which are often victim to double taxation as well.

While stocks and other such options have their own benefits, they pale in comparison when it comes to real estate. However, before you make an investment in real estate you must answer this question: Should I invest in a real estate fund or go at it alone?

It is a very important question that can be the difference maker to how much you make from your investment. Let’s compare both the options to reach a conclusion:

What Is a Real Estate Fund?

It’s like a mutual fund where your investment is professionally managed by a third-party that has experience in real estate investment.

The company collects funds from several interested parties to invest in different real estate opportunities.

What Is Going At It Alone?

Here, the control in is in your own hands and while this may sound like a good idea on paper, going at it alone can be a lot of trouble since you will have to not only find opportunities, but you’ll also have to handle payments and paperwork.

Investing In A Real Estate Fund Vs Going At It Alone – Which Is Better

The answer is simple. You should invest in a real estate fund. It has more benefits when compared to the alternatives. Let’s have a look at the pros of investing in a real estate fund.

#1 Time Saving

Real Estate Fund (Time Management):When you decide to invest in a real estate fund, you outsource the control of handling deals to a professional manager. This helps save time since you will not have to find potential deals and negotiate with the seller

All this will be done on your behalf by an expert manager. You will assign a specific amount to the fund – say $20,000 – and the managers will decide how to use it. They may invest it all in one investment or divide it among many to reduce the risk

Going At It Alone (Time Management): If you handle things on your own you will have to take out time to look for sellers, meet them, survey the property, and negotiate a price.

This can take a lot of time and you may not always find success due to a lack of time. Plus, it may also lead you to lose focus on your work and other priorities.

The Winner: Real estate funds are a better option as they take the burden off your shoulder and provide you with quick and reliable results.

#2 Profit and The Risk Factor

Real Estate Fund (Profit and The Risk Factor): Risk is greatly reduced when you invest in a fund. Your money is invested into – even if one market or project fails, you have the opportunity to make money through other options.

As a result, the chances of a loss are very little. However, you may have to pay a certain fee or share of profit as commission to the company

Going at It (Profit and The Risk Factor): It is full of risk. You may not have to pay any fee when you handle things on your own, but if there’s a loss, all your money will be lost since there’s no way to salvage the situation.

Winner: We’ll say real estate funds still win. It’s better to be safe than to save the fee.

#3 The Ease of Investment

Real Estate Fund (The Ease of Investment): Anyone can invest in a real estate fund. You do not need knowledge about finance or real estate to benefit from a real estate fund.

Experienced agents and managers deal with your funds and use their skills to make sure you make a profit from your investment.

Plus, you can also start with a little amount. Many real estate funds accept investments as low as $100,000. This means people with limited incomes can also invest.

Going At It Alone (The Ease of Investment): Investing in real estate on your own can be a lot of trouble. Real estate is not cheap. You need thousands to be able to buy a property. In fact, an average house costs $398,900according to the latest figures.

Winner: Funds are better. You can invest without any knowledge and can start slow as well

#4 Professional Paperwork Management

Real Estate Fund (Professional Paperwork Management): When you give funds to the company, you give them the right to use the funds for investment. They can decide to invest your money wherever they seem fit without having to seek your permission or have you sign documents.

You will, however, be kept in the loop with the help of a consolidated report containing all your investments. The report may be monthly, quarterly, semi-annually or annually depending on the company you chose.

One look at the report will provide you will the information regarding your funds – including profits and losses.

Moreover, it can be helpful at the time of filing as well. You will not have to sit and do calculations for multiple properties. You’ll get one document with all the information for filing purposes.

Going At It Alone (Professional Paperwork Management): If you are planning to do it on your own, then get ready to handle red tape. You’ll have to sign transfer papers, decrees etc.

Moreover, you may even have to spend money on getting a lawyer to check all contracts and confirm authenticity. In addition to this, taxes can be a pain as well.

Suppose you invest in twenty K-1’s then you will receive twenty different K-1 tax reports every year and all the other documents associated with it.

The Winner: Yet again, real estate funds bag the win here. When you put your money in a fund, you do have to worry about documentation. It’s easy and quick.

#5 Capital Diversification

Real Estate Funds (Capital Diversification): This is a huge benefit of investing in a real estate fund. Huge sums from different sources are accumulated and invested in different real estate projects. As a result, you get a diverse portfolio – not only in terms of projects but in terms of geography as well.

This can be very important especially because real estate prices change from state to state.

Going At It Alone (Capital Diversification): Diversification can be an issue due to limited funds. Plus, you may not be able to survey different markets due to a lack of knowledge and end up with all your investment in one pool.

The Winner: Real estate funds are clearly the winner here once again.

The Bottomline: Weighing these three options, it’s clear that investing in real estate funds is a better option than going at it alone.

#6 Ownership

Real Estate Funds (Ownership): You do not own any property in case of a real estate fund. You only have a right to the profit.

Going At It Alone (Ownership): When you buy a property, it is under your own name. You may keep it, live in it, put it up for sale or rent it out as per your will.

Winner: We’d say it is better to do things on your own if ownership is of importance to you. However, if your intention is only to invest and make money then ownership may not be of much use to you.

Control

Real Estate Funds (Control): You have no control over the property or your money. Once you invest it, you also give the company the right to invest it as they deem fit.

You may, however, ask for your money back before the expiry of the time period, but you may have to pay a small fee for it.

Going at It Alone (Control): You have complete control over what you purchase, when you purchase and for how much. It is a good thing but you need a lot of experience and skills to be able to make such decisions.

Winner: Going at it alone is a good option if you want the control in your own hands. However, you’ll end up losing money if you don’t know how to deal in property. You will anyway need the help of professionals.

Buying Property All Cash VS Using a Mortgage/Leverage

Another confusing decision that a lot of people are dealing with is whether to buy property in cash or use the leverage method. Let’s learn which is better.

  • The biggest benefit of buying property in cash is that there is 0% interest as you won’t be taking any loans and making segmented payments. On the other hand, you have to pay up monthly payments and interest in case of a leverage.
  • Buying property in cash saves you from paperwork associated with mortgages.
  • Sellers prefer buyers who are willing to pay in cash. If you’re a cash buyer, you may even be able to get a property at a discounted rate.
  • Paying in full means that you’d be paying less money for the property compared to purchasing it on a mortgage basis due to taxes and fees involved. You will have to pay up the monthly installment along with the interest amount which has been set by the property owner.
  • When you pay in cash, the property is yours. There is little risk of losing it. In case of a mortgage, you can lose the property or have the interest rate increased if you fail to pay on time.
  • Very few cash deals are rejected when compared to mortgage deals.
  • When you pay in cash, the property is immediately transferred to you. However, when you go for mortgage payments, you may not the full right on the property until the payment gets cleared.

Why Should You Partner Up With Us?

South Bend 7 brings years of experience to the table. We have been offering support to investors for many years and can help you increase your earnings quickly and easily.

We study all investment opportunities and pick those that are the safest and the most profitable. After all, your benefit is our benefit.