Are you looking for a way to invest in property without having to deal with the headaches of buying individual properties? Do you want to get started investing in property as a group?
There are many benefits to investing in property as a collective. For example, you can buy multiple properties together, share expenses, and even pool resources to make improvements.
But before you jump in head first, you should consider how to get started. In this article, I’ll go over everything you need to know to get started investing in groups.
What is a property investment group?
An investment group is a collection of people or companies who pool financial resources to invest in property. They may own homes or other types of real estate such as commercial buildings, retail spaces, office space, etc. A group could consist of family and friends or be formed by corporations who want to diversify their portfolio into different areas of business.
I spoke with our Tax Accountant at UHY Hacker Young and asked him what the best structure would be from a tax point of view. He said that if investors want to form a group to buy properties then one option is to set up a Real Estate Investment Trust (REIT).
What is a Real Estate Investment Trust (REIT)?
A REIT is a company that allows investors to pool resources to provide investment opportunities that might not be available to them as individuals.
REITs are afforded special tax treatment, enjoying exemption from corporation tax on both the property rental business and gains on the sale of those properties. The taxation obligation is instead passed to the shareholders; dividends from REITs are taxable at ordinary income tax rates of up to 45% (rather than the lower rate usually available on dividends of up to 39.35%). Disposals of shares in REITs are subject to the usual capital gains tax regime surrounding share disposals.
- To qualify as a REIT a company must meet certain requirements. For group REITs these requirements must be met by the principal company in the group. The requirements are outlined below: 6.2.1. The company must be a UK resident
- The company must not be an open-ended investment company
- The company’s ordinary shares must be trading on a recognised stock exchange
- The company must not, subject to certain exceptions, be “close” (. A close company is one that is under the control of five or fewer participators (broadly, shareholders, although the definition is a little wider) or is under the control of any number of participators who are also directors)
- The company’s shares in issue must be a single class of ordinary share capital and non-voting fixed rate preference shares only
- The company must not borrow money on non-commercial terms e.g. terms that entitle the lender to a share of profits
- The property business must involve at least three separate rental properties
- No single property can generate more than 40% of the total value of the property business
- The company must distribute 90% of the profits of its tax-exempt property rental business each period
What are the downsides of investing using a REIT?
The requirement for a REIT to be registered on a recognised stock exchange brings with it onerous regulation and compliance, as you can imagine, so it is not something that investors on a small scale may want to consider setting up.
There is also a requirement to distribute 90% of profits to shareholders, so it is not appealing as a structure for those investors who are looking to reinvest profits and grow their portfolio
Property investment groups are also susceptible to unscrupulous managers. For this reason, it is important for potential investors to do their due diligence before investing in any REIT.
Investing in a REIT may be less beneficial than owning the assets directly. This is because a REIT is a trust that owns real estate assets, rather than owning the assets directly.
Property investment groups provide investors with a more hands-off approach to rental property ownership than traditional ownership with the advantage of potential income and appreciation from their investments.
What are the benefits of working with a Joint Venture Partner?
Working with a joint venture partner can give you access to things that you don’t possess. It could be private funding, contacts, experience, or property deals.
In a large number of cases where there are only two parties to a JV deal one person has certain skills or assets and the other person does not have the same mix. This is why a JV can work well, you utilise the skills or assets of another person, which you don’t possess.
If you are seeking a joint venture partner for private equity, using other people’s money (OPM) is a great way to develop your property portfolio. Using other people’s money is the greatest leverage that you can have in your property business. This could be from a joint venture partner or from the bank. Knowing how to get finance in this current market is key.
To succeed with a JV:
- Understand how to find joint venture partners – networking, online forums.
- Make sure you understand the legal paperwork behind a JV – putting the contract together.
- Ensure that all parties are clear on the agreement before proceeding.
- Understand the risks involved (i.e. expenses that you hadn’t expected).
- Understand how to attract JV partners – think about what do you have to offer?
Make sure you have your exit strategy planned out and agreed.
Our experience of working with a JV partner
We worked with a joint venture partner when buying a property in the Peterborough area. This was actually my husband’s Mother!
She wanted to get into property investing at the same time we did. This was a perfect arrangement as we obviously trusted her and we both input 50% of the capital required for the purchase costs, deposit, and refurbishment.
We have since bought her out of the property, but we owned it together for over 5 years. It was an arrangement that worked for all of us.
If you don’t know them well, it’s really important to do thorough due diligence on a JV partner.
What are the benefits of investing in property as a group?
Property investment groups are becoming increasingly popular with investors looking for a way to diversify their portfolio. But why should you invest in property as a group rather than individually? They provide investors with a more hands-off approach to rental property ownership than traditional ownership with the advantage of potential income and appreciation from their investments.
1. Increased chances of success
When investing as a group, you are more likely to succeed than when investing alone because you have a larger financial stake in the project.
According to the reference, there are several benefits to investing in property as a group. These include the ability to sell property more easily and avoid hurting the feelings of other members, as well as the high membership fees often required by clubs. Additionally, members can get smarter about real estate by attending regular meetings, which can lead to better decisions about properties. Finally, the group can cushion the impact of any costs by investing in more than one property at a time.
2. Reduced risk
When investing as a group, there is usually less risk than when investing in property alone because you are sharing the costs involved.
Investing in property by oneself can be risky and time-consuming. Without the help of a group, it may be difficult to qualify for a loan or get a low interest rate.
Going alone also gives emotions a greater role in individual investment decisions, which may lead to suboptimal outcomes. It’s important to not get attached to a property when investing and to treat it as purely a financial transaction.
3. Reduced costs
When investing as a group, you are likely to save on costs such as legal fees and property management fees.
As an individual investor, you must cover all costs involved yourself.
4. Increased leverage
When investing as a group, you have more leverage in negotiations when the group has built up a portfolio of properties.
For example, if you require regular maintenance work to be carried out you can usually obtain a lower price per property when offering a contract for a portfolio than if you just have a single property.
5. Increased morale
When investing as a group, you have the support of other members who are all on this journey together, unified in their goals.
The increased morale that comes with investing in property can help to keep members committed to the group. Investing in property can be a lonely business so if you are investing in a group it means you have colleagues to work with.
How to get started with investing in property as a group?
Property investment groups are becoming increasingly popular among investors looking to diversify their portfolios. But how do you get started?
Step 1: Find interested real estate investing partners
It is important to find interested real estate investing partners because they can help you save time and money while investing in real estate. Having multiple investors can also help you maximise your potential returns.
Step 2: Thoroughly vet investors you feel may be a good fit
When investing in property as a group, it is important to vet potential investors in order to avoid any misunderstandings or disputes that may arise between them. By vetting potential investors ahead of time, you can help to ensure that everyone is on the same page and that everyone understands the goals and responsibilities of the investment.
Step 3: Ensure that everyone has their funding ready to go
It is important to have your funding ready to go before investing in property as a group because it can save on costs. Without proper funding, an investor risks losing all of their money if the deal goes sour. Make sure you all have arranged your finance with your mortgage broker prior to joining the group.
Step 4: Choose a business structure such as a Limited Company or a REIT
When investing in property as a group, it is important to choose a business structure in order to protect yourself from personal debt and lawsuits. By forming a Limited Company or a REIT you can take advantage of tax breaks that would not be available to you if you purchased the property in your own name. It is also important to make sure each partner is named on the insurance policy separately, in order to protect each party’s assets if something bad were to happen on the property.
Step 5: Have a solicitor draft up a solid agreement
When investing in property as a group, it is important to have a solid agreement in place. This agreement should cover key aspects such as each partner’s financial contribution, their level of involvement in the project, and what would happen if the project does not go as planned. Having a clear and concise agreement in place can help to avoid any misunderstandings or disagreements down the road.
Don’t have a solicitor? Check out my recommendation.
Step 6: Locate a below-market-value (BMV) rental property
Below-market-value properties can be a great investment opportunity if you know how to find them. These properties can be found in a variety of ways, such as through real estate agents, online listings, or by contacting the existing owner directly.
There are many ways to find a BMV property. You can check out our guide here.
There are also some property companies that can provide resources and assistance throughout the entire process, from finding the right property to walking you through it once you’ve made your purchase. If you want a hands-off approach then this is the way to go.
Step 7: Move forward with buying the rental property
It is important to consult with a solicitor before buying a rental property because there are some key differences between buying an owner-occupied home and purchasing a rental property.
Step 8: Place a professional rental property manager and tenant
It is important to have a professional rental property manager for a number of reasons, including ensuring consistent and high-quality rental properties. A professional rental property manager can help to keep your properties in tip-top condition, and also keep track of any necessary repairs or updates. A professional rental property manager can also provide guidance and support when it comes to marketing your properties, as well as handle any necessary legal paperwork.
What is real estate investing?
Real estate investing can help you achieve financial freedom by allowing you to invest in a wide range of projects, from single properties to portfolios.
Being a landlord can be one is one way investors make money in real estate.
Flipping is another way to make money by buying undervalued real estate, fixing it up, and then selling it.
REITs are basically dividend-paying stocks that allow you to invest in a wide variety of real estate. By investing in REITs, you can gain exposure to a variety of real estate markets without having to worry about the day-to-day details involved in buying and selling individual properties.
What are the benefits of real estate investing?
Real estate investing has many benefits, including stability, leverage and control over investments. It can also be a great way to pool resources and get better deals on properties. Real estate investing clubs offer members educational opportunities, group discounts and the potential to invest in more than one property at a time.
What are the risks of investing in a group?
Crowdfunding can be risky, and returns may take longer than traditional methods. There are a few disadvantages to crowdfunding, including slow returns and the possibility of not being able to get your money back quickly. New investors may not be able to invest with all real estate companies, which can make real estate a risky investment. There is also a long waiting period before you can sell your building, which makes it difficult to access money when you need it.
What is a real estate investment group?
A real estate investment group is a pooling of funds from different investors to purchase rental properties. The company that operates the investment group takes a percentage of the monthly rent as its fee. This way, the units are pooled together to guard against occasional vacancies.
What are the different types of real estate investment groups?
Investment groups are a collection of individual investors who pool their resources together to purchase or build rental properties. Investors in a real estate investment group lease their units jointly, and share in the profits and losses of the group as a whole. A real estate investment group is a good choice for people who want to own rental properties without the hassle of running them themselves.
How do I start investing in real estate?
Investing in real estate can be a great way to grow your retirement savings. However, it’s important to find a reputable and trustworthy real estate investment company that aligns with your investment goals and expectations. You can attend local property meetings, and look through your contacts to find potential investors.
What are the best practices for investing in property?
When investing in property, it is important to follow some best practices in order to reduce the time burden and maximise your chances of success. Some of these best practices include:
1. Joining an existing real estate investment group: This can be a great way to get started, as you will have access to a network of people who can provide advice and support.
2. Doing your research: It is important to do your research before making any investment, as this will help you understand the risks involved and make informed decisions.
3. Diversifying your portfolio: Real estate is a good way to reduce the volatility of financial assets and provide a better return than bonds, so it is important to diversify your portfolio by including it.
4. Being patient: Investing in real estate takes time and patience in order to be successful, so it is important not to rush into anything and take your time when making decisions.
What are the different types of investment properties?
Diversification is key when investing in real estate, as it reduces risk and increases return. There are different types of real estate investments, including debt and equity investments, property types, and locations. Your investment group can help you choose the right properties to invest in and across multiple cities.
It is beneficial to have an expert in each property type within your real estate club. The mix of debt and equity in your portfolio is primarily a matter of your age and how much risk you can tolerate in investments.
Investors have a lot of options when it comes to investing in real estate. There are different types of investment properties, each with its own characteristics:
What are the tax benefits of investing in real estate?
The reference points out that there are several tax benefits to investing in real estate, including the ability to refinance at better terms and the stability of the investment.
What are the different types of real estate investment trusts?
A real estate investment trust (REIT) is a type of mutual fund that invests in rental properties. REITs are a solid investment for stock market investors who desire regular income. Equity REITs own the buildings, while mortgage REITs provide financing for real estate.
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