Real estate investment companies have traditionally provided a gateway to profits that have increased around 5.4% annually over the last 60 years. However, it’s not easy to set up a real estate investment company if you’re not experienced. Consulting with a financial advisor can help potential investors make informed decisions about their business structure and financial planning.

Understanding Real Estate Investment Companies

Real estate investment companies, at their core, are business entities that purchase, rent or sell real estate to make a profit. A real estate investment company could invest in rental properties, homes they improve and flip, build out large developments or into a fund that invests in a variety of real estate projects.

Benefits of Starting a Real Estate Investment Company

Along with the potential for profit from property appreciation, consistent rental income offers another attractive aspect to real estate investments. Diversification, a cornerstone of investing that reduces risk through spreading investments over various assets, is another key advantage of investing in real estate. Real estate often exhibits negligible correlation with stock and bond markets, making it an ideal contender for investors keen on safeguarding against market volatility.

Types of Real Estate Investment Companies

There are two things to consider when researching the types of real estate investment companies. The first is what types of investments the company makes and the other is how the company is legally structured.

• When looking at the types of investments, these can vary quite widely but each real estate investment company typically has one main type of investment that it focuses on. The company might invest in short-term rentals, long-term rentals, fix and flip projects, commercial real estate or even debt notes in regular family mortgages.
• When structuring the business, the world of real estate investing presents various choices, each with unique benefits. Let’s explore three of the most common structures: Real Estate Investment Trusts (REITs), Limited Liability Companies (LLCs) and Partnerships:
• The right type of formation strategies will depend on your unique needs, which is why you may want to consult with a lawyer or real estate expert.

Alternatives to a Real Estate Investment Company, For those balking at the significant commitment required to start an investment company, the good news is that there are other alternatives. Here are four of the most popular:

• Invest in REITs: REITs provide an avenue for investing in real estate without having to deal with property purchasing, management, or financing nuances. They can be traded like stocks and offer potential for income and growth.
• Invest in Crowdfunding: Real Estate Crowdfunding allows the pooling of resources with other investors to fund real estate projects. It’s accessible to individuals and can offer high returns, along with associated risks.
• Invest in Stocks: Real Estate Related Stocks extend exposure to the real estate market without the need to manage properties. They are shares in companies involved in real estate such as property developers, or real estate services firms.
• Invest in Debt: Private Notes are loans anchored by real estate. They can provide a steady income stream and often attract investors in search of fixed returns with lower risk.

Remember, a financial advisor can play a critical role in helping you navigate through these alternative investment options and make informed decisions. Everyone’s investment portfolio should be unique to their individual circumstances and goals.

Bottom Line

The benefits of real estate investment companies, ranging from potential financial growth and portfolio diversification to tax benefits, are undisputed. However, starting one requires careful planning, a substantial investment and acceptance of a certain level of risk. It could be a rewarding venture for those deeply interested in real estate, willing to take risks and patient enough for potential long-term returns. Make sure you are well-versed in the process of buying investment properties before you take the leap into buying your first real estate investment property.