In life, there are things that can be done individually as well as in groups. For example, solitaire is played alone whereas poker is played in groups. There is the saying “two heads are better than one”. You can also look at it from the perspective of a team sport such as soccer. With the team sports, a group of people is working together to achieve a common goal of winning the game. The saying “there’s no ‘I’ in team” resonates with many sports and activities.

The same mentality can be associated with investing in real estate. Sure, many investors are able to purchase property by themselves. Some like not having anyone to deal with but themselves. However, there comes a point when investing alone can only take you so far. Real estate investing itself should be considered a team sport. There are several reasons why real estate investing should not be done just individually.

First, there’s the exposure. When an investor is completely alone in a deal, all the capital required for that deal is shouldered by that one investor and his/her resources. Surely if the deal provides a windfall, all the profit goes to that one investor. This is probably a big reason as to why investors want to go it alone most of the time. Also, there is the avoidance of disagreements with business partners. However, on the other hand, if the investment were not to perform as expected, that one investor alone would lose all the capital that was needed for that transaction. With investing in groups, an individual’s initial capital is reduced, since there are others with whom to share the amount of money needed. Furthermore, the amount of money at risk for an individual is reduced.

Second, the cheaper the prices of the real estate, the more investors there are who are qualified and able to purchase them. Therefore, this creates more competition for the individual investor, making it more difficult for them to find the deals to create the returns desired. However, as investors bring their funds together, they are able to focus on buying larger, more expensive properties that the individual investors cannot easily purchase. This reduces the competition and allows the investors to find the deals that will bring the returns desired. Also, since the group would be able to purchase bigger properties, economies of scale will come into play, increasing the returns further for the investors.

What really separates the individuals from the groups is their ability to produce the needed down payment amounts for the different sized properties. Group investing lowers the competition.

Group investing allows the investors to climb to a specific niche of properties, primarily the $1,000,000 to $5,000,000 price point, where most of the individual investors cannot readily afford, and just below where the institutional investors want to be. Here, there is less competition, and more good deals to be made. The economies of scale appear, along with the bargaining power that comes with less competition and higher financial ability. All this results in amazing profits for the group.

Lastly, when one is investing in real estate alone, that one person in solely responsible for everything, from finding the property, organizing the renovation, creating a plan of action to increase revenue, managing the property, and disposition. When investing in groups, the individual investors do not have to partake in everything, or even anything. The investors can rely on the individual(s) in charge of the partnership to do the work and make the decisions. Therefore, the investors can sit back and allow passive income and equity appreciation to work for them.

Group investing is the best way to passively allocate a portion of your portfolio into real estate.

Copyright 2015: Earl Pabellano
All Rights Reserved

Many things in life require making difficult decisions. Whether it may be moving to a new place, starting a new job, or starting a new chapter in life, difficulties exist. Adding to the complexities of decision making is an object, a trait, a powerful mechanism within us all, fear. Fear exists within us as well as within the circumstances surrounding choices that need to be made. Fear itself is a very general trait within us that can overpower our lives. Specifically, you can have a fear of failure, fear of rejection, fear of embarrassment, etc. No matter what specific fear, it is there and can impact or hinder the choices we make or need to make.

What would have happened with conflicts or wars if all the soldiers involved were too scared to do anything? Perhaps those wars would still be ongoing or would have escalated to much larger conflicts. What would have happened if medical researchers were too scared about the consequences of their findings? We probably would have less vaccines or medicines and more deaths from untreated illnesses.

The same goes for investing. Would the Rockefeller, Getty, or Pritzker fortune have been created if they were too scared to try pursue their ventures or expand their businesses? The answer would likely be “no”. With fear ruling your mind, you will end up not taking action. This leads to missed opportunities like certain experiences in life. For our purposes, fear leads to missing chances to improve your portfolio’s returns. Also, you can miss opportunities that exist in the current cycle of the markets to make money.

In order to conquer your fears, you to look at the bigger picture. Fear exists because of what is unknown. Therefore, to reduce your fear, you need to research and understand better what you are getting into and investing in. Once you understand that, your fear will be mitigated and you can properly take action. Also, you can work with others to invest your money. Working with someone who has the understanding and the drive to put your money to work can significantly reduce your fear, as well as create passive income for your portfolio.