Risks and Benefits in St. Louis Real Estate investing
You have finally decided to begin your career in St. Louis real estate investing. It goes without saying that you are looking to make a solid return on your money as no one makes an investment with the intention of losing. To help mitigate the risks, you have to understand what is involved. Here are some of the facts that you’ll need to know about the various entry points into St. Louis real estate investing.
Individual Direct Ownership
In this category, you are buying St. Louis property on your own or with a partner and handling all matters related with its operations. You are in charge of leasing the property out and managing it. You could enlist the services of a real estate manager as well.
The benefit of this type of investment is that you are at liberty to make all the decisions pertaining to the investment. Also, all the profits come to you.
Risks: Troublesome tenants, too many management stresses, poor financial decisions. You also risk losing money on sale of the property and to some extent, being responsible for past insurance coverage.
Partnering with Associates
You could consider partnering with a friend, like-minded individuals or family members. To get into this sort of investment, you’ll need to know your partners as well as their financial position extremely well. You also have to be in sync as far as your investment appetite and desire goes.
One suggestion in this real estate investing scenario is to craft an agreement between the parties involved, with one party taking the responsibility for management of the property. That one person should draw some compensation as property manager. With this in place, you avoid getting into petty disputes over issues such as who will oversee that repair job that needs to be done during a holiday or the Super Bowl.
Benefits: Shared decision making and profits and at the same time, all partners directly control the asset. Having partners is beneficial as long as they are all on the same page.
Risks: Your partners may not all have the same level of commitment to the project in terms of money and time to the investment. In addition, you are exposed to the same risks as the individual direct owner above.
General or Limited Partnerships
These investments include tenant-in-common investments and private real estate investment trusts (REITs). They are advertised in newspapers, at real estate clubs, by financial institutions as well as by investment groups. Here, you are entrusting someone else entirely, namely the “sponsor,” to handle a reasonable portion of your net wealth. The major concern with these is that most investors do not do even the most basic due diligence on the ‘sponsor,’ and even if they wanted to it would be hard to. Few investors, for example, will review a sponsor’s credit report, detailed investing history and tax returns on past deals. Nor do they contact banks, check criminal or civil litigation histories or consult lawyers and other investors the sponsor has dealt with in past real estate deals. If you are considering going this route, be sure to do your homework.
Benefits: You do not have to deal with the hassles of property management and you could get a good return on investment. Also, the sponsor is generally expected to be more experienced in real estate investment than you are.
Risks: You would not have much control and you risk dealing with unscrupulous sponsors, personal guarantees and liability, low returns on investment or loss of your investment.
Publicly Traded Real Estate Investment Trusts
These are investments in a big company whose core business is generally buying and owning property. A REIT buyer is really investing in the ability of management to make good decisions on behalf of their shareholders. Look at a particular company’s results and dividends before making a decision on whether or not that company is a good investment for you.
Benefits: You’d have no management responsibility and no liability past your initial investment. You do not necessarily need to be an experienced investor either.
Risks: You could lose your investment. Shares and company value are subject to regional, national and stock market influences and risks, which could reduce share value even if the company is relatively strong and well managed.