Vehicles for shared investment for MANY investors?

Question

Hi Everyone;

I was curious how investments are typically handled when there is a large number of investors involved (more than 50). The little I know about REITs suggests that they are not suitable for high risk, high growth projects (ie rehabs of small properties & similar)

Thanks!

Dale Osborn · Answer

You need to stop to think about the business model you would have in place by having over 50 investors all together to invest. I have seen a property that 26 people pooled their money into and then were unable to make any decisions so property was allowed to get run down. The city stepped in and threatened closure, did some mitigation of problems and placed liens on the property for their involvement. Over 50 people having a say-so in how it was to be run? This would be even worse than having just 26 investors. It would not be something for me to consider getting involved with.

If you are talking about REITs then that would involve the stock market and again is not appealing to those who want some sort of control on the day to day operations of your investments.

John Evan Miller · Answer

Broadly speaking, there are three categories of REITS: equity, mortgage, and hybrid. Equity REITs own and operate income-producing real estate, while mortgage REITs lend money to real estate owners and operators or deal in the acquisition of mortgage-backed securities or loans. A hybrid REIT operates in both business lines – equity and mortgage.

REITs involved the risk that would typically be expected of an equity investment. But, looking into higher risk properties have not stopped some REITs. Check out this article from Bloomberg. It may just give you some investment ideas.

http://www.bloomberg.com/news/2012-01-31/foreclosures-draw-private-equity-as-u-s-selling-200-000-homes-mortgages.

Single-family real estate investment trusts (REITs) are springing up in response to the rise in availability of distressed properties. The new funds focus on buying up blocks of foreclosed single-family homes to rehab and then use for rentals and sales are increasing.