I am a college student doing an internship at a Boston based real estate investment firm that is offering a condo conversion program, and I am wondering how people feel about a fully hands-off real estate investment. The company I am interning for handles all of the logistics, and even guarantees that the condos are sold after conversion. Would you be willing to give up control if it means eliminating all of the normal hassles?
I would NOT feel good about it. If I am investing my money, I don't want to leave it entirely in the hands of others. Especially if I haven't done that type of investment before and have no way to know if they are on track or not. And I would be very leery of someone who guarantees the thing will sell... unless of course THEY will buy it if no one else wants to. I would give up some control IF I already KNEW the ropes or if it was to hire a contract to do something I COULDN'T do like fix the AC.
I think a major issue with this is their track record. Companies like that go bankrupt all the time. What's going to guarantee my investment? Frankly the only thing I could hold onto is their track record.
Some of my initial questions would be: How long have they been in business? How long have they been doing this? References? Can I see the company's financials? What kind of return are you talking about? How would my investment be secured (am I on title, am I a limited partner, am I just a note payable)?
If a developer offers a "guarantee", a sharp attorney could turn that guarantee into a security that requires registration, unless exempt. Not a good idea to offer guarantees... turns it into an "investment contract" with associated registrations, etc. But hey, if everything goes ok, no one complains. Problem is, if it goes sideways and the developer has made this same "guarantee" to others, the security issue will come up and everyone will end up paying the attorneys.. again.
But even if the develeper didn't offer a guarantee, the novice investor is easily clipped in these kinds of deals. They simpy don't know what they don't know. The number of ways to lose money on a conversion would take a volume.
Can they be profitable? Yes.
Is it a wise investment for a beginning investor? Almost always..NO. The investor really has no gauge for the actual risks involved... and therefore has no real gauge to set the minimum "reward" given the risk.
Just my opinion... developers have a habit of being overleveraged- Donald Trump has taken many of his companies down the BK solution... And he is considered a pretty savvy guy by many. No personal guarantees offered up by him! He knows his risk going in and makes sure it doesn't get to his personal wealth.