WHAT IS REAL ESTATE CO-INVESTMENT AND HOW DOES IT WORK?
3 STEPS TO DO IT RIGHT
Most times, the best way to invest in a real estate property is through Co-investment.
The process — which is the cumulation of funds by individuals to acquire a select investment property in a particular location to resell in the future or lease out for cash flow/ profit — is known as Co-investment, and every investor or person interested in investing in real estate should have an understanding of it.
To help you get there, we’ve assembled a guide that unveils what Co-investment is, how you can get started with it, and the practical benefits.
1. What is co-investing?
2. Get started with Co-investing
3. Benefits of co-investing
WHAT IS CO-INVESTMENT?
Real estate co-investment is the accumulation of capital from different individuals for the basis of investing in real estate. Each co-investor will own a part of the asset, commensurate to his/her capital investment respective to the asset’s all-inclusive purchase price.
Firstly Co-investment requires a mindset of cooperation— it requires individuals to determine how much capital they are willing to contribute to successfully acquire a property. Investors who want to leverage co-investment need to make an effort to understand their personal objective for investing, risk appetite, and fundamental and technical analysis — and use this insight to make well-informed decisions to improve the success of their investments.
For example, one of the benefits of co-investment is the ease of access to prime real estate properties either land for land banking or apartments with luxury amenities — the outcome of a co-investment is being able to enjoy the long-term cash flow. In short, a successful co-investment outcome is the grand total of the long-term gains an investor is expected to receive as a result of their individual contribution.
Now that you understand what co-investment is, let’s look at how you can begin with it.
GET STARTED WITH CO-INVESTING
1. Conscientiously understand your objective for co-investing You can only conduct effective Co-investment by understanding your goal or aim for investing, the investment goals of other co-investors, an assessment of your risk appetite, and whether you are investing for the long or short-term.
If you intend to co-invest in land for land banking within a specific timeframe let’s say two to three years before reselling, then the co-investors should have similar investment goals as you. Doing this gives you an idea of who you’re going to invest with, in what property, and how best to determine the individual capital investment — that’s why maintaining detailed investor motive is central to effective co-investing.
2. Lock in on your Co-investor’s specific interests and goals.
While it’s important to have a clear understanding of the intended co-investors, it only represents the commencement of a successful co-investment. Co-investment is specific and direct. You’re investing “with” an individual or individuals who have unique interests, and goals. That’s why you need to exhaustively get acquainted with the organization setting up the co-investment structure or deal for you and lock in on the crucial rudiments just mentioned.
It is also important to note that a co-investment structure can be set up by you or you can join an existing structure put together by the real estate company.
If you are joining an existing co-investment group set up by the company you should endeavor to get an adequate track record or information you can find on the business you’ve chosen to co-invest with. Look at resources like its website, its social media platforms, etc. Make sure you find relevant information on what current co-investors are saying, take that into consideration.
3. Put together how those interests and goals suit yours Once you have an idea of the co-investors you are dealing with you need to determine how their goals and interests fit into yours and how it helps you reach your desired outcome. Take a look at the investment properties you want to co-invest in that is if you are buying in on the existing structure set up by the company and close in on the one that fits your plan.
For Example, let’s say you are interested in investing in apartments for short lets. You put a finger on a property to co-invest, in this case, a four-bedroom apartment selling at N45 million. In a group of four co-investors, each individual is expected to contribute an equal sum of N11, 250,000 each.
When this apartment is put out for short-stay rental at N50,000 per night with a 100 percent occupancy rate in the year that amounts to a revenue of N18,250,000. An equal revenue share would see each co-investor receiving N4,562,500. Note that a co-investor can have more slots than another person which increases his/her share of profit.
Now that you understand what co-investment is and the possible ROI or annual revenue, let’s take a look at some of the major benefits it presents.
BENEFITS OF CO-INVESTING
Co-owning property with other persons has numerous advantages and makes property holding a more practical and achievable option.
When acquiring a considerable amount of real estate assets co-investing can be advantageous for you.
3 BENEFITS OF CO-INVESTING
1. One benefit of co-investing is that it makes buying a property either land or an investment apartment a more cost-effective choice as it permits each co-investor to pool their cash collectively to fund the buy of the property.
2. Another advantage of co-investing is that prospective co-investors are able to capitalize on purchasing a property at a discounted price or below market price.
For example, Co-investors can purchase a N40,000,000 2-bedroom fully finished apartment off-plan and resell upon completion at the going rate of the property in the market which is somewhere around N50,000,000 to N60,000,000.
3. In matters of management, co-investors can agree on a common arrangement by which some of the commitments around the asset are distributed between individual parties.(Investopedia)
Co-investing in an asset represents a beneficial arrangement that will depend largely on the individual contribution, commitment, and understanding of the nature of co-investment with regard to things like revenue, profit, and finance.
For more information on how to begin co-investing in real estate visit www.lifecardcoinvest.com