Breakdown of Real Estate Investing Options
July 31, 2020
July 31, 2020
Real Estate Investing can be extremely lucrative when done right. It can also be very a very stressful, time suck and miserable experience when mistakes are made. There are some questions to first ask yourself.
Are you Active or Passive? – Do you have 10-20 hours to manage active investments a week. Do you have the expertise and tolerance for stress and to solve problems. Active investing requires a lot of problem solving, it often never stops. Some of the problems are easy, some hard, many can really boost values and profits.
Do you have capital or need financing? – using OPM Other People’s Money is very powerful. In addition to banks, there are many private lenders and hard money lenders who would love to lend on a good project and earn 8-12% on their money secured.
Do you have contractors or time and knowledge to do repairs yourself? – find an experienced rehabber, ask them about the mistakes they have made with contractors. The list will be long and wide. Most will laugh or cringe when you ask them if they have their system to find contractors down.
Leverage your strengths, find experts who can help you in the areas you are lacking. Real Estate is a team game. If you try to do everything, you will hold yourself back. In most cases, people like what they are good at, and hate what they are not good at. Write down on a piece of paper what you like and dislike, get experts to do what you don’t like. You will thank yourself endlessly.
Find “The How”, even more powerful find “The Who” – who can you contact and learn from that is an expert in an area you are lacking? If you approach them in an appropriate manner with good intentions to add value to them, you will be surprised at how willing they will add value and help you. It is then up to you to execute, and please reciprocate to these kind people and others. Always add value to people, places and things.
Passive Investments include:
Private Lending – common is 8-12% secured with a Mortgage and Promissory Note, not to exceed 70% of After Repair Value. Some investors will offer more when they are trying to build their business. Make sure they are capable, have the track record and values to successfully complete the project and return your money and return. If not you will end up with the project back.
Real Estate Funds (PPMs) – Private Placement Memorandums, allow investors to pool money and provide an annual return, equity split or combination. Very Savvy investors such as David Swenson who manages the Yale Endowment Fund and is said to be the best institutional investor on record highly recommends diversifying with Fixed Income Real Estate Funds. I agree with him, of course I have a Fund, I love my market and model and the mutual benefit created with my investors.
REITs – Real Estate Investment Trusts. Large institutions that pool money for their model.
Active Investments Include:
Wholesaling – freelance acquisitions. You are connecting an end buyer to a discounted property and making a fee in the middle via an assignment contract or double close.
Rehab Flips – buy, fix, flip to homeowners or investors. Most people have seen HGTV, it is far different in reality but the general idea is understood. One key here is to be weary of Sexy deals. The boring deals are usually the ones that have the best profit and lowest risk.
Wholetailing/Prehabs – buy trashed properties, clean them up and fix the negatives that scare off buyers. Then sell for solid profits.
Rentals – Buy and hold with renters. This can be a great way to accumulate wealth. Just be realistic, this is not completely passive. You will have to manage and make decisions.
AirBNB/Short Term Rentals – Social Distancing is not going away. And people still want to travel, go to events and see sports. Instead of staying in a hotel with thousands, you can stay in a place with just the people you came with. I see this strategy becoming even bigger. Properties that are really nice, furnished nice with great amenities and service perform best.
Lease Options – Agree to a purchase price with a buyer, they pay a down payment and monthly amount on top of rent, then they can buy it at the agreed upon purchase price after usually a 3-5 year term.
Land Contracts – own the property and become the bank for the new buyer. You do not have to maintain the property, pay the taxes, insurance, utilities, etc. But you need to make sure the buyer is.
Whatever strategy you choose, market or how you are involved, Real Estate can be very lucrative when done right.