I recently had a person ask me what are some ways they can invest in real estate without having to actively be involved in managing real estate. Nowadays there are a lot of people that know the benefit of investing in real estate, but just don’t want the hassle of it all.
Like all posts about investing, I must make the disclaimer that I am not endorsing any of these investments. I suggest that you do your own due diligence on each of the ones suggested and then determine for yourself which one makes the most since for you and your risk tolerance.
I will give you my opinion on each one, but I have a bias towards being a little more actively involved.
The first three are in an order of how I personally invest, so again, I have a bias.
1.Buy and hold with a property manager:
I personally believe this is the best way to build wealth. Buy your own deals and have someone else manage the property for you. A property manager will usually take somewhere between 6-10% of the rents collected each month. However, it is their job to take the calls, find the tenants, collect the rent, etc. And send the property owner a monthly report.
Early on in my investing career I didn’t want to pay the 10% or whatever it is. However, I quickly learned that I prefer to be an owner and not a manager of property. I manage the property managers. Now when I am looking at a deal, I bake into the underwriting the costs associated with having a property manager manage the deal for me. If it doesn’t cash flow, I don’t buy it.
2. Find an operator and invest with them:
This particular strategy has a lot of tentacles to it. So let’s look at them one by one. Also, keep in mind. Investors are always looking for people to split the risks with them on deals. So if you have cash and can find an investor/operator you trust. Then investing your money with them could be the easiest and best thing for you. There are a million ways to execute a plan like this. It really is up to the imaginations of the people involved and what the people involved in the deal want out of a deal.
Syndication: Syndication in a real estate deal refers to the process of pooling money from multiple investors to purchase a real estate property or portfolio of properties. The investors typically form a limited partnership or limited liability company (LLC), with one or more general partners or managers responsible for the management and operation of the property.
Syndication can be an attractive option for real estate investors who may not have the financial resources or expertise to purchase and manage a property on their own. It allows them to participate in larger and potentially more profitable deals than they could on their own, while also spreading the risks and costs among a group of investors.
I personally believe syndication deals are a way for people with large sums of cash can get involved with bigger deals. However, many potential investors may not have very large sums of cash. What I see typically on syndication deals is anywhere between $50K and $250K to get in on a deal. So if you don’ have that kind of money it might make more sense for you to find an individual (like me) who is buying smaller deals, but will bring you in on a deal.
The way syndication works is you typically get a return each year on the money you have invested, you typically know how long the hold period will be for the property, and the goal is to sell off the property at the end of 3-7 years for a profit. The general partners and the limited partners split a percentage of the profit.
Let’s say you have $100,000 invested. And you are guaranteed a 7% return. That means each year you will get $7,000 on your money. And then at the end of the hold period a limited partner will get a percentage of the profits based on their investment percentage.
Fund someone else’s rehab.
Again, there are a lot of investors and operators out there looking for cash to help them grow their business. If you find an operator/investor that does flipping. You could lend them cash to help them either buy a property or just fund the rehab costs on a deal. Again, you can use your imagination here on how to set these up. But finding someone who has a solid track record of finding great deals, rehabbing them quickly, and then selling for a profit is the key to success. But this a great way for you to use real estate as a way to make money on your money.
I personally prefer to stick one the above ways to get into real estate. The margins are better and I just love real estate. However, there are some additional ways below that can get you involved in the benefits of real estate investing.
Again, full disclosure. I have only used the methods above and have not used any of the below ones. The below ones to me don’t involve me enough and it is too much control by large institutions which I am not a fan of.
- Real Estate Investment Trusts (REITs): REITs are companies that own and manage income-generating real estate properties such as apartments, office buildings, shopping centers, and hotels. Investors can buy shares of these companies and receive a portion of the profits generated by the properties they own.
- Real Estate Mutual Funds: Real estate mutual funds are similar to REITs in that they invest in real estate properties. However, they are actively managed by professional fund managers and offer investors the opportunity to diversify their portfolio by investing in a variety of properties.
- Real Estate Crowdfunding: Crowdfunding platforms allow investors to pool their money together to invest in real estate projects. These platforms typically offer a variety of investment options, ranging from residential properties to commercial buildings and new developments.
- Real Estate Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but trade like stocks on the stock exchange. Real estate ETFs invest in a variety of real estate properties and offer investors the opportunity to diversify their portfolio.
- Real Estate Notes: Real estate notes are a form of debt that investors can purchase from banks or private lenders. The notes represent a borrower’s obligation to repay a loan, and investors receive regular interest payments on the note until the loan is repaid.
I hope this post was helpful.
My preferred suggestions are buying and holding your own deals and having someone else manage them. Secondly and thirdly is getting involved with other investors through syndication deals, buying deals together, or helping fund deals. But with these there are more risks, which means the opportunity for more rewards as well.
Here is the key to any success in real estate. Take action. Stop waiting.
To your success and your future.
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