Making the decision to invest begins with the difficult task of determining where to invest your time and hard-earned resources. We all want to maximize our returns, and real estate investing is a fantastic opportunity to pursue for the investor who wants to either actively or passively participate in his or her investment.
Why invest in real estate?
There are a few key reasons why you should invest in real estate, and among these key reasons are a multitude of considerations that need to be taken into account in deciding how to personally proceed in your real estate investment:
• Diversification Value – A well-balanced portfolio including real estate, stocks, insurance and other instruments helps hedge against market downturns, and the positive attributes of diversification of holdings are well documented. Generally, real estate has a low correlation to other traditional investments like stock, bonds, and other publicly traded investments, so your investment will not be subject to as great of market fluctuations as with other traditional investments. This is synonymous with don’t put all your eggs in one basket!
• Attractive Returns – Often real estate provides the passive income opportunities necessary for retirement. While the stock market and other investment vehicles may provide capital gains, the ability to provide an ongoing (often regularly expected) income stream is key to a secure retirement. By adding real estate to your portfolio, you can maintain your portfolio returns while decreasing risks.
• Hedging Inflation – Investing in real estate is a great hedge against inflationary risks. Many real estate returns are directly linked to rents rather than the supply and demand in the stock market. Because of this, real estate income (from rents or property value) often increases faster during times of inflation, which provides an inflationary hedge, allowing an investor to maintain his or her real returns.
• Active Improvements – Unlike most (if not all) of the other investments within your portfolio, you have the ability to improve the performance or value of the real estate investment. Real estate is a tangible asset. You can provide improvements to the property (upgrading appliances, rehabilitating property, etc), directly increasing its value. Alternatively, you can minimize management expenses by taking on management roles without relying on third party property managers. You are actually in control of real estate investments, if you take an active approach.
How do you move forward?
Starting the process of investing in real estate is often the most difficult part. Where do you go to gain the tools necessary to become a savvy investor?
One of the first questions you need to ask yourself is whether you are looking for a passive income option or whether you want to be an active investor. A few of your personal considerations would include: do you have another job; do you have the financial resources or credit to proceed with available opportunities; how much time are you willing to devote; and who is available to help guide you.
If you find that you have limited time for overseeing a real estate investment, you should consider a passive investment through a general partner or real estate operator. A passive investment strategy allows you to participate in more complex, larger and more time intensive investment opportunities with full-time focused real estate professionals, who will directly oversee your real estate investment.
There are countless opportunities within the buy and hold, fix and flip, multi-family apartment, and new construction real estate industries, but your most important consideration should be who is managing your real estate opportunity. You should always inquire about track record and investment returns from anyone that you are investing with. Of course, it’s important to note that a seasoned operator will generally be more expensive than a fresher general partner, but that is a risk versus reward consideration as you look at various opportunities. Our firm works with a number of real estate operators, in many commercial and residential fields, who implement different strategies for their investors.
Keep in mind that if an investment sponsor has previously provided you with investment prospectus information, you should always review this information with your legal, tax and investment advisors to ensure that the opportunity fits your overall portfolio and provides you with limited liability on risks.
Please contact our office if you have any desire to be introduced to or are undertaking due diligence of real estate operators or investment opportunities.
If you have the desire and ability to proceed with acquiring and managing your own real estate investment opportunity, education is the first key to your success. Your first step should be reading material, including books and magazines, on real estate investing, but then you should move on to an educational platform, which will provide you with the tools and background necessary for your success.
There are many real estate education platforms in the marketplace to help guide you in your decision-making. Each platform has a unique twist and focus, but all should provide you with a comprehensive background on whichever type of real estate investment strategy you wish to pursue.
We have worked with one such real estate education platform, known as the Real Alliance, for years. They have a proven track record in developing students into active real estate investors. They take more of a community-based approach by helping their students engage with other like-minded active real estate investors in all the various active investment real estate strategies. While there are many educational platforms for you to choose from, our relationship with the Real Alliance provides us with the ability to provide you with the discounted 2 day introductory course, if you are interested. Please contact our office for additional information on this offer.
Sponsoring Real Estate
If you are the go-big-or-go-home type, it’s likely that you’ll need to work with other qualified investors to make your investment plans a reality. I would only suggest partnering with investors if you have the time and inclination to build a full-time business around your real estate investing plants. Anything short of full dedication increases the financial risks to yourself and your investors.
There are many considerations before taking the first step down the path of managing with other investors. There are exemptions to licensing and investment registrations, but these exemptions are also part of complex regulations that you will need guidance through. Beyond the initial investments, you must also be prepared to provide ongoing updates to investors so that they are kept informed and engaged. Provided you are willing to put in the effort to reach the multimillion dollar levels, the sky is the limit when working with other investors.
We have helped our clients develop strategies and platforms for capitalizing on each of the different real estate investment strategies described above, which all have different considerations for yourself and your investors. If you’d like further information, please contact our office for a consultation.