- February 2, 2021
- Posted by: Jin Wang
- Categories: new investors, passive investing, syndications
As we discussed in Part I of this guide for new investors, there are TONS of ways in which to get started investing in real estate! Everything from crowdfunding sites, to residential real estate fix and flips, to commercial storage units and office buildings; these methods are at your fingertips if you know where to look.
This is also why, as a beginner in the vast world of real estate investing, you might feel overwhelmed. However, with a little guidance, you’ll be able to narrow down which types of investments suit your lifestyle, financial goals, and personality best.
In our last article, “The Greatest Guide for New Real Estate Investors: Where to Start,” we discussed the key questions to ask yourself in order to gain a 10,000-foot view of your current life situation, determine your why, decide how hands-on you want to be, assess your risk tolerance, and even consider how much money is available for you to invest with.
We left off with a few investor type categories you could fall under based on your self-assessment. As a refresher, these categories are:
- The Lots of Money / Little Time / Hands-off Investor
- The Little Money / Little Time / Hands-off Investor
- The Little Money / Lots of Time / Hands-on Investor
- The Lots of money / Lots of time / Hands-on Investor
In Part II of this guide, I’ll give you some ideas for what types of real estate investments you could pursue based on your investor type category. Then, we will wrap up with a recap of the main takeaways of this guide. If you’re ready, let’s get started!
The Lots of Money / Little Time / Hands-off Investor
For those of you who have some money saved up but have a pretty demanding career or maybe even running your own business, you’d fall under this category. Your capital may be sitting in savings where you’re a bit frustrated that it’s not working hard enough for you, or in the stock market where it has done pretty well so far, but you just don’t know what will happen tomorrow. On the other hand, you’re attracted to the idea of investing in real estate because it’s investing in a real, tangible asset. Real estate also has so many benefits to offer, like tax breaks, passive income, not to mention the positive impact on the families and communities you invest in.
Given your limited time, you don’t necessarily want to spend all your free time learning the ins-and-outs before getting comfortable enough to make offers. And once you find the property, where will you squeeze out time to find contractors, manage the renovation, find tenants, and finally manage the property? Sure, you can hire a property manager, but it will take away from your cash flow, and believe it or not, you still have to manage your property manager. No one will care more about your property than you do.
The mere thought of what your to-do list would look like given this scenario makes you exhausted!
Recommendation: Become a Passive Investor
If you can relate to the above, I’d recommend that you consider investing passively either through turnkey rental properties or through commercial real estate syndications.
Turnkey Rental Properties
Turnkey rentals are what it sounds like; you find a market and neighborhood you like, buy a property that’s ready to go (someone else already has done all the hard work for you), rent it out, and collect the cash flow generated. Typically, the company that sells the property would also serve as its property manager, so they’ll find you a tenant, manage it, and send you a check or direct deposit each month. Those are the pros.
The cons are that you still need to do your homework on the market and the neighborhood. The difference between a good and bad area is often one street apart. It is also critical that you find a good property manager. It could mean the difference between a truly passive investment or a true headache where you can’t trust and rely on the property manager to take good care of your property and tenants.
From my experience, the markets that make sense for cash flowing turnkey properties were mostly out of state. However, without visiting these areas and identifying good neighborhoods to buy in, I could not get comfortable throwing my money into a property without seeing it first. After all, it is a single-family at the end of the day, and a vacant unit means 100% vacancy! So for those of you considering this option, I’d recommend visiting the market and shopping around for turnkey operators while you’re there before choosing who to work with.
Commercial Real Estate Syndications
If you are bold enough to think bigger right from the start, the other option is to invest in commercial real estate syndications. My husband and I were presented with this possibility at the beginning of our investing journey, but we thought we must start small first. In hindsight, investing passively was probably a better fit for our lifestyle as we had very little time, we had some money, but with little time, meant we couldn’t be too hands-on.
So what is a real estate syndication? Quite simply, a real estate syndication pools together resources such as money from different investors, and expertise from the syndicators in order to buy a large multimillion commercial property like an apartment.
Let’s say Sage Investing Group is a syndicator. Our team spent tons of time researching markets, analyzing properties, and meeting up with brokers, contractors, and property managers. We find an apartment building that we think would be a homerun investment.
This apartment building costs $4 million, which requires a $1 million down payment. We have $100,000 to put in, which leaves us with a $900,000 deficit. We need to find investors to fill in the rest.
As an investor in our syndication, you rely on our time and expertise. We take care of all the day-to-day operations, renovations, accounting, etc. You just put in your money, and every quarter, we send you a check with your percentage of the returns. You would also get a portion of the profits when the apartment building sells.
Your money goes toward revitalizing and improving an apartment community, therefore, helping to improve the living condition for the tenants in this community. So not only are you investing your money to make it work for you, but you’re playing an essential part in providing safe, clean, and affordable housing for others.
Overview of Being a Passive Investor
What you put in: Your money
What you leverage: Other people’s time and expertise
What you get: Ongoing passive income, confidence knowing your money is being put to good use by an experienced team.
The Little Money / Little Time / Hands-off Investor
On the other end of the spectrum, you may not have a lot of money to invest with at the moment, you don’t have a lot of time, but you do know real estate is a good investment. It’s just not something you want to deal with directly. If this is you, one of the easiest ways to get started in real estate investing is through real estate crowdfunding.
Recommendation: Invest Through a Real Estate Crowdfunding Site
Recent changes in SEC regulations have made real estate crowdfunding an option for the public to invest in commercial real estate projects. Crowdfunding is an excellent option as it has low barriers to entry. The minimum investment is typically $500. So if you’re limited in time and money but want to try real estate investing, this is a great way to get started.
Overview of Investing Through a Real Estate Crowdfunding Site
What you put in: Your money (in small amounts)
What you leverage: Crowdfunding platforms, experienced deal sponsors, strength in numbers (i.e., lots of people all putting in small amounts of money)
What you get: Tons of choices on crowdfunding platforms and real estate projects, ability to invest with very little capital, various types of projects, and project lengths to suit your investment goals.
The Little Money / Lots of Time / Hands-on Investor
This category is for those of you who want to be all hands on deck. You have a lot of time and desire to learn and do, but you just don’t have a lot of capital to deploy. Well, believe it or not, you can still be a real estate investor with some creativity and sweat equity. This means you’re willing to spend the time and effort to find properties, conquer the paperwork, rehab the property, and make your passion for real estate profitable.
Your Strengths, Interests, and Goals
If the above describes you, take a moment to identify your strengths and passions. Does the thrill of the hunt for deals interest you the most? Are the renovation planning and execution process exciting to you? Maybe you’re a numbers nerd and can’t wait to analyze the trends and markets of each neighborhood?
Additionally, what are you in it for? Long term equity or short-term capital?
Here are some of the most common ways to invest in real estate with little money and lots of time.
Recommended Real Estate Investment Strategies
Fix and Flips
This is where you buy a run-down piece of property, fix it up, and then sell it for a profit – just like it sounds! If you don’t have cash for a down payment, short-term private loans might be an option. You just need a few months to a year or complete the renovations. Then when the property sells, you pay off your loans and pocket the profits.
The BRRRR Strategy
I hate to break it to you, but no, BRRRR doesn’t mean it’s cold in here. BRRRR stands for buy, renovate, rent, refinance, and repeat. It’s a lot like the fix and flip strategy, except that you hold onto the asset long term.
If you took out a private loan to cover the down payment, you pay off that loan during the refinance step of the process. If done correctly, the property’s value after renovations/repairs will be significantly higher than the purchase price. This abrupt upward appreciation will allow you to do a cash-out refinance and pay off any loans you took to buy the property.
Wholesaling
If you’re a good networker and happen to know of off-market deals, you may be able to get a property under contract at a low price. Then, while the property is under contract and before the purchase is complete, you wholesale it to another buyer at a higher price. The difference between the two purchase prices goes in your pocket.
House Hacking
Depending on your local market, you may be able to get your foot in the proverbial real estate door via house hacking. This is where you buy a property with 2-4 units, you live in one of them, and you rent out the other units. The rental income received from other tenants pays your mortgage. Sweet!
Real Estate Crowdfunding Sites
Crowdfunding sites are a great place to start learning about real estate syndications without the pressure of running one (yet!). You can learn to find and compare deals, research sponsor teams’ track records, and learn what to expect in a syndication deal as far as communication and returns for investors.
Overview of These Types of Real Estate Investments
What you put in: Your time
What you leverage: Other people’s money
What you get: Firsthand experience, the potential for high returns on very little cash investment
The Lots of Money / Lots of Time / Hands-on Investor
You’re in a fantastic position and already way ahead of the pack without the hurdle of having to find the time or the money to invest with!
Recommendation: Lead Commercial Real Estate Syndications
If you’d like to be an active investor, leading your own syndications puts you in the driver’s seat. You get to find the deals, assemble the team, raise the capital, and have a say in the day-to-day operations. The choice is yours to go it alone as the syndication lead or partner with others and create a syndication business.
Recommendation: Become a Passive Investor in Commercial Real Estate Syndications
You also have the option to be a passive investor who’s extremely active in finding and vetting deals for real estate syndicators or private equity firms.
Savvy passive investors know the terminology and have some basics down about deal structures and underwriting. Any investment can look great in a fancy marketing packet, but only savvy investors will know the right questions to ask of the deal and the team.
Overview of Actively or Passively Investing in Commercial Real Estate
What you put in: Your money and your time
What you leverage: The power of others’ expertise, time, and money to help you go bigger, faster
What you get: The freedom to carve your own path and maximize how hard your money is working for you
Summary
This article just threw a ton of information at you; an overview might be a good idea.
Before reading this, we hope you took some time to identify your investing goals, current life stage, risk tolerance, and investing goals, as outlined in: The Greatest Guide for New Real Estate Investors Part I: Where to Start.
From there, you likely fell into one of four categories. Within each group, beginner investors have multiple opportunities to get started on their real estate investment journey. Our suggestions for real estate investment opportunities per investor-type are as follows:
The Lots of Money / Little Time / Hands-off Investor
Consider investing passively in commercial real estate syndications
The Little Money / Little Time / Hands-off Investor
Consider investing small amounts through real estate crowdfunding sites
The Little Money / Lots of Time / Hands-on Investor
Lots of options: Fix and flip, BRRRR method, wholesaling, house hacking, crowdfunding, and more
The Lots of money / Lots of time / Hands-on Investor
Active: Consider leading your own commercial real estate syndication
Passive: Invest through real estate crowdfunding sites or directly through syndicators and private equity firms
Conclusion
I hope this article helped you see that there are real estate investment opportunities for every type of investor, at every stage of life, with any range of available capital and time freedom. Now that you know which investor type you are at this time in your life, you can more easily figure out which opportunity makes sense for you.
One common misconception is that you need a decent amount of capital saved up to get started investing in real estate. I hope that’s no longer what’s holding you back since the options presented above, coupled with The Little Money investor type, prove otherwise.
Now, I encourage you to not delay. Remember, the best time to plant a tree was 20 years ago, but the second-best time is now! Get started toward becoming a real estate investor by taking action on one of the passive or active investment opportunities described above, from whichever category fits you best.
Best of luck to you in your real estate investor endeavor! We look forward to chatting with you soon about our syndication opportunities if that’s something that sounds interesting to you.