Beginner’s Guide to Real Estate Investing part 2

There are TONS of ways in which to get started investing in real estate. Everything from vacant land investing, crowdfunding sites to residential real estate fix and flips to commercial storage units and office buildings are at your fingertips if you know where to look. This is also why, as a beginner in the whole wide 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 Beginner’s Guide to Investing in Real Estate: How to Get Started, we walked through gaining a macro-view of your current life situation, determining your why, deciding how hands-on you desire to be, assessing your risk tolerance, and even learning how much money you’re ready to invest. Ultimately, it’s likely that, after slogging through those six soul-searching steps, you fall into one of these groups:

• The Lots of Money / Little Time / Hands-off Investor
• The Little Money / Little Time / Hands-off Investor
• The Little Money / Plenty of Time / Hands-on Investor
• The Lots of Money / Plenty of Time / Hands-on Investor

Ready to learn which investments fit each type of investor? Let’s go!

The Lots of Money / Little Time / Hands-off Investor

If you’re someone who fits predominantly into this category, it’s likely you’ve been saving a while or investing in the stock market since the day you received your first paycheck. It’s also possible that the tax breaks, passive income, and potential positive impact your real estate investments can make on a community are attracting your attention. However, you’re a very busy individual – maybe with a family or in the prime of your career or both! You haven’t got the time to research neighborhoods and markets or tour properties, much less to actively renovate or manage a property.

Recommendation: Become a Passive Investor

For investors with the money to invest but not enough time on their hands to manage the property and get the maximum returns, passive real estate investments are the ticket. You can invest passively through turnkey rental properties or commercial real estate syndications. Turnkey Rental Properties   Turnkey rental properties are smaller scale and as simple as they sound. You purchase a to-be rental property, ready to go, with minimal involvement or work needed. It’s even possible to hire a small scale property manager and you can enjoy some cash flow, albeit usually small, very quickly.   Commercial Real Estate Syndications   Another opportunity lies in group investments where money is pooled together to buy a large piece of commercial real estate property – a.k.a. a syndication. Syndicators do all heavy lifting from the research and analyzing markets to meeting brokers, hiring contractors, overseeing the business plan, communications and much more. They find commercial real estate properties they think would be an awesome investment and then orchestrate the deal, the renovations, operations of the property, and usually a few years down the road, the sale of the property. This is where investors like you come in. You rely on the syndicators’ time, expertise, and partnership team. Meanwhile, your money is invested, and every quarter you receive a distribution check – your portion of the returns earned on the asset. Plus, when the property sells after the hold period, you receive a part of the sale’s profits. Land “Notes”   Flipping land (aka “Flipping Dirt”) has an incredible ROI. One attractive method of passively investing is with land “notes”. Land notes are the promissory notes that buyers often take out when buying land from flippers using owner financing terms. The way this works for you, the investor, is to buy all or a portion of a note or portfolio of notes upfront and for a predetermined return. For instance you could put up $20,000 against a note or notes for a 12% ROI over a set period of time. You enjoy a great return on a low-risk investment. The other party can use the funds to then invest in additional land to flip. It’s a win-win.

Overview of These Types of Real Estate Investments

What you put in   Investment dollars 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, tremendous tax advantages and an equity stake in real estate.

The Little Money / Little Time / Hands-off Investor

In contrast, if you don’t have a large pool of money or time to spend investing in real estate (yet!), but are attracted to real estate as a way to build such wealth, there are options for you too! One of the best ways to leverage the high ROI and low risk of land flipping is to invest in Land Notes or partner with someone. Another way to get started investing in real estate with little capital is using crowdfunding sites.  Oftentimes others choose to find some friends or family and pool your money into a larger sum in an LLC created to invest in a rental property or syndication.

Recommendation: Partner with a Land Investor or Invest in Land Notes

Investing in Land Notes can be done with very small amounts of funds. Additionally, you could also find a Land Flipper to partner with. The best solution is someone that has the experience and time to put into actively running the business and needs funds to acquire additional properties. A second option outside of land flipping is to use crowdfunding platforms. Just as Kickstarter funds new products, there are real estate crowdfunding sites where people can pitch in low amounts of capital toward commercial real estate projects. The difference? Crowdfunded commercial real estate pays cash dividends instead of t-shirts and sneak peeks of the product’s prototype. Real estate crowdfunding sites are open to public use, typically have low initial investment requirements, and are available to both accredited and non-accredited investors.

Overview of These Types of Real Estate Investments

What you put in Your money (in small amounts) What you leverage Expertise of an established land flipper or crowdfunding platforms that leverage experienced deal sponsors, strength in numbers (i.e., lots of people all putting in small amounts of money) What you get Access to low risk, higher return land investments. Alternatively, a variety of choices on crowdfunding platforms and real estate projects, ability to invest with very little capital, various project types and project lengths to suit your investment goals  

The Little Money / Lots of Time / Hands-on Investor

So, you’re interested in real estate, but cash isn’t exactly “flowing” in your life right now. That’s okay, because if you’re willing to roll up your sleeves, there are still ways you can make your first investment in real estate. You still have something of value to bring to the table – sweat equity. The easiest way to quickly ramp up your capital is to be an active land flipper. Learn the business and put in a few hours per week to create big returns on that capital that you do have to allocate into investments. There are other types of real estate you could take on, such as short-term rentals or running syndications. This means you’re willing to spend the time and effort to find properties, devour the paperwork, rehab the property (maybe personally), and make your passion for real estate create future cash.   Your Strengths, Interests, and Goals   If the above describes you, take a moment to identify your strengths and passions. Does the thrill of hunting for deals interest you the most? Is 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 you can invest in real estate with little money and lots of time.  

Recommended Real Estate Investment Strategies

1. Land Flipping

Find vacant land to buy below market value and resell it for quick cash profits or owner finance it to buyers for long-term cash flow. Some of the best return on investment in real estate. You’ll quickly get addicted!

1. 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! Fix it.  Flip it.  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.

1. 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 for a longer 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 value of the property 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.

1. Wholesaling

If you’re a good networker and are able to find “off-market” deals, you may be able to get a property under contract at a low price. Then, while 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.

1. 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!

1. 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 and energy What you leverage Depending on your strategy, you can leverage other people’s money What you get Firsthand experience, potential for high returns on very little cash investment

The Lots of Money / Lots of Time / Hands-on Investor

Um, can we be best friends? 😊 You’re in a fantastic position to make your money grow exponentially.

Recommendation: Ramp Up a Land Flipping Business

Having access to the resources of money and time are a perfect mix to ramping up a business. Land flipping is a perfect way to leverage those resources. Once you learn the basics, the majority of the land flipping processes can be automated or delegated/outsourced. There are specialty outfits as well as near-endless contractors and employees that can do the heavy lifting for you. You become the CEO and make strategic decisions and any of the roles that you love doing if you’re into that. This is an amazing way to create a cash flow engine that will enable you to do whatever it is you want to do.

Recommendation: Become a Syndicator

Another option, if you’d like to be an active investor, is leading your own syndications. This 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 to partner with others and create a syndication business. It’s higher risk and may not be higher reward.

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 lingo 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 and be able to reveal details about the deal and the team.

Overview of These Types of Real Estate Investments

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, and even though it was separated into categories, an overview might do you some good. Before getting too far down the road, we hope you take some time to identify your investing goals, your current life stage, your risk tolerance, and your investing goals, as outlined in The Beginner’s Guide to Investing In Real Estate: How to Get Started.   From there, it’s likely you 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 land notes or commercial real estate syndications The Little Money / Little Time / Hands-off Investor Consider investing small amounts into land notes or through real estate crowdfunding sites The Little Money / Lots of Time / Hands-on Investor Here you have lots of options: Become an active land flipper to quickly ramp up capital from low risk deals. Other options can be actively taking on fix and flips, take on the BRRRR method, wholesaling, house hacking, crowdfunding, and more The Lots of money / Lots of time / Hands-on Investor Active: Consider ramping up a land flipping business Passive: Invest in land notes or through real estate crowdfunding sites or directly through syndicators and private equity firms

Conclusion

All in all, 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. Once you’re able to identify which investor type you are at this time in your life, you can see the opportunities within that category and how they make sense for you. One common misconception is that you need a decent amount of capital saved up in order to get started investing in real estate. The options presented above, coupled with The Little Money investor type, debunked that myth! Now, I encourage you, don’t wait a minute longer. Get started toward becoming a real estate investor by taking action on one of the passive or active investment opportunities described above, according to the category in which you best fit. We look forward to chatting with you in the near future about our land flipping and syndication opportunities.