The real estate investing world has changed quite a bit in the past couple of years, especially since the pandemic. According to Andre Holloman of Andre Holloman Real Estate, foreclosures haven’t been the go-to source for investors as they once were. Banks are giving less of a discount on these assets and putting a premium on properties shrinking the profit margin for would be investors.
With the influx of wholesalers and novice investors entering into the market, investors have to put more emphasis on their due diligence and their hard cap number to acquire investment properties.
The challenges when it comes to investing in real estate is perhaps at an all-time high today. However, there’s still no denying that it’s one of the most satisfying—not to mention lucrative—ventures out there.
Considering this, we’ve interviewed some of our peers in the real estate industry to pick their brains and gain insights on how to invest money effectively. Here are their answers:
Purchase a Rental Property
The best way to invest money in real estate is by purchasing a rental property. Building a portfolio of rental properties is great because it allows you to get monthly cash payments from rent while the underlying asset appreciates in value.
Single or multi-family homes are great investments because you can finance a large percentage of the purchase price. This allows you to reap the benefits of an asset worth hundreds of thousands of dollars while only putting down a fraction of that in cash.
Single family homes are also a great investment because in the U.S., builders are simply not building it fast enough. There are only about 1.5 million new homes built every year meanwhile demand for housing far outpaces that.
Establish Your Goals
Investing in real estate can be extremely rewarding, but it can also be scary, especially to a new investor. Before making any investments, it is wise to establish your goals.
Do you want to maximize cash-on-cash returns? Then, maybe house-flipping is for you. Do you want to generate passive cash flow? Building a portfolio of rental properties can help you get there. Let your goals be your guide in real estate investing.
In addition to establishing your goals, it’s crucial to assess risk tolerance. Real estate investing can be risky and stressful. I can attest to the fact that flipping houses comes with some major headaches. There are unique challenges that come with being a landlord as well. If you’re risk-averse, you might explore some “safer” real estate investing methods, like real estate investment trust (REITs) or real estate investment groups (REIGs).
Consider Real Estate Syndication
There are numerous ways one can invest money in real estate. Most of the methods require quite a bit of hands-on effort, i.e. finding the property, hiring a property manager, interviewing and placing tenants, working with contractors, keeping the books.
Another, and much easier, way to invest is through a real estate syndication. You find a sponsor you want to work with and when they have an investment opportunity available you simply put your money in and let them do all the work. You collect checks (cash flow) on a regular basis and a big check when the property is sold.
– Nancy Chillag, Founder and CEO, 23rd Street Investors LLC
“Sell the Contract”
This is something someone can easily do to get into the real estate market. When you offer to buy someone’s house, if they are a motivated seller, chances are you are going to get this house a a very good price—a great price even. So, what happens next is even better.
What I do, and what most of us do, is we will get the house under contract, put down the deposit, and then I sell the house. It really is selling the contract, but what this means is you don’t even have to buy the house in order to make money on it.
You take the contract you have in place, assign it to another cash buyer willing to pay a little more than you, and when they close you get paid your assignment fee. And you make money. And you can do this over and over again. As long as you keep finding deals. That’s where marketing comes in. Which is a whole other topic.
– Daniel Prado, Owner and CEO, Daniel Prado Properties LLC
Take the Crowdfunding Route
There are numerous ways to get involved with real estate investing. It depends on what type of investing an aspiring investor wants to pursue. If an individual wanted to take a passive approach and simply buy into an investment opportunity, there are a few ways to do this. Crowdfunding allows people the opportunity to invest in real estate opportunities with a small amount of capital.
There are products out there called real estate investment trust (REITs) that allow investors the opportunity to invest their retirement funds or brokerage monies in diversified real estate investment trusts. These can be bought as individual company stock, a mutual fund, or an exchange-traded fund (ETF).
You can also invest privately with other real estate companies or investors that purchase development opportunities. Another term for this type of investing is hard money lending. If you’re actively looking to pursue real estate investment opportunities, you can try purchasing property to flip.
You can also work on building a rental portfolio to generate income and build equity over time. In sum, deciding the right strategy will depend on your preferences, time commitment, monetary resources, and risk appetite.
– Jonathan Faccone, Managing Member and Founder, Halo Homebuyers LLC