Being in the real estate business for so many years, I have had many conversations with people who wanted to start investing in real estate. People want to know what they should do, what is the best way to make money investing in real estate.
There are many different strategies and many different property types providing an aspiring investor with a seemingly overwhelming number of choices.
As in all things, when people ask us what the best way is to invest in real estate, inevitably we respond with “It depends.” While we can guide you in making those choices, what advice we might offer is as different as is each individual to whom we offer it. But before we can make any recommendations, and before you put any money on the table, you must establish your goals and assess your own experience, strengths, and assets for attaining those goals.
Begin with the End in Mind
Stephen Covey said it best in his best-seller, The 7 Habits of Highly Effective People. Before taking the first step in any journey, you need to have an idea of where you want to go. When you establish your end game, it makes it easier to figure out what the interim steps are that will get you there. Don’t worry if you don’t have a clear picture of what you want, you can always pivot along the way. But having a goal, even one that may change, is critical to establishing your plan and charting your path to financial wellbeing.
Are you looking to invest for positive cash flow now, maybe to replace your current income? Or are you more interested in building up a portfolio of assets that will provide alternative sources of income and build wealth long term? You might find our worksheet helpful in determining your investing goals.
Where is YOUR Starting Line?
Let’s look at where you are right now. Are you fresh to the real estate world and only beginning to explore? Careful, there is so much information out there it can get your head spinning!
Maybe you own your own home and love those weekend home improvement projects. You have enhanced your home and enjoy the value that you have added to your investment.
Perhaps you have a few rentals now and want to continue growing your portfolio or move into larger properties. It is taking quite a bit of time to juggle all the details, I’m sure.
What are the Tools in your Toolbox?
- What are your natural talents? What parts of real estate investing are you good at and enjoy?
Do you love sifting through the thousands of properties for sale, completing budgets, projections, and analysis?
Are you a master negotiator and love the challenge of the hunt and making the deal?
Are you a gifted craftsman and love getting hands-on with a renovation project?
Do you enjoy serving other people and creating an environment they will enjoy for the weekend or for many years?
Are you great at leading a team, keeping everyone focused on the vision and holding others accountable for their contributions or are you a better team member and, when assigned a task, can complete it well and on time?
- What are your resources?
Do you have lots of free time you can devote to applying your natural talents? Or are you busy with your day job so your family time and free time are scarce?
Do you have plenty of money you want to invest into real estate or are you just getting started and want to put what extra money you have into real estate first? Maybe you have equity in other property you can access, or you want to move some of your money out of the stock market and into real estate.
- What is your risk tolerance?
Are you reluctant to run the risk of losing any of your hard-earned money, and want safe investments even if that means slower returns? Or are you interested in finding those hidden gems that have the potential (but not a guarantee) of a big payoff?
- How much do you want to invest?
Even if you are comfortable with higher risk investments that promise big returns, you want to be careful where you invest your savings. Unless you are doing a short-term project like a Fix and Flip, you need to be prepared for your money to be working for you over a period of several years. Don’t invest money that you may need access to before the investment has had time to do its work for you.
Draw Some Conclusions
We have found that people fall into a few categories:
- No Time – Have Money – Hands-Off
- No Time – Little Money – Hands-Off
- Have Time – Little Money – Hands-On
- Have Time – Have Money – Hands-On
Group One: If you are in the first group, you are successful in your profession or business but have demands on your time. Maybe you want to diversify some of your assets from the volatility of the stock market into real estate, but you don’t have time to learn all the ins and outs of finding the right type of property to buy, etc. For people in this group, investing in a real estate syndication makes the most sense. You get to participate alongside other experienced investors, who do all the work, enjoy the cash flow and growth in the value of the property, and participate in the tax benefits. Keep reading for more on this strategy.
Group Two: People in group two may be just starting their investing journey. There are many strategies for getting started – things like House Hacking or buying small 2–4-unit buildings using Owner Occupied financing or participating in crowd funding real estate investments where lots of people invest small amounts of money. (insert links to these strategies, ours or others, like Bigger Pockets)
Group Three: If you find yourself in this group, you have a few more options. Buying houses that need to be repaired, then selling them, aka Fix and Flip, can be a great strategy. Many people buy a home and move into it, then spend their free time renovating the house. When it’s completed and looks stunning, they sell it. By living in it and owning it for more than two years, you avoid any tax on the profits also! Another option has been coined the BRRRR method where, instead of selling the fixed-up home, the owner refinances, pulls out much of the equity and rents the home out and then repeats the whole process. Buy, Rehab, Refinance, Rent and Repeat.
Group Four: These lucky few find themselves with time, money, and a desire to work actively with their real estate investments. They may have amassed a portfolio of properties and are looking to grow further. These folks have many options to grow, including trading up, selling a group of smaller assets and purchasing a larger commercial building. Or becoming developers, finding a promising location to construct a building, or taking raw land and bringing in the infrastructure like roads and utilities and then selling buildable lots to others. Another great option is joining other like-minded people and investing in real estate syndications as a General Partner, helping bring investment opportunities to those who don’t have the time to do the work.
As you can see, there are many ways to invest in real estate depending on which group you fall in. And these are just a few of the options available to you. Regardless of where you find yourself, there is always a way to invest in real estate. The sooner you start, the sooner you will enjoy the benefits – financial and otherwise – of sound real estate investments.
Unlike traditional Wall Street investments, real estate is real. You are investing in a real asset that is not subject to the wild fluctuations of the markets. Learn more about why investing in real estate is one of the safest investments available.
And beyond that, you get a chance to improve other people’s lives. When you renovate a home, or rehab an apartment, you are creating an environment where people will live and make memories. You get to improve your financial position while making a positive impact on families and communities.
How we can help.
We want to help you with your journey. We consult often with people in each of these groups to help guide them in establishing a path forward, regardless of their current position. Why not take that first step? Reach out to us to schedule a Consultation Call.
Several years ago, we, personally, found ourselves in the last group and, through a process of discovery, education, and experience, we positioned Specialty Investment Group as a way to collaborate with others to invest in real estate. After successfully investing in all types of single-family homes and using several strategies, we began to invest in commercial real estate with others.
We now focus on purchasing apartment buildings in great markets so we can bring those in Group One alongside to enjoy the benefits of owning real estate while we do all the work.
You’ll want to be sure and sign up to be part of our investment group, if you haven’t already so you can learn about these opportunities as soon they become available.
